MARKET SEGMENTS DIVISION—HOTELS, MOTELS AND INNS
(February 2023)
The Hotels, Motels, and Inns Program is an enhancement of the Commercial Package Policy available to hotels, motels, and inns. This section discusses items specific to the Hotels, Motels and Inns Program, including eligibility, supplemental schedule, MS HM 01–Hotels, Motels and Inns and the special endorsement developed just for this program. In addition, there is a section on underwriting and rating.
Related Article: ISO Market Segment Overview
This program is
revised with a 07 13 edition date. Changes to the form appear in bold text.
ELIGIBILITY
The following general liability classifications are eligible under this program. At least one of these codes must be part of the CGL in order to be written in this market segment:
- Hotels and Motels – with pools or beaches – less than four stories – 45190
- Hotels and Motels – with pools or beaches – four stories or more – 45191
- Hotels and Motels – without pools or beaches – less than four stories – 45192
- Hotels and Motels – without pools or beaches – four stories or more – 45193
- Hotels and Motels – lessor’s risk only – less than four stories – 64074
- Hotels and Motels – lessor’s risk only – four stories or more – 64075
Ineligible Classifications
If other classifications are included in the operation, the risk remains eligible unless the combination of classifications involves one of the following:
- Apartment Hotels – 60015 or 60016
- Boarding or Rooming House – 61000
- Campgrounds – 10332 or 10331
- Camps – 41421 or 41422
- Clubs – civic, service or social – 41668 or 41667
- Dude Ranches – 43117
- Gambling – 43990 or 43991
- Schools – dormitory facilities – 67511 or 67510
- Spas or Personal Enhancement facilities – 18200
- YMCA, YWCA or similar type institutions – 49870
MS HM DS–HOTELS, MOTELS AND INNS SUPPLEMENTAL SCHEDULE
This is a discussion about the specific information that must appear on a Supplemental Schedule for the Hotels, Motels, and Inns Program.
Changes in Limits
This section's only purpose is to increase insurance limits. If no limit is entered, the limits shown in the MS HM 01 apply. Any limit changes are effective on a per location basis. This allows protection for one or two locations to be increased without affecting the remaining locations.
The following coverages appear in this section:
- Fire Department Service Charge
- Money and Securities
- Computer Fraud
- Money Orders and Counterfeit Money
- Forgery or Alteration
- Outdoor Signs
- Employee Dishonesty
- Food Contamination
- Extra Expense
- Business Income
- Additional Advertising Expense
- Personal Effects and Property of Others
- Spoilage
- Guests’ Evacuation Expense
- Valuable Papers & Records
- Other (Specify)
According to the coverage form, whatever limit is entered is a replacement (not an additional) limit. If an insured wants $5,000 in coverage and the existing limit is $2,500, a limit of $5,000 must simply be entered on the schedule to get the desired level of coverage.
Note: Another area of the schedule exists for making limit changes for any unlisted coverage.
Hired and Non-Owned Auto Liability Insurance
If coverage is desired, the box must be checked and MS HM 07–Hotels, Motels and Inns-Hired Auto and Non-owned Auto Liability Insurance attached. The limits can be entered on this Supplemental Schedule or on the schedule that is part of the MS HM 07 form. Separate insurance limits apply for these two coverages.
Loss or Damage to Guests’ Autos Section
The insured has three options regarding coverage for loss or damage to customers’ autos. One of the three options must be selected, and the appropriate coverage endorsement attached for coverage to apply. The three options and their endorsement are:
- MS HM 03–Legal Liability Coverage For Loss or Damage to Guests’ Autos
- MS HM 04–Direct Primary Coverage For Loss or Damage to Guests’ Autos
- MS HM 05–Direct Coverage For Loss or Damage to Guests’ Autos and Other Guests’ Property
Limits are entered by premises. The limits that must be entered are:
- The per event limit of insurance
- The per customer ‘s auto deductible for loss by theft, vandalism or mischief
- The maximum deductible for a single occurrence of loss by theft, vandalism or mischief
- The per customer’s auto deductible for loss by collision
Extortion
Extortion coverage is provided only if the box is selected and MS HM 0–Hotels, Motels and Inns-Extortion Coverage is attached to the policy.
Fine Arts Coverage
In order for this optional coverage
to apply, a premises and premium must be entered, and the MS HM 10–Hotels, Motels, and Inns-Fine Arts Coverage attached.
Guests’ Relocation Expense
In order for this optional coverage
to apply, a premises and premium must be entered and MS HM 12–Hotels, Motels, and Inns-Guests’ Relocation Expense
Coverage attached.
