AG 0100–AGRIBUSINESS PROPERTY AND INCOME COVERAGE PART ANALYSIS

(February 2025)

Introduction

Agreement

Definitions

Property Covered

Property Not Covered

Additional Coverages

Coverage Extensions

Supplemental Coverages

Income Coverage

Earnings

Extra Expense

Exclusions And Limitations

Income Coverage Extensions

Additional Income Coverages

Supplemental Income Coverages

Optional Income Expense Deductions

Perils Covered

Perils Excluded

Additional Property Not Covered Or Subject To Limitations

Other Coverages

What Must Be Done In Case Of Loss

Valuation

How Much We Pay

Loss Payment

Other Conditions

INTRODUCTION

AG 0100 (01 01 edition) opens with a table of contents that details how it is organized to expedite locating certain sections. It refers to endorsements and schedules issued at inception and identified on the declarations. It also refers to the definitions section for words and phrases with special meanings.

AGREEMENT

The insurance company agrees to provide coverage in return for the named insured's premium payment. The coverage form describes the coverage provided and states that it is subject to the coverage form’s terms. The declarations is considered part of the coverage form, as are the conditions that relate to assignment, transfer of rights, cancellation, changes, inspections, and examination of books and business records that are in CL 0100–Common Policy Conditions.

DEFINITIONS

Defined words are used throughout the coverage part. Restricting their meaning to the definition in the coverage part provides the means for all parties involved to understand the coverage intended. Twenty-eight terms are defined.

1. You and your

These are the parties identified on the declarations as the insured.

Related Court Case: Seller of Restaurant Held Not Entitled to Policy Proceeds Despite Security Agreement with Buyer

2. We, us, and our

This is the insurance company that provides the coverage.

3. Computer

Hardware the named insured owns or has in its care, custody, or control. Software is also computer but without the restrictions applying to the hardware. Computerized equipment is not considered computer.

4. Computer hacking

An intrusion into the named insured's hardware, software, or computer network that is not authorized. The intrusion can be caused by an individual or a group of individuals. The individual(s) may or may not be employees of the named insured. Examples of damage the intrusion may cause are provided, but these are only examples and do not limit the definition. The examples are:

5. Computer virus

Malicious, self-replicating, or similar code introduced into a computer. It includes the following forms of damaging code but is not limited to just these:

6. Covered location

Any premises or location listed and described on the declarations.

7. Data

There are three parts to this definition. The first part is the actual information, instructions, and programs. The second part is how the first part is stored. It must be stored on media or microprocessors. The third part is that the first part must be used with hardware.

Examples:

· Instructions written on paper are not data because they are not stored or used with hardware.

· Information stored on a disk and used with computerized equipment is data because, while computerized equipment is not considered a computer, there is no equipment exclusion in the hardware definition.

8. Declarations

This is the common policy declarations, supplemental declarations, and schedules used with this coverage part.

9. Dependent locations

Any location owned or operated by others and on which the named insured’s operations depend. The following are examples of dependent locations, but the list is not limited to just these:

10. Fine arts

Works of art with a rare or historical nature or other artistic merit. Paintings, etchings, pictures, sculptures, tapestries, and art glass windows are examples. However, to be considered fine arts, there must be some verification through experts that these items are actually fine arts and not just furnishings.

11. Finished stock

Stock that the named insured manufactures and is ready to be packed, shipped, or sold.

12. Hardware

This is a four-part definition. It starts with electronic machine components that are networked. The next requirement is that these components must have the capability to receive instructions and information. In addition, these components must be able to process the received information following the received instructions. Finally, a result must be produced.

Note: Some examples of hardware are computers, computer networks, printers, phone systems, security systems, photocopiers, calculators, cell phones, tablets, and laptop computers.

13. Limit

This is the amount of coverage that applies.

14. Mobile equipment

The following is considered mobile equipment:

In addition, any equipment or vehicles that are specifically listed on the declarations are mobile equipment even if they do not meet the requirements listed above.

Note:

Contractors' equipment is not specifically defined but is usually understood to include bulldozers, cranes, graders, shovels, dredges, mining equipment, logging machinery, and well drilling equipment, including offshore drilling equipment. Types of vehicles that carry mounted equipment include cherry pickers, welding trucks, and towed compressors.

However, logging trucks with cranes to load and unload lumber and Ready-Mix trucks are not mobile equipment because their primary use is to transport product. Similarly, a flatbed designed to carry a bulldozer is not mobile equipment because the bulldozer is not permanently attached to it. On the other hand, self-propelled cranes are mobile equipment.

Dump trucks, snowplows, farm-type tractors, and other vehicles used to service the premises or the building site are considered mobile equipment if they are not licensed. A licensed dump truck used only on the job site and transported to the job site on a flatbed trailer is not considered mobile equipment unless it was never designed for road use.

15. Money

Currency, bullion, coins, and bank notes but only that which is in current circulation. Travelers checks, register checks, and money orders that are held for sale to the public are also considered money.

16. Pollutant

Any contaminant or irritant that is gas, liquid, radioactive or thermal. Examples are chemicals, smoke, acids, fumes, alkalis, vapor, soot, and waste, but these are not limiting examples. The term “waste” does not mean only items to be disposed of but is broadened also to be material that is to be recycled, reclaimed, or reconditioned. Visible or invisible electrical or magnetic emissions and sound emissions are also considered pollutants.

Note: Electrical or magnetic emissions are not defined but could include stray voltage, microwave radiation, excessive light from lamps, and high-tension wire radiation. Sound emissions are also not defined but could include loud music, machinery noise, and damage resulting from excessive vibration due to sound.

17. Perishable stock

Stock that is kept under controlled conditions because it is susceptible to loss if the controlled conditions change.

Note: The most common perishable stock is refrigerated property, but this term also applies to other property. Glass and molten metals that could be damaged because of temperature fluctuations during processing are perishable stock. In addition, mushrooms and other edible fungi that require high humidity to thrive, as well as textiles that could be damaged by excessive humidity, may be considered perishable stock.

18. Public health authority

Any governmental authority with jurisdiction over the named insured’s operations. The regulations to be enforced must relate to health and hygiene standards with the goal of protecting the public.

19. Rents

Rents is the sum of the named insured’s loss of the following items:

Example: Rudolph manufactures animal feed from farm crops. He owns the building his business occupies and rents part of it to a machine shop. Rudolph negotiates for electric power supply at an attractive rate for both businesses. However, the arrangement cannot be discontinued for any reason except total destruction of the property. A fire completely destroys the machine shop and moderately damages Rudolph's operation. The machine shop operator decides to take his insurance proceeds and retire. The following are considered rents:

·         The income from the machine shop Rudolph would have received if it was not destroyed

·         The fair rental value of the space Rudolph occupied

·         The cost of the machine shop’s electric supply

20. Restoration period

Note: This is a very important definition because it significantly shapes the business income coverage.

Restoration period is:

Note: The important word is “should.” If the names insured takes 90 days, but the insurance company can prove that it should have taken 60 days, the period of restoration is 60 days.

·         For dependent locations under the Supplemental Income Coverages, the period is the reasonable amount of time the named insured needs to resume normal business activities at a covered location. It begins on the date that a covered peril causes direct physical loss or damage to property at a dependent location. It ends when the property at the dependent location should be rebuilt, repaired, or replaced or when business resumes at a new permanent location. The restoration period is not subject to the expiration date.

Note: Some confusion may occur under the dependent location coverage because the term “business” could apply to either the named insured’s business or the dependent property’s business.

The restoration period does not include the increased time needed to comply with enforcing any ordinance, law, or decree that requires or regulates any of the following:

However, an entry on the declarations can eliminate this restriction.

Note: Under direct damage coverage, an exclusion is required to eliminate ordinance or law coverage, but under business income coverage, ordinance or law coverage is eliminated within this definition.

21. Securities

Negotiable and nonnegotiable instruments and other contracts that represent money or property. Actual money is not securities.

Tokens, tickets, and evidences of debt that are with credit cards are all considered securities, as are revenue and other types of stamps. Stamps that are not in current circulation are not considered securities.

22. Sinkhole collapse

Earth suddenly collapsing into voids below the surface of the ground. The voids must be created by water action on limestone or other rock formations. The cost of the land and the cost to fill the sinkhole is not part of this definition.

23. Software

There are two parts to this definition. First is the data. All items included within the definition of data are also considered software. The second part is the media used in an electronic data processing operation. Tapes, disks, cards, films, drums, cartridges, or cells are examples of media, but are not limited to them.

24. Specified perils

These are aircraft, civil commotion, explosion, falling objects, fire, hail, lightning, riot, sinkhole collapse, smoke, sonic boom, vandalism, vehicles, volcanic action, water damage, and windstorm. The term also includes leakage from fire extinguishing equipment and weight of ice, snow, or sleet.

Falling objects is further defined to exclude loss or damage to personal property in the open. It also excludes damage to the interior of a building or personal property in it unless the falling object first damages the building’s exterior walls or roof.

Water damage is also limited. Coverage applies only if the water or steam discharge or leakage was sudden or accidental. Cracked or broken water or steam systems or appliances must cause the discharge or leakage.

Note: Examples of systems and appliances are water pipes, heating pipes, water heaters, sprinkler systems, water boilers, dishwashers, ice makers, and freezers that defrost.

25. Terms

These are all provisions, limitations, exclusions, conditions, and definitions that apply with respect to this coverage form.

26. Theft

This is burglary, robbery, or any other act of stealing.

27. Valuable papers and records

These are written, printed, or inscribed documents, manuscripts, and records. It also includes the same items stored on electronic or magnetic media.

28. Volcanic action

This is airborne volcanic blast, ash, dust, or particles and shock waves. It also includes lava flow. The cost to remove ash, dust, or other material from undamaged property is not considered volcanic action.

PROPERTY COVERED

The insurance company does not cover all damage to all property. The only types of property covered are as this coverage form describes. These types are subject to the limitations and descriptions in the coverage form. However, for a type of property to be covered, a limit must be shown for it on the declarations.

The only damage covered is direct physical loss to the described property.

Building Property

Building property consists of all the buildings and structures at the covered location. There are two exceptions. Property can be listed on the declarations as excluded from coverage. Other property may be specifically scheduled on the declarations.

Note: The values of the excepted property should be removed from the limit of insurance for building property on the declarations.

Example: There are five buildings on the premises of Respected Grain Company. One of them is vacant and scheduled to be removed. It is listed as excluded on the declarations. In addition, a large statue at the location is specifically scheduled on the declarations as fine arts. The vacant building and the statue are not considered covered property.

