MARKET SEGMENTS DIVISION–APARTMENT BUILDING OWNERS

(February 2023)

Collapsible Index

Eligibility

MS AB DS–Apartment Building Owners Supplemental Schedule

MS AB 01–Apartment Buildings Owners Analysis

I. Modifications To CP 00 10–Building And Personal Property Coverage Form

II. Modifications To CP 10 30–Causes of Loss–Special Form

III. Changes To The Commercial General Liability Coverage Part

IV. Definitions

Endorsements

Underwriting Considerations

Rating Considerations

The Apartment Building Owners Program is an enhancement of the Commercial Package Policy. Any package written under the market segment division must be assembled according to the rules for all Market Segment policies.

Related Article: ISO Market Segment Overview

This article will discuss items specific to the Apartment Building Owners Program including the eligibility, supplemental schedule, and MS AB 01–Apartment Building Owners. In addition, there are sections on underwriting and rating.

This article is based on the 07 13 edition of this program. Changes from the prior edition are in bold print.

ELIGIBILITY

The eligible general liability classifications for this coverage are Apartment Buildings - 60010 and Apartment Buildings - Garden - 60011. The eligible classes are not required to be the primary classifications. If these classes are used along with other classes, the operation remains eligible. The only exception is that this segment cannot be used if any of the following classes are on the same policy:

·         Apartment Building or Hotels time sharing – less than four stories – 60012

Note: Companies may establish their own criteria, and they may be more restrictive.

MS AB DS–APARTMENT BUILDING OWNERS SUPPLEMENTAL SCHEDULE

What follows is a discussion of the specific information that needs to be shown on a Supplemental Schedule for the Apartment Building Owners Program.

Changes in Limits

This section's only purpose is to increase insurance limits. If no limit is entered, the limits shown in MS AB 01–Apartment Buildings Owners Endorsement apply. Limit changes are made by location. The schedule has space for three locations. If more spaces are needed, a separate endorsement must be attached.

Seven specific coverages are listed in this section. A space is also available for entering a coverage to be defined and a limit of insurance for it.

The seven coverages that are listed as subject to change are:

Note: According to the coverage form, whatever limit is entered is a replacement (not an additional) limit.

 

Example: Joe tells his agent that he wants a total of $5,000 in Money and Securities coverage. On the supplemental schedule, Joe's agent enters $5,000 next to the limit area for M&S. Now, as of the effective date of the change, Joe has a total amount of $5,000 coverage because the scheduled amount REPLACES any other limit reference.

Loss or Damage to Tenants' Autos Section

Coverage is provided at any premises where limits are shown. MS AB 03–Apartment Building Owners - Loss or Damage to Tenants' Autos (Legal Liability Coverage) must be attached to actually provide the coverage. Limits are entered by premises. The limits that must be entered are:

·         The per event limit of liability

·         The per tenant's auto deductible for loss by theft, vandalism or mischief

·         The maximum deductible for a single occurrence of loss by theft, vandalism or mischief to tenants' autos

·         The per tenant's auto deductible for loss by collision

Fine Arts Coverage

Coverage is provided at any premises where limits are shown. MS AB 04–Apartment Building Owners – Fine Arts Coverage must be attached to actually provide the coverage. Limits are entered by premises.

Forms Applicable

The final section of the Supplemental Schedule allows entry of endorsements that apply by premises.

MS AB 01–APARTMENT BUILDINGS OWNERS ANALYSIS

The Apartment Building Owners endorsement modifies the following coverages and property causes of loss form:

·         CP 00 01–Building and Personal Property Coverage Form

·         CP 10 30–Causes of Loss-Special Form

·         CG 00 01 or CG 00 02–Commercial General Liability Coverage Part

The Apartment Building Owners endorsement is not a complete coverage part. It must be attached to a package containing all of the above forms.

 

Example: An insurer issues a CPP with commercial property coverage, commercial crime, commercial inland marine, and equipment breakdown coverage but no CGL. In this instance, the Apartment Building Owners endorsement cannot be added.

 

When the Apartment Building Owners endorsement is attached, all of the underlying terms, conditions, and provisions of the above three forms apply, with the exception of the areas modified by that endorsement.

I. Modifications to CP 00 10–Building And Personal Property Coverage Form A. Additional Coverages Change – Fire Department Service Charge

The limit of insurance for Fire Department Service Charge is increased to $5,000.

B. Additional Coverages Change – Pollutant Clean Up and Removal

The limit of insurance for Pollutant Clean Up and Removal is increased to $25,000.