Forms Applicable
The final section of the Supplemental Schedule allows for a listing of specific endorsements by premises.
MS HM 01–HOTELS, MOTELS, AND INNS ANALYSIS
The opening paragraph of the Hotels, Motels, and Inns endorsement clarifies which of the coverage forms and the property causes of loss form are being modified by this endorsement. They are:
- CP 00 10-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 Hotels, Motels, and Inns endorsement is not a complete coverage part. It must be attached to a package containing all three of the above named forms, otherwise the Hotels, Motels and Inns Program endorsement does not apply.
When the Hotels, Motels and Inns endorsement is attached, all of the underlying terms, conditions, and provisions of the above three forms apply as they normally would, with the exception of the areas modified by the Hotels, Motels and Inns endorsement.
I. Modifications to CP 00 10– Building and Personal Property Coverage Form
A. Additional Coverages Change–Fire Department Service Charge
The Limit for Fire Department Service Charge is increased to $5,000 and can be further increased in the Supplemental Schedule.
B. Additional Coverages 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
$10,000 applies but can be increased 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 the device has a continuous reading instrument that records all amounts that are deposited or stored in the device that 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.
2. Fire Extinguisher Systems Expense (07 13
change)
Up to $15,000 is available in a single 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 but subject to the same $15,000 limit.
No deductible is applicable.
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 that result in covered losses. Two categories of awards are provided. In the first category, 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. The $5,000 is the maximum available. It is subject to the actual cash value of the damaged property at the time of the loss or the amount it takes to repair or replace the property or however the value of the property has been determined by policy conditions.
The second
category of reward payment applies to the return of stolen property and is also
for $5,000. The reward is limited on the same basis as above.
Who is eligible to collect the award? Only one person can receive the reward. The first person, as determined by law enforcement, who voluntarily provides information that leads to a conviction or leads to 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. Computer Fraud
If a fraudulent transfer of property, money, or securities is made by using a computer, there is coverage for up to $25,000. The property, money, or securities must transfer from inside an insured premises or bank to a person or place outside the insured premises or bank. The coverage territory is worldwide, but the loss must begin during the policy period and within the coverage territory.
This limit can
be increased on the Supplemental Schedule.
5. 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 $1,500, but it can be increased on the Supplemental Schedule. There is a limitation that money orders are covered only if they were issued by a post office, express company, or bank.
Counterfeit
money is also restricted to only money accepted during the course of business.
6. 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, defense of a suit or a combination.
The limit can be increased on the Supplemental Schedule.
7. 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.
8. Employee Dishonesty
Coverage of up to $25,000 is provided for employee dishonesty that results in the loss of money, securities, or business personal property. The limit of $25,000 can be increased by entering a higher limit in the declarations.
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 or a partner, member or manager of the named insured, there is no coverage.
There is no coverage for any indirect loss attributable 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.
Legal expenses incurred are not covered.
An inventory computation and/or profit and loss statement cannot be the sole proof that a loss has occurred or be the sole method of establishing the value of the loss. In other words, there must be tangible evidence that a dishonest act occurred, and there must be a way to calculate the amount of that loss accurately.
The $25,000 limit (or higher if purchased) is the total amount available to respond to a single occurrence. The maximum is not affected by the loss involving more than one party or by it involving a series of related acts.
The dishonest act or event must happen during the policy period to be covered. However, the loss can be discovered up to one year after the expiration of the policy period.
The limit of insurance is not cumulative from year to year, so the limit shown is the maximum that will be paid for a single 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.
If the named insured, partner, officer, director, trustee, manager or member is aware of an employee’s prior dishonest acts, any loss caused by that employee is not covered unless the employee is acting in collusion with the individual who is aware of the past indiscretions.
If a loss that
occurred in a prior policy period is discovered during the current policy
period, this policy will pay for the loss provided there was no gap in coverage,
and the loss would have been covered under this policy if it had been in effect
at that time. The maximum payment is the lesser of the current limit of
insurance or the prior insurance limit of insurance.
Possible
Exclusion Ambiguity
There is an 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 very similar to exclusions in the Commercial Crime Form. However, the exclusion also bars loss for dishonest or criminal acts by authorized representatives and by 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.
Related Court
Case: Employee Dishonesty Exclusion Superseded Liability for
Negligent Supervision – illustrates how this issue was treated under another
line of coverage.
9. Ordinance or Law – Equipment Coverage
This protection is only available if replacement cost valuation is used and the equipment is actually repaired or replaced.
This coverage was inspired by the dynamism surrounding environmental laws. Federal, state and community standards may require changes in equipment when it is damaged or replaced for any reason. If so, this coverage pays for the upgrade but only if provided the equipment’s valuation is on replacement cost and the item is being replaced due to a covered cause of loss. The total payment cannot exceed the limit of insurance on the declarations.