The following is also building property but only when located on the covered location or within 1,000 feet of it:

Related Court Case: "Fixtures Pertaining To The Service Of The Building" Defined By Court

Loading Dock

Outdoor fixtures

Personal property the named insured owns and uses to maintain or service covered buildings, structures, or its premises. Examples are air conditioning equipment, fire extinguishers, sprinkler systems, and floor coverings, as well as refrigeration, cooking, dishwashing, and laundering equipment.

However, this is not the only property. It could also include garden tractors, snow removal equipment, and even water hoses.

Note: This term does not include portable property. It means permanent property such as fountains, streetlights, sprinkler irrigation systems, and other fixed property.

Building glass

Note: This usually includes glass building blocks, windows, and glass in exterior or interior doors. Glass objects, glass dials on equipment not related to the building, and stocks of glass are not building glass.

Radio and television towers, antennas, and satellite dishes

Their lead-in wiring, support wires, and foundations are also property, as is any other property permanently attached to any of these items.

Awnings and Canopies

Fences

However, this does not include pasture and field fences

Note: The coverage form does not explain or clarify when a fence is no longer a covered fence and  becomes a pasture or field fence.

Signs

Signs attached to a covered building or structure, and free-standing signs

Buildings Under Construction Or Being Repaired Or Renovated

Note: They are not covered if other insurance covers them, or if the Builders’ Risk section of this coverage form applies.

When covered as building, the covered property includes:

·         Equipment, materials, supplies, and non-permanent structures (tents or sheds as examples). This applies only when these items are on or within 1,000 feet of a covered location and only when used in construction, alterations, or repairs to buildings or building additions.

·         The named insured’s contractual obligation for the interest of contractors and subcontractors in the types of property described in the above paragraph.

Builders’ Risk Property

Builders' Risk Property is any building or structure being constructed at a covered location. Coverage applies only if there is a limit of insurance on the declarations for Builders' Risk Property. Such an entry moves coverage for such buildings and structures out of building and into builders risk property. The following property is covered and considered builders’ risk property but only if it is on a covered location or within 1,000 feet of it:

Computers

Computers may be covered as personal property or may be specifically scheduled as a computer. When computers are scheduled they are not covered as personal property. Specific computers can be scheduled with a limit of insurance, or all computers can be scheduled using a single blanket limit. Computers may also be specifically scheduled as excluded.

Mobile Equipment

Mobile equipment may be covered as personal property or may be specifically scheduled as mobile equipment. When mobile equipment is scheduled, it is not covered as personal property. Specific mobile equipment items may be scheduled with a limit of insurance or all mobile equipment may be scheduled using a blanket limit. Mobile equipment may also be specifically scheduled as excluded.

Personal Property

Personal property of the named insured that is at the covered location or within 1,000 feet of the covered location is covered. The following are not included as personal property:


Personal property includes all the following:

·         The named insured’s use interest in improvements to a building it occupies as a tenant. The improvements must have been acquired or made at its expense but cannot not be legally removed. Improvements are fixtures, alterations, installations, and additions.

Example: False ceilings, internal walls, light fixtures, improved wiring, telephone switching systems, cooking equipment, HVAC improvements, carpeting, built-in shelving, and even new roofs a tenant installs with a long-term lease can be considered improvements and betterments.

·         Leased property, but only if the named insured’s lease contract requires that it provide the insurance. Some examples are computers, photocopiers, printing equipment, machine tools, and diagnostic equipment. Leased mobile equipment can also be covered as business personal property. Lease is not a defined term and can be of any duration.

·         The named insured may provide labor, material, and/or services for repair, modification, or improvements in personal property of others. If it does, the value of that labor, material or service is considered the named insured’s interest in that property. That interest is covered as personal property.

·         Personal property of others that is in the named insured's care, custody, or control. Payment for any covered loss to this property is for the benefit of the property owner, not the named insured.

·         Household personal property is covered only if there is an entry for it on the declarations. This coverage applies to personal property in residences and is available for only a named insured residing in a dwelling at a covered location.

·         The named insured has the option to extend this coverage to include property a guest or domestic employee owns or uses. However, this option applies only while the guest or domestic employee is on the named insured’s residential property.

The named insured can also include this coverage for others who live in dwellings on the covered location. This option does not require that the dwelling be the named insured’s residence.

Specifically Scheduled Property

Property may be specifically listed and described on the declarations as covered property along with a separate limit of insurance. Any property such listed is not subject to any of the excluding or restricting terms in Property Not Covered section.

Stock

Stock must belong to the named insured and be at a covered location or within 1,000 feet of it. It includes property such as grain, seed, and other agricultural products as well as raw materials, goods in process, finished goods, and goods held in storage or for sale. Stock of others in the named insured's care, custody, or control is considered stock, as are supplies used in packing or shipping.

Note: The word “includes” is used to describe stock. This means more items could be considered stock. Stock does not include any property specifically scheduled or excluded on the declarations.

PROPERTY NOT COVERED

The following property is excluded. However, some have exceptions where some coverage applies. Each must be examined carefully to determine the nature and extent of any coverage provided.

1. Airborne or Waterborne Property

Property that is being transported by water or air is not covered, but there are exceptions. The airborne or waterborne property is covered if the transport is by a regularly scheduled ferry or airline service. There may also be coverage for the property in the Supplemental Coverages.

2. Aircraft and Watercraft

Aircraft and watercraft are not covered if they are operated primarily away from a covered location. This applies to the craft and its accessories, motors, and equipment. There are two exceptions:

·         Coverage does apply to crafts the named insured manufactures, processes, warehouses, or holds for sale.

·         Rowboats and canoes that are out of the water at a covered location are covered.

In addition, Supplemental Coverages may provide some coverage.

3. Animals

Animals are not covered. Examples of animals are livestock, poultry, birds, fish, insects and worms, but this exclusion is not limited to just these. Coverage for specific animals or classes of animals can be endorsed to this coverage form.

Related Articles:

AG 0140–Livestock Coverage

AG 0152–Poultry Coverage

4. Automobiles and Vehicles

Conveyances designed and used to transport people and/or cargo over the road are not covered. Some examples of such conveyances are trucks, tractors, and trailers. There is one exception. Property considered mobile equipment is covered if there is a limit for it on the declarations.

5. Contraband

Goods that are illegal to possess, or legal to possess but in the process of illegal transportation.

Example: John and Bob legally purchase $50,000 of cigarettes in Kentucky. They then transport the cigarettes to New York to sell them to avoid New York cigarette tax. Doing this is illegal. Coverage does not apply to any damage to those cigarettes.

6. Crops

Crops that are growing are not covered.

Note: A crop-hail or multi-peril policy covers growing crops.

7. Exports and Imports

Exports and imports are excluded only when coverage is provided for them under an insurance policy, such as ocean marine cargo insurance, that was purchased to cover them.

Related Article: Ocean Marine Cargo Insurance

8. Fences

General fences are covered as building property. However, field and pasture fences are specifically not covered.

9. Fine Arts

Fine arts, as defined later in this policy, are not covered. Supplemental Coverages does provide a limited amount of coverage.

10. Foundations

Foundations of either buildings or machinery that are below the lowest basement are not covered. If there is no basement, foundations that are below ground are not covered. There is an exception for foundation coverage if the property is scheduled as Builders’ Risk Property.

11. Furs

Furs and fur garments are not covered property. A limited amount of coverage is provided in Supplemental Coverages.

Note: This exclusion is more absolute than the corresponding exclusion in most commercial property coverage forms and policies. They usually cover the fur and fur garments for the same causes of loss as are on the rest of the policy. The fur and fur garments are then subject to a limitation that reduces coverage to a sublimit but only for the theft cause of loss.

12. Guns

Guns are not covered except for a limited amount provided in Supplemental Coverages.

13. Hay, Straw, and Fodder

Hay, straw, or fodder held for sale is covered, but all else is not. AG 0136–Hay, Straw, and Fodder may be attached to the policy to cover this property for the perils of fire, lightning, windstorm, hail, vehicles, vandalism, and theft.

14. Jewelry, Watches, Jewels, Pearls, Precious Stones, and Metals

Watch movements, semi-precious stones, gold, silver, other precious metals, and property that consist primarily of precious metals are not covered. This applies without regard to the property’s value. However, Supplemental Coverages may provide some coverage.

Note: This exclusion is more absolute than the corresponding exclusion in most commercial property coverage forms and policies. They usually cover these items for the same causes of loss as are on the rest of the policy. The items are then subject to a limitation that reduces coverage to a sublimit but only for the theft cause of loss.

15. Land, Water, and Cost of Excavation

Three types of property are excluded:

16. Money and securities

Money and securities is not covered. Consult the definitions section for listing of the types of property that are considered money and securities.

17. Newly Acquired and Newly Constructed Buildings

Buildings or structures the named insured builds or acquires after this coverage form’s inception date are not covered. However, exceptions to this exclusion can be found in the Builders’ Risk Property and the Coverage Extensions.

18. Property More Specifically Insured

Property that would be covered under this policy but that is more specifically insured elsewhere is not covered under this policy. However, this policy will provide excess coverage over the amount available under the more specific coverage.

19. Property of Others

Property of others that is the named insured’s responsibility because it is acting as either of the following is not covered:

However, Supplemental Coverages may provide some coverage.

Related Articles:

AAIS Motor Truck Cargo Legal Liability Coverage Form

ISO Motor Truck Cargo Carriers Coverage Form

20. Property You Have Sold

Property the named insured sells after it is delivered is not covered. The only exception is when the property is sold under an installation agreement, and the agreement requires the named insured to be responsible for the property until the buyer accepts it.

Example: Amish Wares manufacturers and installs cabinets. Grand Ideas buys the cabinets under an agreement that Amish Wares is responsible for the cabinets until they are installed. A tornado occurs when the cabinets are on Grand Ideas’ premises but not yet installed. This policy covers the cabinets because of this exception.

21. Silverware, Goldware, and Pewterware

Precious metal ware and precious metal plated ware is not covered. However, Supplemental Coverages may provide some coverage.

Note: This exclusion is more absolute than the corresponding exclusion in most commercial property coverage forms and policies. They usually cover these items for the same causes of loss as are on the rest of the policy. The items are then subject to a limitation that reduces coverage to a sublimit but only for the theft cause of loss.

22. Trees, Shrubs, Plants, and Lawns

Outdoor trees, shrubs, plants and lawns are not covered but when the items are indoor, there is coverage. In addition, a Coverage Extension may provide some coverage for the property while outdoors.