C. Additional Coverage Additions

1. Money and Securities

Coverage is added for direct loss by theft, disappearance, or destruction of money and securities. This additional protection is effective if a loss occurs at a covered premises, a bank or savings institution, living quarters of the named insured, partner or employee and while the property is in transit between any of these locations. Coverage at employee living quarters applies only if that employee was given the covered property to use or hold on behalf of the named insured. The automatic amount of $25,000 applies when the covered property is either in the described premises or at a bank, while the $10,000 applies when the covered property is anywhere else. Either or both limits can be increased by an entry on the Supplemental Schedule.

The following three types of loss are excluded:

·         Losses that result from errors or omissions in accounting or arithmetic

·         Losses that occur because the property was voluntarily given out in an exchange or purchase

·         Any loss of covered property that is contained within any money-operated device (such as a vending machine). This exclusion does not apply if it has a continuous reading instrument that records all amounts that are deposited or stored in that device is covered.

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

Example: Jerry collected his tenants' rent but, due to the late hour, decided to take the money home rather than deposit it at the bank. He put the bag in his refrigerator. Friends came to watch the big game, and Jerry noticed several guests used the refrigerator. The next morning Jerry was surprised to discover $10,000 missing from the deposit. This theft is eligible for coverage.

 

 

 

2. Fire Extinguisher Systems Expense (07 13 change)

Up to $10,000 is available in any one occurrence to pay the cost of recharging or replacing fire extinguishing equipment and systems. Coverage applies only if the discharge is within 100 feet of a described building or within 100 feet of the premises. The greater of the two distances is used to determine if coverage applies.

In addition, if the covered property is damaged due to an accidental discharge, it is covered and subject to the same $10,000 limit.

Example: Millie is renovating her offices, so fire extinguishers are being moved. A fire extinguisher accidentally discharges and damages a desk, computer, and draperies. The accident occurred on premises. Subject to the $10,000 limit, the extinguisher recharge and the property damage are covered.

The good news is that there is no deductible. However, there is no coverage if the system is discharged during testing or installation.

3. Reward Payment

Reward payments are available to assist in solving crimes related to covered losses. There are two reward categories. First, up to $5,000 is available for information that leads to the arrest and conviction of any party that commits a crime resulting in a covered property loss. However, the reward payment will be for no more than the least of the actual cash value of the damaged property at the time of the loss, the amount it takes to repair or replace the property, or the settlement value developed based on the policy's conditions.

Second, rewards up to $5,000 are paid for the return of stolen property. The reward is limited on the same basis as above. If more than one source provides information or returns stolen property, payment is made to the one who acts first.

 

Example: Phillip Queeg, the apartment manager, is upset because the strawberries ordered for the upcoming summer celebration are missing. He knows the value is only $50.00, but he wants to stop petty theft before it starts. So, he offers a reward of $500 and the thief is caught. The named insured turns in the reward for reimbursement, but it is denied because the reward exceeded the value of the item stolen.

Who is eligible to collect the award? Only one person can receive the reward. As determined by law enforcement, the first person who voluntarily provides information that leads to a conviction or the stolen property will receive the reward. However, that person cannot be any of the following:

·         The named insured

·         Family members of the named insured

·         Employees

·         Family members of employees

·         Employees of law enforcement agencies

·         Employees of a business engaged in property protection

·         Any person having custody of the covered property at the time the theft was committed

·         Any person involved in the crime

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

4. Money Orders and Counterfeit Money

If the named insured, in good faith, provides services or hands over money or merchandise to another party who pays with unrecoverable money orders or counterfeit money, coverage is provided for the loss to the named insured. The maximum payout is $5,000, but it can be increased on the Supplemental Schedule. There is a limitation that money orders are covered only if issued by a post office, express company, or bank. Counterfeit money is also restricted to only money accepted during the course of business.

Example: Justine receives a $100 bill. When she tries to deposit it, it is rejected as counterfeit.

Scenario 1: Justine received the bill when selling tenant's property following an eviction. This is a covered loss.

Scenario 2: Justine couldn't go to the basketball game, so she offered her tickets through an online service. She met the party purchasing the tickets at a parking lot and accepted the money. This is a not covered loss because it is not in the course of business.

5. Forgery or Alteration

Loss that occurs because of the forgery or alteration of checks, drafts, promissory notes, bills of exchange or any similar instruments is covered. Such instruments must be issued by the named insured, the named insured's agent, or someone impersonating either of these parties. There is no coverage if the loss is for instruments received by the named insured from other sources.