The policy will replace or repair equipment to comply with the law only when the equipment is damaged or lost by a covered cause of loss. If refrigeration equipment is damaged this coverage pays three additional costs:
- Mandatory refrigeration reclamation
- Retrofitting of CFC-type equipment so that it uses non-CPC refrigerant to meet Clean Air Act requirements.
- Recharge of the system with non-CFC refrigerant.
Coverage applies per piece of equipment.
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.
When the equipment is actually repaired or replaced, the payment is the lesser of:
- The actual amount spent to repair or replace (repair cost cannot exceed the cost to actually replace) – this includes the cost to upgrade to the ordinance or law.
- Limit on the Declarations for covered buildings or business personal property.
Note: Coinsurance does not apply to this Additional Coverage.
|
Example: The One Stop Motel laundry equipment is over 20 years old. When a covered smoke damage loss occurs, it is damaged to the point that it must be replaced. Current law requires a much better machine to be used to replace it than what like kind and quality would allow. Because the upgrade is required by an ordinance, the upgraded equipment is covered in full. |
|
10.
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. There is $100 per occurrence deductible.
The keys are not required to be stolen while on premises.
11. 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. Since there is no limit indicated
for this coverage, the coverage is subject to the policy limit.
12. Guests’ Property
The named insured takes on a legal liability for property of guests when they stay on the premises. This coverage provides a $25,000 per occurrence/$5,000 per guest limit for such property that is kept in a safe deposit box on premises and another limit of $25,000 per occurrence/$5,000 per guest limit for such property that is kept on the premises or in the named insured’s possession. Remember, this is legal liability coverage only. Because it is liability coverage, there is also coverage for defense costs the named insured may incur, but only if the insurance company has given written consent for the suit to be defended. The defense costs are in addition to the other limits in the coverage part.
There is no coverage for:
- Dishonest acts by the named insured, partners or members
- Written assumption of liability unless done in advance and then not for more than $1,000 beyond the per guest statutory liability limit
- Fire loss to property
- If the loss is from a safe kept in the guests’ rooms, there is no coverage under the safe deposit box coverage
- For covered property not in a safe deposit box, there is no coverage for damage due to food or liquid spilling, leaking or upset
- For covered property not in a safe deposit box, there is no coverage for any item that the named insured has agreed to launder or dry clean
- Any release of a person or organization from legal liability
- Samples of articles that are for sale or delivery that are not kept in a safe deposit box
- Vehicles and their equipment and accessories and property contained in or on the vehicle.
A single occurrence may involve a series of related actions caused by one or more persons. It also can be a single event or series of events not caused by any person.
Bankruptcy of the named insured does not impact the coverage under this additional coverage. All coverage is for the benefit of the named insured, and any claim for damages under this additional coverage must be made by the named insured.
This is very similar to the commercial crime coverage CR 04 11–Guests’ Property. Compare the two coverages prior to making recommendations to replace it in order to prevent coverage gaps.
Related Article: CR 04 11 Guests’ Property
13. Food Contamination (07 13 changes)
This coverage is activated when a Board of Health or similar governmental authority orders a named insured to stop serving food. The order must be due to authorities discovering contaminated food or suspecting food contamination. Under this provision, the insurance company will pay extra expenses for up to $10,000, business income loss of up to $10,000 and additional advertising expense up to $5,000. These limits can be increased on the Supplemental Schedule.
The extra expenses include the cost to clean all equipment and to replace the contaminated food. It also pays to provide tests and vaccination for full and part-time employees and any leased or temporary employees if there is a potential chance that they may be infected by the contamination event. The medical tests and vaccinations are not covered under this form if covered under workers compensation coverage.
The business income loss includes the amount of income lost while the business is closed. There is a 24-hour waiting period for business income coverage. Covered advertising expense is the cost of advertising to restore the named insured’s reputation.
Food contamination is defined as food poisoning to guests, patrons or invitees due to distributed or purchased food that was tainted, food that was improperly handled in the named insured’s business operations or food contaminated by an employee-transmitted virus or bacteria.
One important limitation – the insurance company will NOT pay any fines or penalties imposed by any governmental authority.
Note: Any exclusion in the policy
related to virus or bacteria does not apply to this additional coverage.
14. Spoilage Coverage
Coverage applies if perishable stock is damaged by any of the following:
- Change in temperature or humidity that is due to either the failure of on-premises refrigeration, cooling or humidity controlling devices or to an on-premises mechanical breakdown.