23. Underground Pipes, Flues, and Drains

24. Valuable Papers and Records

The cost to reproduce, replace, or restore lost information on lost or damaged valuable papers and records is not covered. However, Supplemental Coverages may provide some coverage.

ADDITIONAL COVERAGES

These coverages provide additional amounts of insurance and are subject to the coverage deductible. However, exceptions apply that will be stated within the particular additional coverage. These limits are not used when calculating the coinsurance penalty and are not subject to any coinsurance penalty.

1. Consequential Loss

This coverage insures the loss in value of covered undamaged stock because a covered peril causes loss or damage to other covered stock. Stock is considered to have lost its value if it cannot be marketed.

This additional coverage is part of the limit for stock under Property Covered, not in addition to it.

Note: “Marketed” or “marketable” is not defined or explained. This coverage applies only if the stock is not marketable. There is no coverage if the undamaged stock loses value but can still be marketed when the other stock is damaged.

Example: Peaches, Inc. sells dining room sets. Each set consists of six chairs and a table made of the same wood. A tornado damages the building warehousing the tables but the building with the chairs is undamaged.

The complete set is sold for $5,000. As individual items the table would sell for $1,000 and each chair would sell for $300.Therefore the per set value of the consequential loss is $2,200.

The question is whether or not the chairs are considered to be marketable. If they are, there is no coverage. If they are not, the loss is $2,200 times the number of damaged tables.

2. Debris Removal

Debris removal can be a significant part of loss recovery because rebuilding cannot take place until the debris is off the premises. The cost to remove debris of covered property after a covered loss is limited to 25% of the amount paid for the direct loss. An additional limitation is that the combined debris removal expense plus the direct physical loss cannot exceed the damaged property’s limit of insurance.

If either of these limitations is met, the Additional Debris Removal Expense on the declarations can be added to the available debris removal limit.

Examples:

Green’s limit is $1,000,000. The Additional Debris Removal Expense limit on the declarations is $30,000.

Scenario 1: The fire loss is $900,000. The debris removal expense is $200,000.

The debris removal expense limit is calculated as follows:

·         $900,000 X .25 = $225,000 + $30,000 = $255,000. This is the maximum debris removal expense limit available.

·         $900,000 + $200,000 = $1,100,000 is the value of the claim.

Recovery can be no more than the limit of $1,000,000 plus $30,000 additional debris removal expense. This means only $130,000 is available for the debris removal expense.

Scenario 2: The fire loss is $500,000. The debris removal expense is $300,000.

The debris removal expense limit is calculated as follows:

·         $500,000 X .25 = $125,000 + $30,000 = $155,000. This is the maximum debris removal expense limit available.

·         $500,000 + $155,000 = $655,000 which is less than the potential recovery limit of $1,030,000.

Recovery can be no more than $155,000 which is the maximum debris removal expense limit.

Debris removal expense does not include costs to extract pollutants from land or water or the costs to remove, restore, or replace polluted land or water.

A very important condition is that debris removal expenses must be reported to the insurance company in writing within 180 days after the direct physical loss to covered property.

Note: Covered expenses include demolition, using a wrecking ball, transporting debris, blasting a damaged structure to the ground, and removing damaged inventory or equipment.

3. Emergency Removal

The insurance company pays for the loss of the named insured's property that is being moved or stored at a location away from the covered location to protect it from an anticipated covered peril. Coverage applies for up to 30 days after the property is first moved but does not extend past the expiration date. There is no additional insurance because this is merely moving property from one location to another temporarily.

Note: No exclusions apply to this property while in transit or at the location to which property is removed. However, the peril that threatens the property being removed must be a covered peril.

 

Example: The wildfire gets out of control. The Furrows remove as much stock as they can fit in rented vans and trucks and move it to a vacant warehouse out of the wildfire’s range. Ten days later, torrential rains cause a mudslide that destroys the warehouse and all the property Furrow moved into it. The loss the mudslide causes, normally an excluded peril, is covered because the stock was removed because of fire, a covered peril.

4. Emergency Removal Expense

The insurance company covers the named insured's reasonable expenses to move and to store property to protect it from a covered peril. It pays the limit on the declarations for Emergency Removal Expense. Coverage applies for up to 30 days after the property is first moved but does not extend past the expiration date.

This Additional Coverage is not subject to a deductible.

Example: Continuing the example above, the Furrows spend $1,000 to rent the transporting vans and truck and pay $3,000 to the warehouse owner for the one-month rental. These expenses are covered but only up to the limit for Emergency Removal Expense on the declarations.

5. Fire Department Service Charges

This coverage applies only if the named insured has a written contract or agreement with a fire department. It pays for assumed fire department service charges in a written contract or agreement but only when the response is for the fire department to protect covered property from a covered peril. The maximum payment is the limit on the declarations for Fire Department Service Charges. This Additional Coverage is not subject to a deductible.

 Example: Kell’s combine falls into a ditch. The only vehicle with the towing power needed to pull it out is a fire department engine. The fire department sends him a bill for services that he submits to his insurance company. The company denies the claim because this situation does not involve covered property threatened by a covered peril.

6. Glass Repair or Replacement Expense

Damaged or broken building glass may involve additional costs that are not considered part of the glass loss. This Additional Coverage handles most costs that the named insured incurs. It covers expenses to install temporary plates or boards before the actual glass is replaced. The cost to repair or replace the frames that encase the damaged glass is covered. The cost to remove or replace items that must be moved for contractors to gain access to the glass to repair or replace it is also covered.

Example: The Framington building has a large octagonal window between its 2nd and 3rd stories. The heat from a fire on the 2nd floor causes the window to distort and break. The following expenses are paid in addition to the cost of the window:

  • Boards are installed over the opening because the window will take six weeks to build. The cost to board up the window opening is paid.
  • The fire did not damage the frames, but they were damaged when the window was removed. The cost of the new frames is covered.
  • Access to the exterior of the window was blocked by a first-floor awning. The cost to remove and re-install the awning is covered.

This is not additional insurance coverage. It is part of the limit for either Building Property or Builders’ Risk Property.

7. Inventory and Appraisals Expense

The insurance company pays reasonable expenses the named insured incurs in conducting an inventory and obtaining an appraisal. There is a significant restriction on these expenses. They are paid only if the insurance company has requested the inventory and appraisal to establish the value of a covered loss. In addition, the company does not pay:

The most paid is the limit on the declarations for Inventory and Appraisals Expense but it is not subject to a deductible.

8. Pollutant Clean Up and Removal

There is coverage for expenses the named insured incurs to extract pollutants from land or water at a covered location under specific circumstances. The most paid is the Pollutant Clean Up and Removal limit on the declarations.

The insurance company pays only if a covered peril that occurs during the policy period causes the pollutants to discharge, disperse, seep, migrate, release, or escape. However, it only pays expenses that are reported to it within 180 days from the date the covered peril occurred.

The limit on the declarations is per location aggregate limit. This means that it is the most paid for all covered pollutant clean up expenses at a location in a single 12-month policy period.

The costs to test for pollutants while they are being extracted are also covered. However, there is no coverage for any other costs to test for, evaluate, observe, or record the existence, level, or effects of pollutants.

This Additional Coverage is not subject to a deductible unless there is one on the declarations.

9. Recharge of Fire Extinguishing Equipment

This Additional Coverage pays expenses the named insured must pay to recharge both automatic and handheld fire extinguishing equipment because it was discharged. Coverage applies only if it was the discharged to fight a fire or the discharge occurred because of a covered peril. Because hydrostatic testing is a part of recharging an automatic system, that expense is also covered. The most paid is the Recharge of Fire Protection Equipment limit on the declarations.

The insurance company has the option to replace the equipment instead of recharging it if it is less expensive to do so.

There is no coverage when the discharge results from testing or during installation.

This Additional Coverage is not subject to a deductible.

Example: Vandals broke into Green’s Farm. They discovered the handheld fire extinguishers and discharged them inside and outside the building. The cost to recharge them is covered under this Additional Coverage.

COVERAGE EXTENSIONS

A Coverage Extension applies only when there is a limit for it on the declarations. Coverage Extensions apply only to direct physical loss or damage that a covered peril causes. This means that while the direct damage loss may be covered, any loss of income or extra expense would not be.

The coverage is part of the applicable limit for coverage described under Property Covered, not in addition to it.

Coverage Extensions are not subject to coinsurance. However, they are subject to the deductible that applies, unless stated otherwise.

Example: The limit of insurance is $1,000,000. The Fraud or Deceit limit is $50,000. Only $1,000,000 is available to apply to a total loss that involves both a standard peril and Fraud or Deceit. The $50,000 Fraud and Deceit sub-limit is not added to the $1,000,000 limit.

1. Fraud or Deceit

The named insured, its agents, customers, or consignees may be fraudulently induced to part with covered property. Such losses are treated as theft. The inducement must be by persons who falsely represent themselves as the proper persons to receive the property or through the acceptance of bills of lading or shipping receipts that are fraudulent.

The limit on the declarations for Fraud or Deceit is the most paid in a single occurrence. This limit is a sub-limit. It is not an additional amount of insurance.

Example: Grady Trucking provides a bill of lading for 1,000 cases of wine to the warehouseman at Amicable Wineries. The name on the bill of lading is George’s Restaurant, a regular customer. The order is filled and Grady Trucking leaves the premises.

George calls Amicable when he receives the invoice for the 1,000 cases of wine, denies any knowledge of the transaction and refuses to pay. Grady Trucking and the wine is never located.

Amicable’s loss is covered up to the limit for Fraud and Deceit on the declarations.

2. Newly Acquired Computers

This extension applies when there is a limit on the declarations schedule for computers. If the named insured acquires new computers during the policy period, then they are covered up to the limit on the declarations for Newly Acquired Computers limit on the declarations. Coverage for those computers ends on the expiration date of the policy period during which they were acquired.

The limit on the declarations for Newly Acquired Computers is the most paid in a single occurrence. This limit is a sub-limit. It is not an additional amount of insurance.

3. Newly Acquired or Constructed Buildings

This Coverage Extension extends the building limit of insurance at a covered location to the following:

A major limitation on this extension is that such buildings or structures are covered only if the building use is similar to how other buildings on the policy are used or for warehousing.

Example: Prado is an egg producer. All buildings at all locations are related to egg production. Prado buys a convenience store in town. This extension does not provide coverage for that new acquisition because its use is not similar Prado’s other buildings.