If the named insured realizes that an instrument has been forged or altered and refuses to honor it, this coverage also pays related and reasonable legal expenses that may ensue. The named insured is given written permission to go ahead with their own defense, and the named insured will be reimbursed for those expenses.

The $2,500 limit is the most that will be paid under this coverage for a single loss. The amount may be exhausted by the loss itself, the defense of a suit or a combination. The limit can be increased on the Supplemental Schedule.

6. Outdoor Signs

Direct damage to outdoor signs owned or under the control of the named insured is covered. This coverage supersedes any other coverage provided for signs elsewhere in the policy.

The any one occurrence limit is $5,000. This limit can be increased in the declarations.

7. Employee Dishonesty (07 13 change)

Coverage is provided for employee dishonesty that results in the loss of money, securities, or business personal property. The employee may be working alone in committing the dishonest act(s), or the employee may collude with other persons. However, if any of those other persons include the named insured, partner, member, or manager of the named insured, there is no coverage.

Coverage is also provided for loss or damage to money and securities or other property that belongs to a tenant. However, the coverage is only for theft committed by a named insured's employee who is identified. The employee could have acted alone or in collusion with others. The tenant must own the property, be holding the property for another or be legally liable for the property. An important condition is that all settlements for any tenant property loss are between the named insured and the insurance company. The tenant cannot present the claim independently.

There is no coverage for indirect loss related to employee dishonesty such as a business income loss, any costs to establish the existence or the amount of a loss or any legal liabilities. Related legal expenses are also ineligible for coverage.

No protection exists when the only proof a loss occurred or verification of the amount of the loss is a shortage as a result of an inventory computation or a profit and loss statement. In other words, there must be tangible evidence that a dishonest act occurred, and there must be a way to accurately calculate the amount of that loss.

A special exclusion applies to employees who have committed prior acts of dishonesty. If the named insured, any partner, trustee, member, manager, officer, or director of the named insured discovers that an employee was previously involved in a dishonest act, there is no coverage for any acts of that employee. It doesn't matter whether the incident occurred before or after the named insured hired the employee—coverage ceases. The termination takes effect the moment the employee's prior act is discovered. There are no exceptions to this exclusion unless the insurer is willing to write a manuscript endorsement to document an exception.

The $10,000 limit in the form may be increased on the Supplemental Schedule. This limit is the total amount available to respond to a single occurrence. The limit of insurance is not cumulative from year to year, so the limit shown is the maximum that will be paid for any one occurrence of a dishonest act or event, regardless of how many years the policy has been in force or how much premium has been paid.

The dishonest act or event must happen during the policy period to be covered.

 

 

Example: A named insured suffers a loss from a dishonest act. The loss occurred on Dec. 12, 2019. The named insured's policy was not renewed when it expired on November 29, 2019. The December loss is not covered.

 

The act or event that causes a loss must have not only occurred during the policy period but must also be discovered no later than one year from the end of the policy period. There is an important exception. If the named insured suffers a loss that would have been eligible under a previous policy but was not discovered until after the one-year limitation expired, there may be coverage under this current policy. The old loss would have to meet two criteria. First, this current policy must be the replacement for the one in force when the loss actually occurred. Second, the loss would have to involve a loss that is eligible under this current policy's provisions. In addition, any payment made is subject to the lesser of either the current policy term's limit or the prior term's limit.

Possible Exclusion Ambiguity - There is one more exclusion that may be confusing. It states that loss or damage due to a dishonest act performed by the named insured and any partner, member, officer, manager, director, or trustee is ineligible for coverage. Up to this point, the exclusion is similar to exclusions in the Commercial Crime Form. However, the exclusion also bars loss for dishonest or criminal acts by authorized representatives, and anyone to whom the named insured has entrusted property. This part of the exclusion may be problematic. Doesn't the named insured entrust items to employees as part of their duties? Aren't employees authorized representatives? This wording is not used in the Commercial Crime policy and could cause confusion after a loss.

8. Artificially Generated Electrical Current

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

·         An occurrence that causes the loss or damage takes place within 1000 feet of a described premises

·         Power surge, interruption of power, blackout, or brownout is due to an occurrence that took place within 1000 feet of the premises

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

9. Lock Replacement

If keys for the locks on the premises are stolen or lost, the insurance company will pay up to $5,000 to replace or repair the locks, subject to a $100 per occurrence deductible.

 

The keys can be to ANY lock on the described premises. The keys are not required to be on premises when stolen.