- Refrigerant contamination
- Power outage but only when it is out of the named insured’s control. This is any type of interruption of electrical power, on or off the premises, that causes a temperature or humidity change.
The limit of $50,000 can be increased on the Supplemental Schedule.
The valuation is based on the selling price of the stock minus any discounts or expenses the named insured would have incurred in selling the product, but that did not incur because the items were damaged.
It is important to review the definition of perishable stock later in this analysis because it is a defined term.
This coverage has its own set of exclusions, deductibles, and warranties. They are as follows:
- Earth Movement
- Governmental Action
- Nuclear Hazard
- War and Military Action
- Water
- Unplugging of the particular refrigeration, cooling or humidity controlling device
- Flipping the switch and thereby turning off the electrical power to the device
- The electrical utility’s inability to supply power because of either a lack of fuel or because of a governmental order
- When there is an on premises power source such as a generator, solar power or wind turbine and it is unable to supply sufficient power because there is too much demand for power
- The breaking of glass that is a permanent part of the refrigeration, cooling, or humidity-controlling unit.
There is a statement that the deductible on the Declarations applies, but there is no spoilage deductible on the supplemental schedule. This paragraph specifically states that no other deductible on the policy applies to this coverage. If left as is, it would appear that no deductible does apply to this coverage even though it is clear that the writers intend for a specific spoilage deductible to apply.
The warranty states that the named insured must stay in compliance with any applicable refrigeration maintenance or service agreement. If the named insured ends the agreement and fails to notify the insurance company, coverage is suspended at the location impacted. Coverage is restored when the service agreement is reinstated or replaced.
Note: NO suspension is triggered if the agreement's supplier ends the arrangement. Does this mean that if a supplier ends the agreement because of nonpayment, the coverage remains in effect?
15. Guests’ Evacuation Expense Coverage
The named insured is compensated
for reasonable expenses that are incurred when the described premises is
evacuated due to imminent danger. The expenses must be incurred to protect the
life and safety of the guests. The imminent danger must be from a covered cause
of loss. There is no coverage for planned evacuation drills. There is also no
coverage for strikes, bomb threats, or false fire alarms unless a civil authority
orders the premises to be evacuated. The maximum payment is $25,000 per
occurrence per premises unless a higher limit is entered in the Supplemental
Schedule.
|
Example:
Freddy’s Motel does not have a basement. When a manager heard a possible
tornado was within 30 minutes of the town, he arranged for vans to take all
of the guests to a nearby church basement. The guests’ evacuation expense
coverage paid for the cost of renting the vans and payment to the church for
supplies used during the period of evacuation. |
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 01 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
Guests’
personal property is excluded from property of others. The limit is increased
to $5,000 and can be further increased on the Supplemental Schedule.
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 not only the cost to replace or restore the lost information but also to 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 that have been sold and is 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 Hotels, Motels,
and Inns Program enhances the property off-premises extension by adding protection
for computers but only while in transit. The limit can be increased on the
Supplemental Schedule.
5. Outdoor Property (07 13 change)
The Hotels, Motels, and Inns Program provides coverage for outdoor property for the following Causes of Loss:
- Fire
- Lightning
- Explosion
- Riot or civil commotion
- Aircraft
The enhanced Hotels, Motels, and Inns Program applies limits based on the type of outdoor property.
- Fences and retaining walls not part of the building are covered for $15,000 in a single occurrence.
- Outdoor radio and television, satellite or other antennas, including their masts, towers and lead-in and support wiring, are covered for up to $15,000 for a single occurrence.
- Trees, shrubs, and plants are covered for up to $25,000 for a single occurrence, but there is a maximum of $500 for any one tree, shrub, or plant. Trees, shrubs, and plants that are considered stock or that are part of a vegetated roof are not part of this extension because they are covered as personal property. The $25,000 limit must also cover any debris removal associated with the loss.
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 particular 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.
- Bridges,
roadways, walks or patios are covered for up to $15,000 per occurrence.
6. Accounts Receivable
The limit of insurance for the business personal property may be extended to include direct physical loss or damage caused by a covered cause of loss to accounts receivable for:
· The amounts an insured is owed from customers but is unable to collect
· Interest charges on loans the named insured has had to obtain to offset collections while the insurer was settling the claims payment process
· Any additional collection expenses that were made necessary by the loss or damage
· Other reasonable expenses incurred to reestablish 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
II. Modification to CP 10 30–Causes of Loss-Special Form
Several exclusions and limitations found in the Causes of Loss—Special Form are modified for some of the additional coverages and coverage extensions. The modifications are as follows:
A. Ordinance or Law
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 the atmosphere portion.