The limit on the declarations for Newly Acquired or Constructed Buildings is the most paid in a single occurrence. This limit is a sub-limit. It is not an additional amount of insurance. Coverage ends on the expiration date.

Example: Prado has five buildings at its location. The limit for the location is $2,000,000. The limit for newly acquired or constructed buildings is $300,000. A new hatchery building valued at $250,000 is built on the location after the policy period begins. Only $2,000,000 is available to pay for all six buildings if a fire destroys them all, not $2,000,000 for the five building plus $250,000 for the newly constructed building.

4. Newly Acquired Mobile Equipment

This extension applies when there is a limit on the declarations schedule for mobile equipment. If the named insured acquires new mobile equipment during the policy period that equipment is covered up to the limit on the declarations for Newly Acquired Mobile Equipment. This limit is a sub-limit. It is not an additional amount of insurance. Coverage ends on the expiration date.

5. Personal Effects

Personal effects of the named insured, its partners, its members, managers, and its employees are covered while on a covered location or within 1,000 feet of it. This coverage applies only if this coverage form does not provide such coverage elsewhere.

The limit on the declarations for Personal Effects is the most paid in a single occurrence. This limit is a sub-limit. It is not an additional amount of insurance.

Note: The named insured can decide whether or not to extend this coverage to other parties. It may decide not to because doing so would reduce the limit available to pay for its business personal property.

6. Personal Property–Acquired Locations

Personal property at a location the named insured acquires during the policy period is covered if that location is used similarly to a covered location or for warehousing. This Coverage Extension does not apply to personal property at exhibitions or fairs and only applies during the policy period when the location is acquired.

The limit on the declarations for Personal Property–Acquired Locations is the most paid in a single occurrence. This limit is a sub-limit. It is not an additional amount of insurance. Coverage ends on the expiration date.

7. Property Away From a Covered Location

This Coverage Extension insures covered personal property or stock that is temporarily away from a covered location. Coverage does not apply to property in the following circumstances:

The limit on the declarations for Property Away From a Covered Location is the most paid in a single occurrence. This limit is a sub-limit of the limits for personal property or stock. It is not an additional amount of insurance.

8. Stock–Acquired Locations

Stock at a location the named insured acquires during the policy period is covered if that location is used similarly to a covered location or for warehousing. This Coverage Extension does not apply to stock at exhibitions or fairs and applies only during the policy period when the location is acquired.

The limit on the declarations for Stock–Acquired Locations is the most paid in a single occurrence. This limit is a sub-limit. It is not an additional amount of insurance. Coverage ends on the expiration date.

9. Trees, Shrubs, Plants, and Lawns

This Coverage Extension extends the building limit to cover the named insured’s trees, shrubs, plants, and lawns that are outdoors and that are not stock. Coverage applies only to loss or damage that fire, lightning, explosion, riot, civil commotion, or falling objects causes.

The limit on the declarations for Trees, Shrubs, Plants, and Lawns is the most paid in a single occurrence. This limit is a sub-limit of the building limit and includes costs to remove debris of covered property. It is not an additional amount of insurance.

SUPPLEMENTAL COVERAGES

Supplemental Coverages apply only when there is a limit for the supplemental coverage on the declarations. The limit applies to only those involved in direct physical loss or damage caused by a covered peril causes. The limit for a Supplemental Coverage is additional insurance and is subject to the deductible. Supplemental Coverages are not subject to any coinsurance conditions that otherwise apply.

Example: The limit on the declarations for Stock is $1,000,000. The Brands and Labels Expense limit is $50,000. If there is a total loss and the named insured wants to remove all labels from potential salvage, the $1,000,000 limit pays the loss and $50,000 is available for its expenses to remove the labels.

1. Accounts Receivable

This Supplemental Coverage insures certain losses or expenses the named insured incurs because of loss or damage to its records of accounts receivable that a covered peril causes. Only the following are covered:

The limit on the declarations for Accounts Receivable is the most paid in a single occurrence. This Supplemental Coverage is not subject to a deductible.

2. Brands or Labels Expense

Two types of coverage are provided.

The first type is really an agreement. The insurance company agrees that after a covered loss, all labels and branding can be removed from salvageable covered stock as long as the stock is not damaged and that it is relabeled as required by law. This significantly reduces the value of the salvage, but it protects the reputation of the named insured’s brand.

The second type of coverage pays for the expense incurred by the named insured to remove the labels and brands and to relabel as the law requires.

The limit on the declarations for Brands or Labels Expense is the most paid for expenses incurred in a single occurrence. This Supplemental Coverage is not subject to a deductible.

Example: Megan’s Tomatoes is an organic produce supplier. She sustains damage to her stock from a small but very smoky fire. The insurance company takes the salvage and gets an offer to purchase from an animal feed manufacturer. Because of this coverage Megan can demand that she be allowed to remove all labeling so that her brand is not associated with animal feed. The expenses she incurs to have the tomatoes removed from printed packaging and labels removed from the tomatoes before having them repackaged into plain brown sacks and boxes is paid under this coverage. The tomatoes in brown sacks are then sold to the animal feed manufacturer.

3. Carrier Liability

Property Not Covered 19. Property of Others excludes coverage for property of others if the named insured operates as a carrier for hire. This Supplemental Coverage is the exception to that exclusion. It covers the named insured's legal liability for loss to property of others. The legal liability must be imposed by the shipping documents the named insured provides as a common or contract carrier for hire.

Coverage applies to direct physical loss or damage to property of others in transit and in the named insured's care, custody, or control. The property must also be in a vehicle the named insured owns or leases.

Coverage also applies to the named insured's earned freight charges from the point of shipment to the point where the loss or damage occurs. This is subject to the charges not being paid and not collectible from the shipper or that the shipper is required to refund because of a covered loss.

However, there is no coverage for any fees, fines, penalties, costs, expenses, or damages that result from the named insured violating any law or regulation that relates to any delay in denying, paying, or settling any claim.

The limit on the declarations for Carrier Liability is the most paid in a single occurrence.

Example: Jeremy transports his own goods on his own truck from Evansville to Indianapolis. Rather than return to Evansville with an empty truck, he has contracted with three companies in Indianapolis to bring their products to Evansville. When an accident occurs, this coverage pays for his legal liability to those products of others.

4. Fine Arts, Furs, Guns, Jewelry, and Metals

Property Not Covered 9. Fine Arts, 11. Furs, 12. Guns, and 14. Jewelry, Watches, Jewels, Pearls, Precious Stones, and Metals excludes coverage for this property. This Supplemental Coverage is the exception to those exclusions. It covers direct physical loss or damage to fine arts, furs, fur garments, guns, jewelry and related property, and precious metals.

Coverage for fine arts applies while at a covered location, at temporary exhibit locations, or in transit between the two. The limit for Property in Transit and the limit for Property on Exhibition cannot be combined with this limit to increase the limit of insurance available to pay losses.

The limit on the declarations for Fine Arts, Furs, Guns, Jewelry, and Metals is the most paid in a single occurrence.

Example: A theft loss occurs at Plantation Grains. In addition to stock and personal property, three statues, five guns and three gold bars are stolen. The maximum payment for the sum of the value of statues, guns and gold bars is the limit on the Fine Arts, Furs, Guns, Jewelry and Metals limit on the Declaration. The payment does not reduce the limit available to pay for the stock and personal property loss.

5. Loss of Use of Dwellings

This coverage is like personal lines loss of use coverage. The limit of insurance on the declarations for Loss of Use of Dwellings is the most paid in a single occurrence.

Coverage is provided for increased living costs the named insured incurs because of a covered loss to a covered location but only if the named insured resides in the covered property or was a tenant and the contents were covered property. The costs are only those needed to bring the household to the same standard of living that existed prior to the loss.

If the named insured so chooses, coverage can be provided for others who reside at the covered location. The increased living costs that are incurred because a covered loss causes their principal residence to be unfit to live in are covered. The expenses paid are only the amount needed to maintain the normal standard of living of their household. Remember that payment for loss of use for others reduces the amount of coverage available to the named insured for his or her personal loss of use, if part of the same occurrence, because there is only one loss of use dwelling limit.

Example: Hagel Farms has three dwellings on the premises. A wildfire overruns the premises and damages all three.

·         The Hagel family home has 5 bedrooms, 2 baths, and a built-in swimming pool.

·         The cook has a small home on the property with two bedrooms and 1 bath.

·         The manager has a four-bedroom, two-bath home with standard amenities.

The Hagel family calculates that its increase in living expenses will be $10,000 per month, the cook’s at $1,000 per month, and the manager‘s at $5,000 per month. The limit for Loss of Use of Dwellings is $50,000.

The Hagels are paid $10,000 per month until the limit is exhausted, or the dwelling is restored. They can choose if they want to share the limit and extend coverage to apply to the cook's and manager’s dwellings loss of use.

Expenses are paid until the property can be occupied again, the family is permanently relocated, or the limit is exhausted, whichever comes first. Policy expiration does not impact the time of coverage.

If a neighboring premises has a covered loss and the civil authorities refuse to allow the residents on the named insured’s location to stay in their homes, there is coverage for those residents’ additional living expenses for up to two weeks.

6. Ordinance or Law–Increased Costs

Perils Excluded 1. a. Ordinance or Law excludes coverage for all loss or additional costs incurred because of ordinances or laws imposed on a damaged building being rebuilt. This Supplemental Coverage is the exception to that exclusion. It provides multiple coverages but there is only one limit of insurance. This limit applies to the total of all covered loss in a single occurrence which this Supplemental Coverage provides.

Related Court Case: Insured Had Right To Appraisal Regarding Ordinance And Law Coverage

a. Increased Cost to Repair

Coverage is provided for the increased costs that occur because ordinances or laws that had been grandfathered are enforced following a covered loss. For these costs to be covered, the ordinance or law must be in place at the enforced time due to the occurrence of a significant covered loss. Coverage applies to both damaged and undamaged covered property.

Example: A windstorm damages the main building at Peppering’s Plantation. According to city ordinances, Peppering must increase the width of the hallways and the entrances and add a sprinkler system in the meeting area. Coverage for the additional expense applies because the laws were in effect at the time of loss, but compliance was not required until a loss occurred that damaged more than 50% of the building’s total area.

If prior to a loss the insured was notified of noncompliance to an ordinance or law and chose to ignore it, there is no coverage for the increased cost of repair due to that ordinance or law following a loss. To have coverage the repairs must be made and must be completed within two years.

b. Cost to Demolish and Clear Site

Coverage also applies to the cost to demolish and clear the site of undamaged parts of the covered building or structure that a covered peril damages. The demolition required must be due to an ordinance, law, or decree in force at the time of the covered loss to the covered building or structure.