 

10. Ordinance or Law – Equipment Coverage (07 13 change)

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

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

The ordinance coverage is paid only if the equipment is actually repaired or replaced. The total payment cannot exceed the limit of insurance on the declarations.

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

Coinsurance does not apply to this Additional Coverage.

Example: Molly's water heater was damaged in a covered loss. The apartment building has 12 units. Based on the current ordinance, the heater must be replaced with a higher-grade commercial heater. The replacement cost of the current heater is $2,500, but the required one is $4,000. Because Molly is replacing the water heater, the insurance company will pay for the $4,000 water heater, subject to deductibles and limits.

 

11. Tenant Move Back Expenses

Tenants often must vacate the premises following a covered loss. This coverage provides money to encourage the tenants to return. The named insured can spend up to $15,000 per occurrence at each premise to cover tenants' expenses to pack, transport, and unpack their property and the net cost of re-establishing the tenants' utility services. The expenses are paid only if they are incurred within 60 days of the building being returned to livable condition.

D. Coverage Extensions Changes

1. Newly Acquired or Constructed Property

The only change is for computers. Coverage at newly acquired or constructed property in the CP 00 10 ends at the earliest of when the policy expires, thirty days after the property is acquired or when the values are reported to the insurance company.

This coverage extension adds one additional time of coverage ending, but it applies only to computers. When 'specific insurance' is purchased at the newly acquired premises, coverage ends. The other times also continue to apply to computer.

Note: This extra item is confusing because it doesn't say that coverage specific to computers is purchased but instead says only 'specific insurance.' This confusion could be an ambiguity to the benefit of the insured.

2. Personal Effects and Property of Others

This extension increases the limit from $2,500 to $5,000 it then takes away coverage. The personal property section of this extension is amended to exclude personal property of tenants and personal property belonging to others if the tenant is legally liable for that property.

Example: Pete rents apt. 4A from Joe, and Joe has insurance from Tenants Fire and Casualty. A fire occurs, and Pete loses $4,000 of his own personal property and $500 of his girlfriend's personal property. There is no coverage under this extension for either loss.

 

3. Valuable Papers and Records (Other than Electronic Data)

The valuable papers and records coverage extension is increased from $2,500 to $10,000 for on-premises loss or damage. It also adds coverage when the valuable papers and records are off premises but only for $5,000. These limits can be increased for an additional premium.

Coverage is expanded to include the cost to replace or restore the lost information and any physical loss or damage to the valuable papers and records owned by or in the named insured's care, custody or control. The coverage extends to the cost of blank material and the labor necessary to transcribe any available records.

The covered cause of loss is more restricted and must be due to a specified cause of loss as defined in the CP 10 30–Causes of Loss - Special Form or due to collapse. Property that is held as samples or sold and waiting to be delivered is not covered. Any property that is being stored off premises is also not covered.

Note: If higher limits are needed, consider using one of the following forms because of causes of loss and coverage designed just for this exposure.

Related Articles:

AAIS Valuable Papers and Records Coverage Form

ISO Valuable Papers and Records Coverage Form

4. Property Off-Premises

The Apartment Building Owner Program expands the property off-premises extension to include coverage for loss of in-transit computers.

5. Outdoor Property (07 13 change)

The Apartment Building Owners Program provides coverage for outdoor property for the following causes of loss:

·         Fire

·         Lightning

·         Explosion

·         Riot or civil commotion

·         Aircraft

Limits are based on the type of outdoor property.

The expense to remove property of others consisting of trees, shrubs, and plants debris is covered under this item. The property of others cannot belong to the owner of the building when the named insured is a tenant.

Note: No specific limit is mentioned with the expense to remove property of others item, although there is a reference to the terms and conditions of the rest of extension. There could be an ambiguity as to what limit, if any, applies.

6. Accounts Receivable

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

·         The amounts owed but unable to collect from tenants

·         Interest charges on loans the named insured have had to obtain to offset revenue uncollected during the claims process

·         Any additional collection expenses that were made necessary by the loss or damage

·         Other reasonable expenses incurred to re-establish accounts receivable records

The amount available is $10,000 for on-premises loss or damage and up to $1,500 for off-premises loss.

Note: If higher limits are needed, consider using one of the following forms because the coverage is designed just for this exposure.

Related Articles:

AAIS Accounts Receivable Coverage

Accounts Receivable Coverage

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

A. Ordinance or Law (07 13 addition)

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

B. Mechanical Breakdown

The mechanical breakdown exclusion does not apply to computers.

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

The only change in the dampness, dryness, changes in temperature, marring or scratching exclusion subparts is the dampness or dryness of atmosphere portion.