An exception is added so that when an air conditioning system that is used with the computer is damaged by a covered cause of loss, the resulting damage to a computer because of any dampness or dryness is covered.
D. Additional Exclusions for Computer Coverage Only:
1. The following exclusions apply to computer coverage. Loss or damage due to any of the following is excluded regardless of other concurrently or sequentially occurring causes of loss.
Note: The reason these extra exclusions
are needed is that MS HM 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 due to human errors or omissions in processing, recording, or storing information on computers. Resulting fire or explosion is covered if caused by a covered peril.
b. Electrical Disturbance
There is no coverage for damage due to electronic or magnetic injury, disturbance, or erasure of electronic recordings unless it is a result of a direct lightning loss or damage.
c. Computer-related Losses
There is no coverage for any loss or damage due to the failure, malfunction, or inadequacy of any of the following:
- 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 and Guests’ Evacuation Expense
Most of the exclusions in the Cause of Loss–Special Form do not apply to the Employee Dishonesty Coverage or Guests’ Evacuation Expense provided in this endorsement. The only applicable exclusions are Governmental Action, Nuclear Hazard, War, and Military Action. However, remember that both coverage sections have their own exclusions that also apply.
Related Article: Basic, Broad and Special Causes Of Loss Forms Analysis
F. Outdoor Signs
Most of the exclusions in the Special Cause of Loss Form do not apply to the Outdoor Sign Coverage provided in this endorsement. The only applicable exclusions are Governmental Action, Nuclear Hazard, War, 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 exclusions that apply to Valuable Papers and Records and Accounts Receivable are:
- Governmental action
- Nuclear hazard
- War and military action
- Computer-related losses
- Computer advice or consultation
- 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
Note: This item is ambiguous because of the difference between the two coverages. Valuable Papers and Records coverage applies only for specified causes of loss and collapses, 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 Receivables
· The following exclusions apply in addition to the exclusions described in G. above: Any loss involving alteration, falsification, concealment, or destruction of accounts receivable records if these actions were meant to conceal another action such as giving, taking, or withholding money, securities or other property.
· Any loss due to errors or omission in a covered operation's bookkeeping, accounting or billing functions.
· Any loss that is only found due to an audit or inventory. There must be some other outside evidence.
III. Changes to the Commercial General Liability Coverage Part
A. One New Coverage Is Added For Hotels, Motels, And Inns:
SERVICES
ERRORS AND OMISSIONS
1. Insuring Agreement
This is a separate Coverage Part with its own Insuring Agreement, Exclusions, and Supplementary Payments.
The coverage is for loss created by an insured’s failure to provide facilities, goods, or services. The failure can be by the named insured, employees of the named insured or by a concessionaire operating on behalf of the named insured. The only payment is for 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 there is no coverage. All duty to defend ends when the limit is exhausted by payments.
|
|
Example: Mavis and Barney signed a contract with The Davis House Lodging for 12 rooms and the use of their banquet hall for their wedding reception on December 12. The planner mistakenly entered the day as December 16. The family arrived to decorate the hall and was turned away because another event was scheduled. No rooms were available for the guests. Mavis and Barney sued Davis House for their ruined wedding day. Coverage would be available under this coverage part. |
A limit of $25,000 annually per premises limit is applicable.
There is a $250
per occurrence deductible applicable before the insurance company begins to pay
anything.
2. Exclusions
There are only three exclusions under this coverage part:
- Intentional failure or error
- Bodily injury, property damage, personal or advertising injury
- Any type of a long list of discriminatory actions starting with race and ending with residence location
|
Example: Investigation by the insurance company adjuster reveals that Mavis and Barney’s booking was deliberately changed by The Davis House night manager, who was Mavis’ former boyfriend. There is no coverage because the error was intentional. |
3.
Duties in the Event of Services Error or Omission
This replaces the condition called Duties in the Event of Occurrence, Offense, Claim, or Suit.
The named insured must notify the insurance company as soon as practicable that a potential claim situation has occurred and must provide the details to identify it, such as guest’s name and address, how, when and where the situation occurred.
If a claim or suit is actually presented, the named insured must record all of the information and notify the insurance company as soon as practicable. The written notice must be sent to the insurance company as soon as practicable.
The named insured and other insureds who may be involved must send the insurance company all legal papers, authorize the insurance company to obtain information, cooperate with the insurance company, and assist in enforcing rights.
No one, including the named insured, can agree to make any payment unless they make it voluntarily. They cannot act on behalf of the insurance company.
B. Who is An Insured
This section is not just for the new coverage – it applies to the entire policy. This section adds two additional insureds:
- Any entity that has granted the named insured a franchise, but the insured status applies only as respects its liability as such.