Example:

Grendel’s Hog Farm sustains extensive fire and smoke damage.

The contractors apply for the required building permit but learn that the building must be demolished and moved.

Because the property sustained more than 55% damage, a city ordinance is invoked that no longer permits such operations within city limits.

The coverage outlined in ‘Increased Cost to Repair’ above pays the increased costs to rebuild in another area.

Costs to ‘Demolish and Clear Site’ coverage applies to the cost to demolish the undamaged part of the building.

The value of any undamaged part of a building that must be demolished is not covered. 4. Ordinance or Law–Undamaged Part of a Building under Other Coverages addresses this exposure.

c. Pollutants

There is no coverage for costs that relate to enforcing any ordinance, law, or decree that involves testing for or assessing the effects of pollutants.

d. What is Paid if Building Repaired or Replaced

The actual costs incurred or the Increased Costs – Ordinance or Law limit on the declarations, whichever is less, are paid. The actual costs cannot exceed what it would cost to construct a building of the same height, area and style for the same occupancy.

e. What is Paid if Building NOT Repaired or Replaced

The actual demolition costs plus the amounts that the insured would have spent had the property been replaced with similar property or the Increased Costs – Ordinance or Law limit on the declarations, whichever is less, are paid.

Note: Other Coverages 4. Ordinance or Law–Undamaged Parts of a Building completes this coverage. It covers the value of the undamaged part of the building that must be demolished.

7. Overseas Transit and Location

This Supplemental Coverage insures direct physical loss to personal property that is temporarily outside this coverage form’s Territorial Limits. Coverage also applies to property in transit to or from such temporary foreign locations. This coverage is subject to the Overseas Transit and Location limit. The following limits the personal property coverage provided:

a. Covered Personal Property

Only the following personal property is covered:

b. General Average Charges

If the named insured must contribute to a General Average Loss under the York-Antwerp Rules, there is coverage but only in proportion of the value of the property to the actual contributory value of the property.

Related Article: Ocean Marine Cargo Insurance

c. Additional Property Not Covered

This item is added to Property Not Covered but only for this Supplemental Coverage. The following property is excluded:

The limit on the declarations for Overseas Transit and Location is the most paid in a single occurrence. and cannot be combined with the limit for Property in Transit, the limit for Property on Exhibition, or the limit for Sales Representatives Samples.

8. Property in Transit

Covered personal property or stock at a covered location is also covered while in transit. Coverage applies regardless of the number of vehicles, containers, or conveyances involved in the loss.

Note: This statement does not state if the limit is per vehicle or per occurrence. This could cause confusion if a loss occurs.

Example: Jamison Foods ships produce quickly. It loads five different semis and they begin their trips on the same highway. They start to merge onto the highway when the lead truck suddenly stops to avoid hitting a passing car. All the other trucks brake hard. They avoid striking each other, but their loads shift and Jamison’s produce is all damaged. Is this a single occurrence (with a single limit applying) or are there five separate occurrences (with the limit applying to each event)?

This insurance does not apply to property in the care, custody, or control of sales representatives.

The limit for this Supplemental Coverage is not combined with the limits for Fine Arts, Furs, Guns, Jewelry, and Metals or Property on Exhibition.

9. Property on Exhibition

Covered personal property or stock at a covered location is also covered while it is being displayed or exhibited elsewhere. It is required that the property be at the location there only temporarily and that the named insured must not occupy that location.

The limit on the declarations for Property on Exhibition is the most paid in a single occurrence and cannot be combined with the limits for Fine Arts, Furs, Guns, Jewelry, and Metals or Property in Transit.

10. Property Sold under Installment Sales Plan

Stock that is sold by the named insured under an installment sales plan is covered for direct physical loss while in transit to the purchaser and after delivery to that purchaser. The physical loss must be due to a covered peril and the installment sales plan must be either a conditional sale or trust agreement or any type of deferred payment plan. This coverage is open-ended but is still subject to rules of indemnity. This coverage is for the benefit of the named insured, not the purchaser, so coverage is limited to the named insured’s interest in the property.

The limit on the declarations for this Supplemental Coverage is the most paid in a single occurrence but it cannot be combined with the limit for Property in Transit.

Example: Marilee wants to purchase a large table from Wood Acres Farms but does not know how it will fit and look in her dining room. She is a good customer so Marty, Wood Acres’ manager, agrees to deliver it to her on a trial basis. Marilee examines the table in her home for three days when a fire in her kitchen spreads and damages the table. The Wood Acres Farm policy covers the damage to the table up to the limit on the declarations for Property Sold Under Installment Sales Plan.

11. Sales Representative Samples

This Supplemental Coverage insures the named insured's sample stock, its containers, and similar property of others. Coverage applies when the samples are in any of the following:

The limit on the declarations for this Supplemental Coverage is the most paid.

Note: The limit does not state if it is per occurrence or per sales representative. This could be confusing and create problems if a loss occurs when multiple sales representative are at the same location.

12. Sewer Backup and Water below the Surface

Note: The Water exclusion in this form is deleted and replaced by mandatory exclusion AG 0149–Water Damage Amendments. This exclusion also deletes and replaces this Supplementary Coverage.

Because of this, the replacing Supplementary Coverage is analyzed in place of the one in the form.

Coverage applies to direct physical loss from any of the following causes:

However, there is no coverage if the damage is due to an insured failing to maintain the sump or perform normal sewer or drain maintenance.

The limit on the declarations for this Supplemental Coverage is the most paid in a single occurrence.

13. Spoilage

Spoilage of the named insured's perishable stock that is at a covered location is covered. Spoilage of similar property of others at a covered location is also covered but only for the named insured’s interest in it.

a. Only spoilage caused by the following is covered:

·         Breakdown

Any change in temperature or humidity that occurs because of a refrigeration system mechanical breakdown, malfunction, or failure. This applies if the breakdown is of the entire system or the equipment controlling it.

·         Contamination

Only contamination by the refrigeration system’s refrigerant is covered.

·         Power disruption

Any change in temperature or humidity that occurs because there is a total or partial lack of electrical power or there is a fluctuation of electric current. To be covered, the power disruption must be outside the named insured’s control.

b. The following exclusions apply to only this Supplemental Coverage:

·         Loss that occurs because a power cord is unplugged, or a power switch is turned off

·         Loss that occurs because glass that makes up a permanent part of the refrigeration system breaks

·         Loss that results from an electrical utility doing either of the following:

o   Failing to provide sufficient power because it does have enough fuel

o   Failing to provide sufficient power because of a government order

·         Loss that results from the covered location not being able to generate enough capacity to meet the demand

·         Any loss due to business interruption, delay, loss of use, or loss of market unless so noted on the declarations

Example: Gerard Fruits and Vegetables receives power from the local power company. Gerard also keeps a generator on hand in case of a power failure. One summer the state ordered a rolling blackout because of supply problems. Gerard was prepared and had a generator on hand.

Unfortunately, the generator was too small to meet the refrigeration demand. All his frozen produce thawed and spoiled, resulting in a large loss. When he submitted a claim, it was denied because the power disruption was due to the government order and his lack of generating power.

c. Additional Condition–Refrigeration, Maintenance, or Service Agreement

The insured is required to have a refrigeration maintenance or service agreement. Spoilage coverage ends if the named insured terminates such an agreement or is aware that it has been terminated or suspended unless notification is provided to the insurance company within a reasonable time.

Note: The wording doesn’t say what happens after the insurance company receives such a notification. Would they then have the option to immediately terminate coverage or would the standard cancellation rules apply?

Even when spoilage coverage has been terminated due to the lack of such notification, coverage continues to apply for spoilage loss due to power disruption but only if the disruption is due to a disruption off the covered location.

The limit on the declarations for this Supplemental Coverage is the most paid in a single occurrence.

14. Surface Water Run-Off

This Supplemental Coverage insures damage to covered liquid property that is stored in a permanently installed bulk storage tank that is caused by any surface water runoff. This supplemental only applies if the bulk storage tank is covered under this policy.

The limit on the declarations for this Supplemental Coverage is the most paid in a single occurrence.

15. Tank Leakage

This Supplemental Coverage insures damage to covered liquid property stored within an above ground tank that is caused by leakage. The damage is only covered when the leakage happens because the tank or its parts suddenly and accidentally break, failure or malfunctions. This supplemental applies only if the tank is covered under this policy.

This unusual coverage also pays for the expenses the named insured incurs to extract the leaked liquid property from land or water. These expenses are paid only if the named insured reports the expenses to the insurance company within 180 days of the leakage date. Coverage does not apply to any of the following:

Costs to evaluate, test, record, or observe any aspect of pollutants. However, the costs for tests that are a part of extracting the covered liquid property from land or water are covered. This limit may not be combined with the limit for Pollutant Cleanup and Removal on the declarations.

The limit on the declarations for this Supplemental Coverage is the most paid in a single occurrence.

Examples:

#1. A windstorm rips through Brian’s compound. It rips off the pipes attached to the anhydrous ammonia tank and the liquid flows out. The loss of the anhydrous ammonia is covered.

#2. Thieves target Brian’s anhydrous ammonia tank. They pry open the valve, steal a small amount, and replace the valve to prevent discovery. Brian runs out of anhydrous ammonia well before his records indicate that his supply should be exhausted. This loss is not covered because it was only revealed through an inventory.

16. Utility Service Interruption

Direct physical loss to covered property caused when utility service to a covered location is interrupted is covered. However, in this Supplementary Coverage, property does not include perishable stock.

The interruption must occur because of direct physical loss or damage at utility service property that is not insured under this policy. A utility, a landlord, or another supplier must own the utility service property. The only utility services covered are those selected on the declarations.

All the following are considered utility service property:

The limit on the declarations for this Supplemental Coverage is the most paid in a single occurrence.

17. Valuable Papers and Records–Cost of Research

Property Not Covered 24. Valuable Papers and Records excludes the cost to reproduce valuable papers and records. This Supplemental Coverage is the exception to that exclusion. It covers the costs of research and other expenses required to reproduce, replace, or restore information that was on lost or damaged valuable papers and records.

The limit on the declarations for this Supplemental Coverage is the most paid in a single occurrence.

Example: The Fairly Nice Cattle Farm breeds a unique type of cattle valued for its milk production. It maintains extensive genealogical records to prevent inbreeding and to ensure that it uses only the healthiest breeding stock. A fire destroys the office and its breeding records. The only source to replace the information is its customers’ breeding information. By contacting each customer, Fairly Nice re-creates nearly 90% of the destroyed records. This supplemental coverage covers the cost to research the customer base, contact each one, and obtain the needed information.