An exception is added so that when a covered cause of loss damages an air conditioning system that is used with the computer, the resulting damage to a computer because of any dampness or dryness is covered.

D. Additional Exclusions for Computer Coverage Only

1. Loss or damage caused directly or indirectly by any of the following are excluded. The exclusion applies even if other causes of loss contribute either concurrently or in sequence.

Note: These extra exclusions are needed because MS AB 01 includes coverage for mechanical breakdown of computers that is not provided by the CP 10 30.

a. Errors or Omission

There is no coverage for damage or loss caused by or resulting from errors or omissions in the processing, recording or storing of information on computers. There is an exception. Any resulting fire or explosion damage is covered when it is due to a covered cause of loss.

b. Electrical Disturbance

There is no coverage for damage caused by electronic or magnetic injury, disturbance, or erasure of electronic recordings unless it results from direct lightning loss or damage.

c. Computer-related Losses

There is no coverage for any loss or damage that is caused by or results from the failure, malfunction, or inadequacy of any of the following (regardless of who owns the property) because they cannot correctly recognize, process, distinguish, interpret, or accept dates or times:

·         Micro-processors and any other computer hardware

·         Software

·         Operating system software

·         Networks used by computers

·         Equipment that is computer related or electronic and associated components

·         Any other products that depend on the items listed immediately above in any manner.

d. Computer Advice or Consultation

Any of the following provided by the named insured or for the named insured is not covered when used to determine, test, or rectify potential or actual problems described in exclusion c. above.

·         Advice

·         Consultation

·         Design

·         Evaluation

·         Inspection

·         Maintenance

·         Repair

·         Replacement

·         Supervision

2. When Electrical Disturbance, Computer-related Losses and Computer Advice or Consultation excluded above result in a specified cause of loss or elevator collision, that resultant loss is covered. However, there is no payment to repair, replace, or modify any item listed in exclusion c. above.

The damage from an elevator collision must involve the elevator experiencing a mechanical breakdown.

E. Employee Dishonesty

Most of the exclusions in CP 10 30–Causes of Loss-Special Form do not apply to the Employee Dishonesty Coverage provided in this endorsement. The only exclusions that apply are Governmental Action, Nuclear Hazard, War and Military Action, and the specific exclusions discussed in the Employee Dishonesty Additional Coverage.

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

F. Outdoor Signs

Most of the exclusions in the CP 10 30–Causes of Loss-Special Form do not apply to the Outdoor Sign Coverage provided in this endorsement. The only exclusions that apply are Governmental Action, Nuclear Hazard, War and Military Action, Wear and Tear, Rust and Mechanical Breakdown.

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

G. Valuable Papers and Records and Accounts Receivable

The only CP 10 30–Causes of Loss-Special Form exclusions that apply to Valuable Papers and Records and Accounts Receivable are:

·         Governmental action

·         Nuclear hazard

·         War and military action

·         Continuous or repeated seepage or leakage of water—14 days or more

·         Water, other liquids, powder or molten material that leak or flow from plumbing, heating, air conditioning or other equipment caused by or resulting from freezing

·         The anti-concurrent causation exclusions that are part of B.3.

Note: This item is very ambiguous because of the difference in the two coverages. Valuable Papers and Records coverage applies only for specified causes of loss and collapse while accounts receivable coverage is subject to the CP 10 30 causes of loss. Remember that under the Valuable Papers Coverage Extension only specified causes of loss and collapse are considered covered causes of loss. Combining the two coverages under this same modification would suggest that the two are covered for the same causes of loss when they are not.

H. Accounts Receivable

The following exclusions apply in addition to the exclusions described in G. above:

1. Any loss involving alteration, falsification, concealment or destruction of accounts receivable records are excluded if these actions were meant to conceal another action such as giving, taking or withholding money, securities or other property.

2. Any loss due to errors or omission in a covered operation's bookkeeping, accounting or billing functions.

3. Any loss that is documented solely through an audit or inventory. There must be some other outside evidence.

III. Changes to the Commercial General Liability Coverage Part

A. Three New Coverages Are Added For Apartment Building Owners

All of these are separate coverage parts with their own Insuring Agreements and Exclusions.

Tenants' Property Legal Liability (07 13 change)

1. Insuring Agreement

The coverage is for the legal liability the named insured has for property damage to tenants' property. The property must be in the tenants' apartment or storage unit. Tenants' property includes property of others for which the tenant is legally liable.