- Any entity that is a concessionaire and has permission to trade under the named insured’s name, but the insured status applies only as respects its liability as such.
IV. Definitions
The following definitions are added to the Commercial Package Policy via the Hotels, Motels, and Inns Program endorsement as follows:
Business
income
This definition applies only to the Food
Contamination Additional Coverage.
Business income starts with Net Income. Net Income is considered net profit or loss before taxes are paid and is the net income that would have been earned if not for the food contamination loss. The definition also states that the net income can be either a net loss or a net profit. An insured can have a time element loss even if there is a net loss because there is another element of business income. In addition to the net income, business income includes the expenses that continue following a loss, including payroll. An important limitation is included here – if net income would have increased because of a food contamination loss that involves other businesses and customers creates windfall income, that income is not counted.
Note: It is hard to see how food contamination would result in windfall profits.
Computer is a programmable electronic device 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 money imitation
meant to deceive.
Employee as used in the Money and
Securities and Employee Dishonesty coverages provided in this endorsement is expanded beyond the full-time employee of a business. There are seven
different categories that qualify as employees: (07 13 change)
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 is when one person signs another person’s name with the intent to deceive. It does not include an unauthorized signing by a person of his or her own name.
Guests’ property is property belonging to a guest. It can be money, securities, and other goods but must have tangible value.
Manager is any director in a limited liability company.
Member is an owner of a limited
liability company.
Money includes currency, coins, and bank notes with a face value and in current circulation. Money orders, travelers’ checks, and similar items are included, but only if they are held for sale to the public.
Occurrence, as defined here, 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, Computer Fraud, and Guests’ Property coverage, it means either one or more related acts or events by one or more persons or one or more related acts or events not involving any person. Under Forgery or Alteration coverage, it means all losses involving one or more instruments caused by any person or in which that person was involved. Under Employee Dishonesty, it means all losses resulting from a single act or series of acts caused by one or more employees.
Operations is used with the business income coverage and describes the business activities occurring on
the premises listed in the Declarations.
Perishable Stock is a property that must be kept in a controlled environment in order to be preserved, and that could be damaged if the controlled environment is changed.
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.
Suspension
is a term used only in the business income coverage. It is a slowdown or
ending of business activities or when a described premises cannot be rented out
because of its condition.
ENDORSEMENTS
The forms and endorsements developed for the Market Segments series of programs carry the designation MS.
The following endorsements are available to tailor the coverage provided under this program. However, it is important to remember that 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
MS HM 03–Hotels, Motels
and Inns- Loss
This endorsement provides legal liability coverage for damage to guests' autos under the Building and Personal Property Coverage. It offers protection against direct loss of or damage to guests’ autos and auto equipment while on the covered premises.
It pays only for damage that occurs on the covered premises when the insured bears legal responsibility for the damage. The exclusions in the Cause of Loss-Special Form do not apply, but the named insured must be legally liable. In addition, there is no coverage for incidents involving:
- Loss or damage from theft or conversion caused by the named insured or any insured
- Liability because the named insured has agreed in writing to accept responsibility for the auto
Because this is legal liability coverage, a list of Supplementary Payments is provided that applies in addition to the limit of insurance available under this coverage.
The limit and deductibles are shown on the Supplemental Schedule.
Auto is defined as a land motor vehicle, trailer, or semitrailer.
MS HM 04–Hotels, Motels
and Inns- Loss
This endorsement provides primary coverage for damage to guests’ autos (including loss of use) under the Building and Personal Property Coverage without regard to fault or the availability of the guest’s own auto insurance to pay for the loss.
It offers protection against direct loss of or damage to guests’ autos and auto equipment in the care, custody, or control of the insured while on the insured’s premises. The Covered Cause of Loss is any cause of loss not excluded within this particular endorsement.
The exclusions are:
- Loss or damage from theft or conversion caused by the named insured, partners, executive officers or employees
- Losses that are paid under Personal Property of Others on the Building and Personal Property Coverage Form
The limit on the Supplemental Schedule for Guests’ Auto is the most that is paid minus any applicable deductible.
The limit and deductibles are shown on the Supplemental Schedule.
Auto is defined as a land motor vehicle, trailer, or semitrailer.
MS HM 05–Hotels, Motels
and Inns- Loss
This endorsement is identical to MS HM 05–Hotels, Motels and Inns-Loss or Damage to Guests’ Autos (Direct Primary Coverage), except that coverage is expanded to include other personal property of the guest, such as a briefcase, computer, or sporting equipment left in the auto.
MS HM 06–Hotels, Motels and Inns- Extortion Coverage
This endorsement provides coverage for money, or property surrendered due to extortion threats to the named insured property or extortion threats to cause injury to the named insured or others.