18. Watercraft

Property Not Covered 2. Aircraft and Watercraft excludes most aircraft and watercraft. This Supplemental Coverage is an exception to that exclusion. It covers direct physical loss or damage to watercraft and their trailers, furnishings, motors, and equipment.

The limit on the declarations for this Supplemental Coverage is the most paid in a single occurrence.

19. Wrongful Delivery of Liquid Property

This Supplemental Coverage insures covered liquid property that is damaged, devalued or becomes unusable because it was pumped into the wrong permanently installed bulk storage tank.

Note: The value of the delivered property is covered. The value of the liquid property already in the tank is not.

Examples:

  • The price of Grade A milk erroneously placed in a Grade B milk storage tank is reduced. This coverage pays the price difference between Grades A and B.
  • There is no coverage when Grade B milk is erroneously introduced into Grade A milk. This is because the Grade B milk delivered is not devalued. The Grade A milk is devalued but that devaluation is not part of this coverage.

INCOME COVERAGE

1. Coverages

Three separate income coverages are available in four combinations based on entries on the declarations. The four coverage options are:

a. Earnings, Rents, and Extra Expense

b. Earnings and Extra Expense

c. Rents and Extra Expense

d. Extra Expense only

Under the Earnings, Rents, and Extra Expense option, Earnings includes rents. Under the Rents and Extra Expense option, Earnings includes only rents.

2. Coverage Limitations

Coverage applies during the restoration period. Covered direct physical loss or damage that occurs during the policy period must totally or partially interrupt the named insured’s normal business activities.

Coverage is further subject to either of the following:

The insurance company pays only the loss of applicable earnings and extra expenses incurred during the 12 months immediately following the date of direct physical loss or damage to covered property.

EARNINGS

This coverage insures the named insured's actual loss of net income it would have earned if there was no loss. The loss must be due to covered direct physical loss or damage to covered property. In addition to the named insured’s net income, coverage also applies to its business operating expenses that continue. This includes payroll expense but is not limited to just it.

Related Court Case: Business Interruption Insurance Held Not To Indemnify When Net Loss Exceeded Operating Expenses

The named insured's loss of net income does not include income it might have earned as a result of business conditions that arise out of the peril that caused the loss and interrupted the named insured's business activities.

Example: A hurricane destroys Michael's Green Vegetables processing plant along with several other businesses in the area. The price of green vegetables increases 25% because of the destruction the hurricane caused. Michael's business income is based on what it would have earned if there was no loss and does not include the 25% price increase.

EXTRA EXPENSE

This coverage insures the necessary extra expenses the named insured incurs during the restoration period that it would not have been incurred if there was no loss. The loss must be due to covered direct physical loss or damage to covered property. It also covers extra expenses incurred to avoid or reduce interruptions in business operations such as continuing operations at a replacement or temporary location and even continuing at the damaged covered location. This coverage also applies to expenses and costs to relocate, equip, and operate such temporary or replacement locations.

Coverage also applies to extra expenses the named insured incurs that reduce the amount of time operations must be interrupted when they cannot continue.

The following extra expenses are also covered but for no more than the amount by which they reduce losses that would have otherwise been payable:

Example: Periwinkles refuses to cease operations because it does not want to lose customers. As a result, it takes the following steps after a loss:

  • Rents out space in a neighboring town. This extra expense is covered.
  • Pays expedited delivery charges to have replacement property delivered to the rented space. This extra expense is covered but only if it reduces the Earnings loss.
  • Notifies all its customers and vendors of the change in address. This extra expense is covered.
  • Pays employees overtime to prepare the space for operations. This extra expense is covered.
  • Pays to re-create all customer and vendor contracts. This extra expense is covered but only if it reduces the Earnings loss.

EXCLUSIONS AND LIMITATIONS

The Perils Excluded section applies to Income Coverage. The following exclusions and limitations are in addition to those in the Perils Excluded section and apply to only Income Coverage.

1. Finished Stock

There is no coverage for loss of earnings due to damage to finished stock or for time needed to reproduce that finished stock. Finished stock awaiting sale at a covered retail location is not subject to this exclusion.

2. Leases, Licenses, Contracts, or Orders

Coverage does not apply to any increase in loss due to any of these being cancelled, suspended, or lapsed.

However, coverage does apply if they are the direct result of interruption of the named insured's business operations. Coverage is limited to the amount of loss within the restoration period.

Example: Maple Farms has a contract to supply product with a cereal manufacture. A fire occurs at the Maple processing building and Maple is unable to fulfill the contract. The contract lapses and the income for that contract is covered until operations can resume. Once operations can resume, the income lost due to suspended contract is no longer paid.

3. Mobile Equipment Rental Reimbursement

Coverage for rental replacement mobile equipment expense is denied under the following circumstances:

Examples:

Muley’s backhoe is damaged but can be repaired. His son has a backhoe he will loan to him free of charge. There is no extra expense coverage.

Muley’s son needs his backhoe back, but the repairs to Muley’s backhoe are not completed, and 72 hours have passed. Muley rents a backhoe for the three weeks it takes until the backhoe repairs are completed.  Muley should be reimbursed when he presents the insurance company with the rental receipt.

4. Radio and Television Antennas

Loss of earnings or extra expense due to damage to any radio or television antenna and attachments is excluded. However, coverage can be provided based on entries on the declarations.

5. Software

There is no coverage for loss of earnings caused by loss of or damage to software beyond the longer of the following:

a. Sixty consecutive days from the date of loss unless there is a different number of days on the declarations

b. The period of time from the date of loss to the date that other property the same occurrence damaged could reasonably be repaired, replaced, or rebuilt with similar materials

Example: A fire at Logsdon Farms destroys a barn and three computers in it. The computer software is proprietary and must be recreated. The barn and computers are replaced and operational within 90 days, but the software is not yet available. Coverage ends after 90 days because it is the longer of the two time limitations even though the software is not yet recreated.

6. Strikes, Protests, and Other Interference

The insurance company does not cover any increase in loss due to strikers or other persons who are at the location interfering with the named insured’s being able to repair, replace, or rebuild the property and resume operations.

Example: Melter's Veal Products looks forward to resuming operations after a loss at their processing plant.

Scenario 1: Animal activists protest at the insured’s jobsite, and the contractors doing the work will not breach the protestors. As a result, the protesters manage to slow reconstruction by three weeks. The insurance company does not pay for any loss of earnings during those three weeks.

Scenario 2: Animal activists protest at the Contractors office location. Contractors are in sympathy with the protestors and refuse to work at the jobsite until the protesters leave their office. The insurance company would pay for this loss of earnings because the protestors are not at the insured location.

INCOME COVERAGE EXTENSIONS

Each Income Coverage Extension is part of the Income Coverage limit on the declarations. All extensions are subject to the deductible that applies, unless otherwise noted.

1. Interruption by Civil Authority

Earnings and extra expense coverage can be extended to include loss sustained when an order by a civil authority denies access to a covered location or a dependent location. The order must result from covered direct physical loss or damage to property that is located at other than a covered location. Coverage ends 30 days after the date of the order.

Examples:

·         Access to the Ferguson Farm is denied because of a breakout of foot and mouth disease. This interruption by civil authority is not covered.

·         A wildfire in the mountains that surround the Ferguson Farm causes the civil authority to close the road to all but emergency personnel. This interruption by civil authority is covered because fire is a covered peril.

2. Period of Loss Extension after Business Resumes

The named insured can extend earnings coverage to include loss of income that continues after the property damaged is rebuilt, repaired, or replaced and the named insured resumes business operations or restores tenability. Coverage applies for the first of the following that takes place:

·         Up to 90 consecutive days or a different number of days on the declarations

·         The date that business operations could be reasonably restored to the level that existed before the loss or damage

This coverage extension does not apply to any loss of net income due to unfavorable business conditions that a covered peril creates.

Example: A tornado cut through Mainville. Green’s Feed and Seed sustains a loss but is back in business within 90 days.

Scenario 1: Green’s customer base started buying from a competitor in a neighboring town. It takes 60 days before his business rebuilds. The Period of Loss Extension coverage pays for loss of income during those 60 days.

Scenario 2: Green’s customer base is devastated and uncertain about insurance payout and losses. They are not buying anything until they know. Green will not receive any payment under Period of Loss Extension.

3. Grain Storage Income

The named insured can extend coverage to include losses sustained when it cannot complete a contract for grain storage due to a covered peril at a covered location. The insurance company pays the actual loss of contractual storage earnings sustained for up to 90 days after the restoration period ends. The number of days can be changed.

4. Seasonal Coverage

Some operations produce all their annual income based on crops from a single season. A loss to that seasonal property eliminates income for an entire year. This unique coverage helps those operations.

The named insured can extend earnings coverage because it cannot obtain, receive, store, or process seasonal produce due to a covered loss at a covered location.

The insurance company pays the actual loss the named insured sustains for the longer of 365 days or the period of restoration. The number of days can be changed.

Example: Sweet Bees specializes in producing orange blossom honey. A fire destroys both the honey processing building and the honey after it is harvested. Sweet Bees cannot resume operations, even after the processing building is rebuilt, until the bees collect nectar from the orange blossoms the following spring.

ADDITIONAL INCOME COVERAGES

Additional Income Coverages provide additional insurance limits. They are not subject to or considered in applying coinsurance provisions in cases subject to coinsurance. Each is subject to the deductible unless otherwise noted.

1. Newly Acquired Locations, Earnings, and Extra Expense

Earnings and extra expense coverage extends to cover losses at any location the named insured acquires during the policy period but only if there is a limit on the declarations for this additional income coverage. Coverage for the location acquired ends when the policy period ends. The most the insurance company pays is the limit on the declarations for newly acquired locations.

Example: Perry has a $50,000 limit on the declarations for Newly Acquired Locations, Earnings, and Extra Expense. The policy period is 01/01/23 to 01/01/24. The renewal policy period is 01/01/24 to 01/01/25. Perry acquires a new location on 12/15/23. A covered loss occurs on 01/02/25. Neither policy covers the loss because Perry acquired the location in one policy period and the loss occurred in the other. Property acquired near the end of the policy period can be easily overlooked at renewal and lead to gaps in coverage.