 

 

Example: Perry is surprised when he returns to his apartment and finds it empty. Perry notifies his landlord, Bill. Perry sues Bill when he discovers that the "secure" locked front entrance was left open the day of the theft and that Bill witnessed the individuals taking the property but took no action to stop them.

Bill would have no coverage under his CG 00 01 because Perry's property was in his care, custody and control but under the Tenants' Property Legal Liability he has coverage for the defense and payment up to $10,000.

Because this is liability coverage, the insurance company has the right and duty to defend the insured against any suit brought if the property damage is covered by this insurance. The right and duty end when the payment of judgments exhausts the coverage limit of insurance. The limit of insurance is described in Item B. below.

The property damage must be caused by an occurrence in the covered territory and during the policy period.

There is a $250 per occurrence deductible that must be paid before any payments are made by the insurance company.

2. Exclusions

There are four exclusions applicable to this coverage part.

a. Tenant-stored vehicles, trailers, and semitrailers on the premises are not covered for property damage.

b. Property damage liability that is assumed in a contract or agreement unless the insured would have coverage without the agreement.

c. Losses that are due to dishonest acts by the named insured, its directors, partners, members, trustees, or other representatives are not covered. Losses due to such acts by full, temporary, or leased employee/workers are not covered except for acts of destruction not including theft. Theft of property by someone the named insured entrusted the property to is also not covered. (07 13 change)

d. Liability that results from sale and disposal activities. (Refer to the Sales and Disposal Liability Coverage below.)

3. Supplementary Payments

The supplementary payments section that is applicable to bodily injury, property damage and personal advertising injury also applies to this coverage part.

Sale and Disposal Liability Coverage (07 13 changes)

This involves the named insured exercising its rights to lock out customers or dispose of customer property. These situations occur when the property has been unclaimed for a set amount of time or because of a breach of contract, such as unpaid or late rents.

1. Insuring Agreement

The coverage applies to sums that the named insured becomes legally obligated to pay due to damages. As with other liability insuring agreements, the insurance company has the right and duty to defend and investigate but is under no obligation if the claim or suit is not eligible for coverage. Any act or error must occur within the policy term and in the coverage territory. All duty to defend ends when the limit is exhausted by payments. The limit of insurance is described in item B. below.

Example: Gaston Leveque and his wife, Ginny, took a trip to France. Gaston had a heart attack and ended up remaining in the hospital and nursing home there for three months. Ginny was distraught. She arranged to have her bills paid to the apartment building owner in their absence but the apartment manager, Gerard, was not notified that the rent had been paid. He sent notices to the address as required but nothing was forwarded to Ginny. He provided the warning notices required by his job and, after 30 days, Gerard emptied the apartment and sold its contents. When Gaston and Ginny returned, they sued the apartment owner for the sale of their items.

 

2. Exclusions

There are only two exclusions under this coverage part:

a. Any claim due to assumptions of liability in a contract except for that liability that would have been in place without the contract

b. Losses due to dishonest acts by the named insured, employees, or other persons entrusted with the client's property.

 

Example: The insurance carrier investigated the Leveque's case and discovered that Gerard had wanted the Leveques to move for many years in order to take over their apartment. Gerard was fully aware that the Leveques were paying their rent but still removed and sold the furniture so that he could take over their apartment. The insurance carrier denied coverage and Gerard lost his apartment, his job and had to compensate the Leveques for their loss.

 

3. Supplementary Payments

The supplementary payments section that is applicable to bodily injury, property damage and personal advertising injury is also applicable to this coverage part.

Heating and Air Conditioning Loss Reimbursement Coverage

This coverage reimburses the named insured if rent is returned to tenants due to the complete loss of air conditioning or heat in the tenants' leased unit or apartment. The loss of air conditioning or heat must be due to mechanical breakdown or electrical failure of the system at the described premises. The limit of insurance is described in item B. below.

1. Insuring Agreement

The insurance applies only if the breakdown or failure occurs during the policy period and:

·         The named insured receives a notarized per diem rental reimbursement demand notice from a tenant within 90 days of the breakdown or failure; OR

·         The named insured believes that making a voluntary payment to the tenant will prevent bodily injury or property damage.

The insurance company has no duty to defend the insured or to perform any other services as relates to this particular coverage.

2. Exclusions

There are only two exclusions under this coverage part:

a. Expenses that the named insured incurs to repair or replace the damaged equipment are not covered.

b. Bodily injury, property damage, personal and advertising injury are all excluded.