Related Articles:
CR 04 03–Extortion-Commercial Entities
CR 00 40 and CR 00 41–Kidnap/Ransom and Extortion Form and Policy
MS HM 07–Hotels, Motels and Inns—Hired Auto and Non-Owned Auto Liability Insurance
This endorsement amends the General Liability Coverage Part to offer protection on a basis similar to commercial auto coverage. Hired auto coverage applies to bodily injury and property damage that arises from the maintenance or use of a hired auto by the named insured or any employee of the named insured. Non-Owned Auto Liability applies to bodily injury or property damage that arises from any person using a non-owned auto in the course of the named insured’s business.
Note: Non-owned coverage is designed to protect the named insured, not the owner or driver of the vehicle.
MS HM 08–Hotels, Motels
and Inns- Exclusion
This mandatory endorsement is attached in place of CP 01 40 and applies to all commercial property coverage parts.
This commercial property exclusion removes all coverage due to viruses, bacterium, and other microorganisms that can cause physical distress, illness, or disease.
It supersedes any and all pollution exclusions and removes the term bacteria from any exclusion or coverage grant so that it can be totally excluded by this endorsement.
A new approach is being taken in this endorsement. It states that this exclusion does not create coverage for a loss that would otherwise be excluded in the coverage part.
MS HM 10–Hotels, Motels and Inns—Fine Arts Coverage
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.
Fine arts are described but not limited to the particular descriptions.
Important: The valuation is actual cash value NOT 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
MS HM 12–Hotels, Motels and Inns- Guests’ Relocation Expense Coverage
When there is a covered loss at a hotel, motel, or inn, causing its rooms to be unsuitable for occupancy, the guests still need a place to stay. This coverage allows the named insured to reimburse the guests for the difference between what the named insured charges and the replacement location charges for accommodations, plus the expenses a guest incurs to travel from the insured premises and the replacement location. A maximum payment is $50,000 for the entire occurrence, but there is a per reservation cap of $500.
|
Example: Gretel’s wedding plans include paying for her college classmates’ hotel rooms. She makes the reservations for 20 rooms and pays for them in advance. They will be in town for a week. A fire sends smoke throughout the hotel. The hotel owner arranges for new rooms but at three different locations. The expense of the new rooms and traveling is $100 per friend or $2,000 for the entire party. Because all the friends were under a single reservation, only $500 is paid to the hotel owner for the loss. |
UNDERWRITING CONSIDERATIONS
Any program offered by an individual insurer will have its own set of eligibility guidelines and criteria. If the program is generic, as in the case of ISO’s Market Segments Program, it normally has its own set of qualifying criteria. The two types of eligibility criteria may be similar, but there may also be differences. It is, therefore, important for the insurance professional to understand that, while a potential insured may be acceptable to one insurer under a standard program, it may not necessarily be acceptable to another insurer under the same standard program.
The following review of the underlying and eligible requirements for the Hotels, Motels, and Inns Program is for the ISO generic program.
Specific Hotels, Motels and Inn Operations
The following general liability classifications describe the only hotels, motels, and inns eligible under this program. If at least one of these codes is not part of the CGL, then the hotel, motel, or inn cannot be written in this market segment:
|
Category |
Description |
Code |
|
Hotels and Motels |
with pools or beaches – less than four stores |
45190 |
|
Hotels and Motels |
with pools or beaches – four stories or more |
45191 |
|
Hotels and Motels |
without pools or beaches – less than four stores |
45192 |
|
Hotels and Motels |
without pools or beaches – four stories or more |
45193 |
|
Hotels and Motels |
lessor’s risk only – less than four stores |
64074 |
|
Hotels and Motels |
lessor’s risk only – four stories or more |
64075 |
If other classifications are included in the operation, the risk remains eligible unless the classification is one of the following:
|
Category |
Code |
|
Apartment Hotels |
60015 or 60016 |
|
Boarding or Rooming House |
61000 |
|
Campgrounds |
10332 or 10331 |
|
Camps |
41421 or 41422 |
|
Clubs – civic, service or social |
41668 or 41667 |
|
Dude Ranches |
43117 |
|
Gambling |
43990 or 43991 |
|
Schools – dormitory facilities |
67511 or 67510 |
|
Spas or Personal Enhancement facilities |
18200 |
|
YMCA, YWCA or similar type institutions |
49870 |
This is a broad category of risks that can include a small inn or a multi-story hotel with entertainment. Each exposure must be carefully analyzed. The most important part of underwriting a hotel is determining the exact exposures. This may involve evaluating a restaurant, a hotel, dry cleaners, laundry, exercise area and more. Using an exposure checklist or questionnaire would be a tremendous assistance in exposure identification.