2. Newly Acquired Locations, Extra Expense Only

Extra expense coverage extends to cover losses at any location the named insured acquires during the policy period but only if there is a limit on the declarations for this additional income coverage. Coverage for the acquired location ends when the policy period ends. The most the insurance company pays is the limit on the declarations for newly acquired locations.

SUPPLEMENTAL INCOME COVERAGES

Supplemental Income Coverages apply only when there is a limit on the declarations for that coverage. A covered peril must cause the loss, unless otherwise stated. The limit is a per occurrence limit. These coverages provide additional insurance and are part of any coinsurance consideration. Each is subject to the deductible unless otherwise noted.

1. Public Health Shutdown

A public health shutdown can significantly impact the earnings of an operation. This coverage provides earnings and/or extra expense coverage when a public health authority suspends or shuts down the named insured’s operations. Coverage applies only if the authority suspects or has actually discovered harmful organisms in food the named insured sells, handles, or distributes.

Coverage begins when normal business operations are first shut down or suspended. It ends on the shorter of the following time periods:

·         Thirty consecutive days later

·         When the authority allows operations to resume

This coverage does not apply when the period of time before operations can resume is because ordinances, laws, or decrees require any of the following:

·         Constructing, repairing, using, or demolishing of any property

·         Testing, evaluating, observing, or recording any aspect of pollutants

·         Cleaning up, removing, containing, treating, detoxifying, or neutralizing pollutants

The limit of insurance is on the declarations.

2. Dependent Locations

Earnings and/or Extra Expense coverage applies when a dependent property sustains direct physical loss that interrupts the named insured’s operations. This coverage is subject to the limit for Dependent Locations on the declarations and applies during only the period of restoration during which the named insured’s business is interrupted. The covered direct physical loss must occur during the policy period.

Example: Cousins Co-op sustains a significant loss and is unable to accept any produce. Millie’s Farm ships all its produce to Cousins. Because Cousins cannot accept the produce, Millie sustains a significant loss of income. However, after 30 days Millie’s can contract with another group and begins to ship produce to it. This reduces the loss but there is an extra expense loss that will continue to be paid.

3. Utility Service Interruption

Earnings and/or extra expense apply when a utility service property sustains direct physical damage and interrupts utility service to a covered location. However, in this Supplementary Coverage, property does not include perishable stock. The covered direct physical loss must occur during the policy period. The interruption must occur because of direct physical loss or damage at utility service property that is not insured under this policy. A utility, a landlord, or another supplier must own the utility service property. The only utility services covered are those selected on the declarations.

All the following are considered utility service property:

Earnings coverage does not begin until 12 hours after the covered loss to the property that the utility, landlord, or other supplier owns. However, this waiting period does not apply to any extra expenses the named insured incurs. Both earnings and extra expense coverage continues during only the period of restoration.

Example: A truck strikes a transformer. This shuts down the electric service to Colby’s Winery. The accident occurs at 4:00 a.m. two blocks away from Colby’s premises. The electric utility company works as fast as it can to repair the transformer, but it takes 24 hours to restore Colby’s electricity. Colby’s payment for its loss of income begins at 4:00 p.m. because coverage begins 12 hours after the time of the accident.

4. Contract Penalty

This Supplemental Income Coverage covers contract penalties the named insured is assessed or is required to pay because it cannot fill an order on time or complete a project according to contract conditions or terms. However, coverage applies only if there is a limit on the declarations for this Supplemental Coverage.

The reason the named insured cannot fill an order on time or complete a project must be due to covered direct physical loss or damage to covered property at a covered location.

Example: Fresh Fruit Farms has a contract to supply strawberries to My Fine Preserves. The contract penalty for failing to do so is $10,000. Fresh Fruit cannot meet the contract terms because of a fire at its premises and it sustains the $10,000 penalty. This supplemental income coverage pays the penalty amount.

5. Property in Transit, on Exhibition, or In the Custody of Sales Representatives

Earnings and/or extra expense coverage applies to the named insured’s loss because its business is interrupted due to covered direct physical loss to property that is in transit, on exhibition, or in a sales representative’s custody. However, coverage applies only if there is a limit on the declarations for Property in Transit, On Exhibition, or in the Custody of Sales Representatives.

A vehicle parked on a dirt road Description automatically generated

Example: Pam usually receives 25% of her orders during the Beekeepers Association annual meeting. Rather than haul the booth and exhibition material to the meeting herself, she hires a shipper. The truck that transports Pam's material is hijacked and there is nothing to exhibit. This Supplemental Income Coverage insures her significant loss of earnings.

OPTIONAL INCOME EXPENSE DEDUCTIONS

This section allows the named insured to limit the amount of insurance it must carry to meet coinsurance requirements. Using either or both deductions significantly reduces the limit of insurance that must be carried. However, it also means that these items are not covered if a loss should happen.

1. Ordinary Payroll Expense

Ordinary payroll expense is a continuing expense that the named insured can control. The named insured can decide to:

Ordinary payroll does not include payroll for officers, executives, department managers, and employees under contract. It also does not include the payroll for employees within a job classification or title listed on the declarations and employees specifically named on the declarations.

Ordinary payroll expense is the actual payroll but plus any employee benefits, FICA payments, union dues, and workers compensation premiums.

2. Power, Heat, and Refrigeration Expense

If the declarations states that power, heat and refrigeration expenses are excluded, there is no coverage under the earnings for power, heat and refrigeration expenses as part of the continuing expenses and the value can be excluded from the limit of insurance without impacting the coinsurance.

PERILS COVERED

Coverage is risks of direct physical loss or damage unless the loss is limited or is caused by an excluded peril.

Note: Direct physical loss or damage does not include loss of use or loss in perceived value of goods in the marketplace.

PERILS EXCLUDED

1. Primary Exclusions

The first group of exclusions applies whether the loss event results in widespread damage or affects a significant geographical area or not and are essentially absolute. Subject to specific exceptions, each is totally excluded, regardless of any other cause or event that contributes to a loss, either concurrently or in any other sequence. The insurance company does not pay for any direct or indirect loss or damage caused by or that results from any of these events.

Note: The doctrine of concurrent causation holds that coverage applies to a property loss that can be attributed to two causes, one excluded and one covered. As a result, coverage has been found for earth movement, flood, and other specifically excluded events. These exclusions attempt to avoid concurrent causation by stating that the event is excluded, regardless of any other causes that contribute to or aggravate the loss. This approach means there is no coverage, even if the contributing cause of loss is normally covered.

Example: An earthquake damages the wall of Paul’s barn. A tree limb falls during the tremor and causes a portion of the roof to collapse. Falling objects are usually covered. In this case, coverage does not apply to either event because the tree limb falling was a direct result of the earthquake.

Related Article: Concurrent Causation–A Discussion

Related Court Case: Building Code Compliance Held Compensable By Reasonable Expectations of Insured

a. Ordinance or Law

Coverage does not apply to any increased cost resulting from the enforcement of any building code, ordinance, or law. The building code, ordinance, or law must regulate construction, use, or repair of any building or structure, demolishing it, or removing its debris. There are exceptions under Supplemental Coverages–Ordinance or Law and Other Coverages - Undamaged Parts of Buildings.

b. Earth Movement or Volcanic Eruption

The insurance company does not pay for loss or damage that earth movement causes. Earth movement can occur naturally, accidentally, or through artificial means. Eruption, explosion, or effusion of a volcano can also cause earth movement. Earth movement includes earthquake, landslide, mudflow, mudslide, mine subsidence, or the earth sinking, rising, or shifting but is not limited to just these. Sinkhole collapse is the only earth movement covered.

However, direct loss by fire, explosion, or volcanic action due to earth movement or eruption, explosion, or effusion of a volcano is covered.

All volcanic eruptions that occur within 168 consecutive hours are treated as a single event. The policy’s expiration date does not affect or limit this time period.

There are numerous exceptions.

This exclusion does not apply to the following property:

·         Computers

·         Mobile equipment

This exclusion does not apply to Other Coverages–Computer Disturbance coverage.

This exclusion also does not apply to any of the following Supplemental Coverages:

Note: These Supplemental Coverages exceptions are provided because each of them is an inland marine coverage. The corresponding inland marine coverage forms do not exclude earth movement.

c. Civil Authority

Loss or damage caused by order of any civil authority is excluded. Some examples of such loss or damage are seizure, confiscation, destruction, or quarantine of any property. The exception to this exclusion is when a civil authority orders that a property be destroyed in an attempt to prevent a fire from spreading. However, this exception applies only if a covered peril causes the fire.

Examples:

  • The local fire department burns down the named insured’s warehouse. It does this so it can act as a firebreak against an advancing forest fire that a lightning strike caused to try to keep it from reaching a grain processing facility. This loss is covered.
  • The local fire department tears down the named insured’s warehouse. It does this so it can act as a firebreak against an advancing forest fire caused by Molotov cocktail that a local militia group threw at the police. The loss is not covered.

d. Nuclear Hazard

Coverage does not apply to any loss caused by or that results from nuclear reaction, nuclear radiation, or radioactive contamination. Coverage does not apply if the event is controlled, uncontrolled, or if natural, accidental, or artificial means causes it.

Loss caused by the nuclear hazard is not considered loss caused by fire, explosion, or smoke. The only exception is for direct loss by fire that results from the nuclear hazard.

Note: Coverage for nuclear risks is available through only nuclear umbrella coverage associations.

e. Utility Failure

There is no coverage for loss when power or other utility services are interrupted. This exclusion applies only if the interruption is at a location that is not a covered location. Some examples of such interruptions are reduced or increased voltage, low or high pressure, and similar interruptions of normal service.

Power interruption to a covered location may cause a covered peril to occur. In that case, coverage applies to the loss or damage that peril causes.

Example: The red label adhesives are stored at 65 degrees. The temperature rises to 110 degrees when the power is interrupted. The adhesives ignite and destroy the building. This loss is covered.

There are numerous exceptions.

This exclusion does not apply to the following:

·         Computers

·         Mobile equipment

This exclusion does not apply to Other Coverages–Computer Disturbance coverage.

This exclusion also does not apply to any of the following Supplemental Coverages:

f. War and Military Action

IMPORTANT NOTE: The war exclusion in this form is deleted and replaced by a mandatory exclusion AG 0135–Exclusion – War and Military Action. Because the exclusion is mandatory, the AG 0135 is analyzed in place of the exclusion in the form.

Loss or damage that is caused either directly or indirectly by the following activities are not covered:

The exclusion outlined in this endorsement is absolute and supersedes the Nuclear Hazard exclusion regarding any action that falls within the terms of the endorsement and involves a nuclear reaction, radiation, or radioactive contamination associated with the Nuclear Hazard exclusion.