B. Limits of insurance for the New Coverages

1. Tenants' Property Legal Liability limit is no greater than $10,000 and it applies to the sum of all property damage for all tenants' property in a single occurrence. The limit is per described premises.

2. Sale and Disposal Liability coverage limit is a per premises aggregate of no greater than $5,000 for all damages incurred within any annual period.

3. Heating or Air Conditioning Loss Reimbursement limit is $5,000 per single mechanical breakdown or electrical failure per premises subject to a $10,000 per premises annual aggregate.

C. Revised Conditions for the New Coverages

1. Tenants' Property Legal Liability is subject to all of the conditions in the Commercial General Liability Conditions.

2. Duties In The Event Of Claim Or Suit As A Result Of A Lock-Out Or Sale Of Tenants' Property replaces the Duties in the Event of Occurrence, Offense, Claim or Suit condition. The only change from the condition in the CG 00 01 is the removal of item a. which required the named insured to notify the insurance company of occurrences that may result in a claim.

3. Duties In The Event Of A Heating Or Air Conditioning System Failure replaces the Duties in the Event of Occurrence, Offense, Claim or Suit condition with a complete revision. If the named insured receives a demand for remuneration or makes a voluntary payment to a tenant:

a. The named insured must provide the insurance company with a copy of a notarized letter from the tenant with the demand, a complete description of the mechanical breakdown or electrical failure that includes the time, place and circumstances, the name and address of the tenant and a cancelled check or money order written to the tenant.

b. When the insurance company requests, the named insured must supply complete information regarding the breakdown or failure along with the actions the named insured took to repair or replace the system.

c. The named insured must cooperate with the insurance company as it reviews the request.

IV. Definitions

Thirteen definitions are added.

Computer refers to programmable electronic devices used to work with data. While the definition does apply to peripheral equipment and to related air conditioning and fire suppression systems, it doesn't apply to data or media.

Counterfeit money is a copy of money that is meant to deceive.

Employee is expanded beyond the full-time employee of a business. There are seven different categories that qualify as employees: (07 13 changes)

a.     An actual person (not a corporation) who is paid by the named insured and is under the control of the named insured with respect to performing his or her duties. The person remains an employee for 30 days after termination, but only if termination is not related to dishonest actions.

b.    A person who is a substitute for an employee or is hired for short temporary work is considered an employee while under the control of the named insured except when caring for property off-premises.

c.     A person leased to the named insured that is not a person described in a. or b. above. There must be a contract and a labor-leasing firm involved.

d.    A consultant for the named insured but only if that consultant was formerly an employee, director, partner, member, trustee, or manager.

e.     A guest student or intern but only while acting as a student or providing services for the named insured. There is no coverage for loss of property off premises.

f.      Any employee of an entity that merged with the named insured or was acquired by it prior to the policy effective date.

g.    Managers, directors or trustees when acting as employees or while on a task-oriented board.

An employee does not include independent contractors or similar type individuals unless specifically described in the list above.

Forgery refers to one party signing another party's name with the intent to deceive. It does not include unauthorized signing by a person of his or her own name.

Lockout is when a tenant is denied access to his or her property or to the apartment or unit that the tenant had been occupying.

Manager is any director in a limited liability company.

Member is one of the owners of a limited liability company. (07 13 addition)

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

Occurrence applies to only the Crime portions of this form, and the meaning varies by the type of coverage. Under Money and Securities coverage, it means all loss that involves one or more related acts by one or more persons. Under Money Order and Counterfeit Money coverage, it means one or more related acts or events by one or more persons, but it also can be one or more related acts or events not involving any person. Under Forgery or Alteration coverage, it means all losses in which a particular person was involved, regardless of how many instruments were forged or altered. Under Employee Dishonesty, it means all losses that result from a single act or series of acts caused by one or more employees.

Sale and Disposal Operations is any and all activities the named insured takes in selling or disposing of property to reclaim an apartment or storage space because the tenant's rent is not paid.

Securities are evidence of debt such as stock certificates, bonds, contracts, tokens, stamps, credit card evidence that can be used to collect from the credit card company and other items that represent money but are not money.

Tenant is the person lawfully residing in a leased unit or apartment. This means the person has a written lease with the named insured, is a permanent resident of the unit or apartment and is meeting the terms and conditions of the lease.

Tenants' property is property that belongs to the named insured's tenants, including money, securities, and other actual property.

ENDORSEMENTS

All of the endorsements available under the Property and General Liability Coverage Parts are available under this division.