The number one concern for any hotel risk is guest safety. This includes protecting guests from fire and smoke injury and providing safe rooms. Doors must be secure and the locks adequate to keep intruders out of the rooms at all times, which means proper door key management is critical. Sleeping guests are highly vulnerable and require a hotel insured's highest level of protection. Adequate alarms and exits are vital, along with providing clear emergency instructions to all guests. Stairwells must have adequate lighting to assist sleepy guests as they exit the building.
Floor coverings must be free from defects (such as trip hazards) for the protection of hotel guests and invitees who may be visiting the guest or attending another function on the insured premises.
Sprinkler systems can be an important part of fire safety, especially in multi-story buildings. Standpipes should be located in the upper-story stairwells to allow the upper-level use of fire hoses.
General cleanliness is important, particularly in the guest rooms and ventilation system, since it minimizes the spread of disease. It is important to research the remaining exposures that the hotel, motel, or inn has. Then underwrite each exposure separately to determine the type of loss that could occur and what steps a reasonable insured should take to prevent it.
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 Hotels, Motels, and Inns endorsement. Any increase in exposure presented by the individual risk hazards and covered by the endorsement enhancements should be identified. Once identified, these hazards and exposures should be evaluated to determine if they are those contemplated by the program, its coverages and rating structure. The exposures and hazards should be addressed if any additional coverages, endorsements, premiums, or other tailoring is necessary. Not all, but the property enhancements with the most significant underwriting concerns, are as follows:
Accounts receivables are covered, up to the stated limits and condition. The insured should have adequate back-ups and copies stored off-premises in a safe location. The same is true of valuable papers and records.
Lock Replacement coverage should not be used to encourage poor key handling controls. It is important that key management is controlled not only for this coverage but also to protect business personal property that is stored in those areas from disappearing.
Ordinance or Law coverage extension responds to a legal requirement to replace old equipment that is damaged by a covered source of loss. It is important to be aware of the local environmental regulations regarding the type of refrigerants that are permitted since this could have a significant impact on any loss settlement and also on the future operations for the insured.
Outdoor Property coverage includes fences, outdoor radio, TV, satellite and antennas, trees, shrubs, plants, bridges, roadways, walks or patios and limits at $15,000 or $25,000 limits. Even with the capping of $500 per tree, a significant loss could occur if one of the named perils caused a loss.
Outdoor Signs coverage is $10,000, and
the causes of loss are extremely broad. Past sign damage should be reviewed along
with protection for the signs.
Spoilage is added for $50,000. The perishable nature of food makes this a significant coverage that must be evaluated carefully. Past experience with outages should be considered along with backup plans the insured has in case of loss of power. Backup generators and alternative storage locations are two considerations that an insured should have in place if they are concerned about their stock. The amount of fresh stock kept on hand should be considered along with peak conditions around special holidays.
Food Contamination Coverage is provided, so analysis should be made on past food poisoning incidents. It is important to know how their Health Department grades have been in the past and if there are any outstanding problems that have not been addressed.
Crime and Dishonesty Enhancements
The Hotels, Motels, and Inns Program endorsements add coverage for money and securities, money orders and counterfeit money, forgery and alteration, employee dishonesty and computer fraud.
The insured should be evaluated for crime protection devices, including if there are any at all, what type of device is used and if it is 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 avoid and prevent employee dishonesty losses.
Computer access and the methods the insured uses to protect their security should be analyzed. There should be regular changes in passwords and standard procedures to remove employees when they leave.
Guests’ Property coverage is automatically provided that pays for the loss of guests’ property while in a safe deposit or on the premises. The availability of safety deposit boxes is an important underwriting consideration.
Procedures and processes should be implemented and reviewed regularly to monitor and prevent the potential for crime and dishonesty losses.
Related Article: Crime Underwriting Considerations
Liability Enhancements
The only enhancement for Liability is Services Errors and Omissions. This involves common operations where errors could result in significant injury. A failure to have the services available as agreed upon can result in downtime problems for a customer and potential loss of revenue due to delays. It is important that a regular procedure is established to prevent double bookings. Contracts should be carefully monitored, and regular checklists should be developed to make sure all promised services are provided.
RATING CONSIDERATIONS
The rating for this product is the same as any other package product. All coverages must be rated in accordance with the Commercial Lines Manual for the specific coverage part.
The basic MS HM 01 is rated based on the number of employees and whether Flood and/or Earthquake are provided in the underlying policies. In addition, there are charges made for any increases in limits, plus charges for all of the endorsements.