Related Articles:

Commercial Property Program Available Endorsements and Their Uses

Commercial General Liability Available Endorsements and Their Uses

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

There are two program specific endorsements available to modify the coverage provided under the Apartment Building Owner program.

MS AB 03–Apartment Building Owners-Loss or Damage to Tenants' Autos (Legal Liability Coverage)

This endorsement provides legal liability coverage for damage to tenants' autos under the Building and Personal Property Coverage. It protects against direct loss of or damage to tenants' autos and auto equipment while on the covered premises and for which the named insured is legally liable. It pays only for damage that occurs on the covered premises. CP 10 30–Cause of Loss-Special Form does not apply to this coverage. This means that any loss or damage is covered except for the following:

·         Loss or damage from theft or conversion caused by the named insured or any insured

·         Liability imposed because the named insured agreed in writing to accept responsibility for damage to the auto

There is a supplementary payments section similar to the CG 00 01 explaining the expenses the insurance company pays in addition to the limit of insurance.

The limit and deductibles are shown on the MS AB DS–Apartment Buildings Owners Supplemental Schedule.

Auto is defined as a land motor vehicle, trailer, or semitrailer.

MS AB 04–Apartment Building Owners-Fine Arts Coverage

Apartment buildings may have fine arts in the lobbies or common areas of the premises. This endorsement provides $25,000 for fine arts that are owned by the named insured or by others but are in the care, custody or control of the named insured.

Items are listed that are considered fine arts, but it is a listing of examples, not a comprehensive listing that allows for flexibility in covering items of special value.

Note: Loss settlement is based upon actual cash value rather than either replacement cost or stated value. This limits the usefulness of this endorsement. Consider using a Fine Arts Floater instead.

Related Article: AAIS Fine Arts Coverage Forms

UNDERWRITING CONSIDERATIONS

Any program offered by an individual insurer will have its own set of eligibility guidelines. If the program is a generic or standard program, as in the case of ISO's Market Segments Programs, it normally has a set of qualifying criteria. Because there may be differences between the two sources of eligibility criteria, it is important for the insurance professional to be thoroughly familiar with the applicable new business and renewal qualifications. The following review of the underlying and eligibility requirements for the Apartment Building Owners Program is for the ISO generic program.

Specific Apartment Building Owners Operations

This segment is designed for apartment buildings. This means that 1-4 family dwellings are not included unless they appear on an apartment building schedule. It also does not include apartment buildings or hotels that are primarily time-sharing operations.

The property exposure is that of any residential property multiplied by the number of tenants. The electrical, plumbing, heating and air conditioning systems and roof should all be updated and meet building safety codes.

Written leases should be provided to all tenants, and subleasing arrangements should be discouraged. There should be regular maintenance and updated schedules to protect the integrity of all systems. Fire and smoke detectors should be installed (and operational) in all units.

The liability exposure revolves around the security and safety of the tenants. Sidewalks, steps, and parking areas should be free from slip and fall hazards. There should be arrangements for snow and ice removal. Exterior and common building lighting should be appropriate for the areas. Playgrounds, pools, and other recreational facilities should have rules posted and barriers in place, as appropriate.

COVERAGE ISSUES Commercial Property Coverages

Many of the issues related to the underwriting of commercial property insurance, such as construction, occupancy, physical characteristics, types of rates and so forth, are discussed in detail under the commercial property section.

Related Article: Commercial Property Program Underwriting Considerations

Commercial General Liability Coverages

Many of the issues related to the underwriting of commercial general liability insurance, such as claims-made versus occurrence coverage, limits, deductibles, endorsements, and so forth, are discussed in detail under the commercial general liability section.

Related Article: Commercial General Liability Policy Underwriting Considerations

Property Enhancements

Several property enhancements are added to the commercial property coverages via the Market Segment endorsement. Any increase in exposure presented by the individual risk hazards and covered by the endorsement enhancements should be identified. Once identified, these exposures should be evaluated to determine if they are contemplated by the program's coverages and rating structure. The exposures should be addressed if any additional coverage, endorsement, premium, or other tailoring is necessary. The property enhancements with the most significant underwriting concerns are as follows:

Crime and Dishonesty Enhancements

The Apartment Building Owners Program endorsements add coverage for money and securities, money orders and counterfeit money, forgery and alteration and employee dishonesty. The limits of $25,000 for money and securities and $10,000 for Employee Dishonesty are significant and can be increased. Employee Dishonesty includes coverage for theft of tenants' property.

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

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

Related Article: Crime Underwriting Considerations, for more information.

Liability Enhancements

The three enhancements are:

RATING CONSIDERATIONS

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