Note: This last paragraph is very important because the Nuclear Hazard exclusion provides a limited amount of coverage for fire due to specific nuclear events; however, fire is totally eliminated under this exclusion.

g. Water

Note: The Water exclusion in this form is deleted and replaced by mandatory exclusion AG 0149–Water Damage Amendments. Because the endorsement is mandatory, it is analyzed in place of the exclusion in the form.

Loss that is caused by any of the following is not covered:

o   Spray from any of the above

o   Wind driven conditions that impact any of the above

o   Surges and storm tides

o   Drains

o   Sewer

o   Sump and all related equipment include the pump

o   Any system designed to drain off foundation water

o   Basements

o   Openings such as windows or doors

o   Foundations

o   Floors or walls

o   Paved surfaces

o   Structures such as septic tanks or swimming pools.

When any of the above results in a fire, explosion or sprinkler leakage loss, coverage is provided.

This exclusion is absolute and applies regardless of the reason for the water or if the material in the water is manmade or an act of nature. It applies even if the water or material travel over, through, or are released from or escape from a water containment system such as a dam or levee.

Related Court Cases:

Was Surface Water From Heavy Rains A Flood?

Dueling Exclusions: Is Water Damage Covered?

There are numerous exceptions.

This exclusion does not apply to the following:

·         Computers

·         Mobile equipment

This exclusion does not apply to Other Coverages–Computer Disturbance coverage.

This exclusion also does not apply to any of the following Supplemental Coverages:

·         Accounts Receivable

·         Carrier Liability

·         Fine Arts, Furs, Guns, Jewelry and Metals

·         Overseas Transit and Location

·         Property in Transit

·         Property on Exhibition

Note: These Supplemental Coverages exceptions are provided because each of them is an inland marine coverage. The corresponding inland marine coverage form does not exclude flood.

*Virus or Bacteria

Note: The Virus or Bacteria exclusion is added to this form using mandatory exclusion AG 0650–Virus or Bacteria Exclusion. Because the endorsement is mandatory, as noted in a November 2006 AAIS bulletin, it is analyzed in place as though it is part of the existing coverage form.

Loss, cost and expense that are the result of virus, bacteria or similar micro-organisms are not covered. This applies only when these cause or have the potential to cause disease, illness or physical distress.

The exclusion applies to both the contamination and any resulting denial of access to the premises.

An exception to this exclusion is the limited coverage provided in the Supplemental Income Coverage 1. Public Health Shutdown.

Related Court Case: Virus In The Wind A Direct Loss

2. Secondary Exclusions

The second group of exclusions applies to loss or damage caused by or that result from any of the following loss events. Some of these exclusions have exceptions, conditions, or limitations that should be noted and reviewed carefully. The insurance company does not pay for any loss or damage caused by or that result from any of these events.

a. Animals

The insurance company does not pay for loss or damage that animals cause. This includes animal damage caused by birds, insects, and vermin.

If any of the above results in damage that is caused by specified perils or breakage of building glass, there is coverage for such resulting damage. There is also coverage if a draft animal pulling a vehicle causes the loss.

b. Collapse

Loss or damage caused by collapse is excluded but refer to Other Coverages–Collapse for a limited type of collapse coverage.

In addition, there is collapse coverage if the collapse causes a covered peril that results in loss or damage at a covered location.

Related Court Case: Policy Is Ambiguous About Collapse

There are numerous exceptions. This exclusion does not apply to the following property:

·         Computers

·         Mobile equipment

This exclusion also does not apply to any of the following Supplemental Coverages:

c. Computer Virus or Computer Hacking

This exclusion is written as an “or” exclusion, with the lead language stating the insurance company will not pay for and then lists two items. Each item is an independent statement that combines with the lead language and any following language to form a complete sentence.

The first “or” statement eliminates all direct and indirect damage, but it does not state what direct or indirect damage. The second “or” statement eliminates loss of access, etc., and explains that computer hacking or a computer virus must cause it. The last sentence of the second item may be intended to be following language that applies to both “or” statements.

Editorial Note: As currently written, this exclusion may be confusing. While Computer Virus and Computer Hacking are specifically defined in the policy, in our opinion coverage could be challenged. 

d. Contamination or Deterioration

There is no coverage for loss or damage caused by or that results from contamination or deterioration. Some examples are bin burn, corrosion, decay, fungus, mold, mildew, rot, or rust. Change in grade or condition, organic heating of grain, seed, or other agricultural products, or any quality, fault, or weakness in covered property that causes it to damage or destroy itself are other examples.

However, coverage applies if contamination or deterioration causes a specified peril or breakage of building glass that subsequently causes loss or damage.

Loss or damage to computers that corrosion, decay, fungus, mold, mildew, rot, or rust causes is covered. However, coverage applies only if the corrosion, decay, fungus, mold, mildew, rot, or rust develops because a covered peril caused direct physical damage to the air conditioning system that services those computers.

This exclusion does not apply to the following Supplemental Coverages:

·         Carrier Liability

·         Spoilage

e. Criminal, Fraudulent, Dishonest, or Illegal Acts

Loss caused by criminal, fraudulent, dishonest, or illegal acts committed by any of the following is excluded:

·         The named insured, its partners, officers, directors, trustees, managers, members, or joint venturers

·         Any party that has an interest in the property or that is entrusted with property

·         Employees or agents of any of the above

Such acts are excluded whether a party acts alone or in collusion with others. Acts of employees and agents are excluded even when they are not at work at the time they commit the act.

Employee destruction of property is covered. Employee theft of property is not.

This exclusion applies to Supplemental Coverages 3. Carrier Liability but it does not apply to in other circumstances when covered property is in the custody of carriers for hire.

Examples:

Scenario 1: Disgruntled employee strikers break ten windows in the plant building during a strike at Smith Grains. This damage is covered. However, there is no coverage when two employees take advantage of the situation and break into Smith Grains offices to steal cash and other property from the safe.

Scenario 2: Top Quality Animal Feeds hired Good but Not Great Trucking to deliver products to several stores. Three pallets of feed did not reach their destinations because of theft by trucking employees. Even though the trucking company was entrusted with the merchandise and its employees stole it, coverage applies because Good but Not Great Trucking is a carrier for hire.

f. Defects, Errors, and Omissions

There is no coverage for loss that results from one or more of the following:

Example: The Smallville City Council decides to delay performing preventive maintenance on a floodwall. The wall collapses and floods Healthy Corn Products Manufacturing. Healthy cannot collect for its damages from this coverage form because the loss is due to the floodwall not being maintained properly and water damage is excluded.

There is no coverage for loss to business personal property due to defects or deficiencies in design, specifications, materials, or workmanship or that result from inherent or latent defects.

Any of the items listed above may cause a covered peril to occur. In that case, coverage applies to the loss or damage the covered peril causes.

Examples: The following situations are excluded:

·         Property built on wetlands that must be torn down

·         Inferior roof supports that cause the roof to bow

·         Weak welds in a conveyor system that causes it to crack, sending 50 100-pound bags of wheat flour crashing to the floor

g. Electrical Currents

Loss that electrical arcing or electrical currents causes is excluded. Such arcing or currents may cause a fire. In that case, coverage applies to the damage the fire causes. Coverage also applies to loss that lightning causes.

Coverage also applies to direct loss a covered peril causes at a covered location as a result of power or any other utility service being interrupted.

This exclusion does not apply to computers. It also does not apply to the following coverages:

·         Supplemental Coverages 13. Spoilage

·         Other Coverages 2. Computer Disturbance

·         Other Coverages 3. Electrical Breakdown

h. Explosion

Explosion of alcohol stills, steam boilers, steam pipes, steam turbines, or steam engines that the named insured owns, leases, or operates is excluded. An explosion may cause a fire or combustion explosion. In that case, the loss or damage that results is covered. In addition, coverage applies to loss or damage due to gas or fuel that explodes in a firebox, combustion chamber, or flue.

i. Freezing

When freezing causes water, other liquids, molten material, or powder to flow or leak from plumbing, heating, or air conditioning systems and appliances there is no coverage for any loss or damage that occurs. However, coverage does apply if the named insured took reasonable care to maintain heat in the building where the freezing occurred or if it drained the equipment when it did not maintain heat in the building.

This exclusion does not apply to Supplemental Coverages 13. Spoilage and it also does not apply to freezing of a fire protective system.

j. Increased Hazard

Coverage does not apply to loss that occurs as a result of any material increase in hazard within the named insured’s control or knowledge.

Note: A loss does not necessarily have to be related to the increase in hazard. A claims adjuster can deny a loss if he or she notices a hazard at the risk that the application did not disclose. However, this exclusion may be difficult to enforce because there is no clear understanding or definition of material increase in hazard.

k. Loss of Use

There is no coverage for loss that delay, business interruption, loss of use, or loss of market causes. Supplemental Coverages or Income Coverage may provide the exceptions to this exclusion. The following are examples of losses excluded:

Loss of use is any type of loss sustained because neither the named insured nor its customers can use the property.

Delay includes the economic benefits lost because of a missed deadline or a lost sales opportunity. However, it is not limited to just this.

Loss of market includes loss of both current and prospective customers. However, it is not limited to just this.

Note: While income coverage forms cover some of these loss situations, others are economic or market losses that most standard coverage forms and policies exclude.

l. Mechanical Breakdown

Loss caused by mechanical breakdown is excluded. Loss that occurs when centrifugal force causes moving parts of machinery to burst or rupture is also excluded. Any of these events may cause a specified peril, breakage of building glass, or elevator collision. In that case, the ensuing loss or damage is covered.

Related Court Case: "Mechanical Breakdown" and "Corrosion" Interpreted By Court

This exclusion does not apply to computers. It also does not apply to the following coverages:

·         Supplemental Coverages13. Spoilage

·         Other Coverages 3. Electrical Breakdown

Examples:

Coverage does not apply to the following situations:

  • Lack of lubrication causes a grain conveyor motor to seize up.
  • The governor on a production machine breaks. The engine revolutions exceed safe operating standards and the flywheel flies off the machine. This results in damage to the machine and to adjacent walls and windows.

Coverage may apply in the following situations:

  • The pulleys that control the elevator suddenly seize up and freeze. The elevator jerks, swings, and strikes the elevator shaft walls. This results in damage to both the elevator and the shaft walls.
  • The flywheel flies off a motor and breaks a light bulb. This creates a spark that ignites textile dust in the rafters and causes a major fire.

m. Neglect

There is no coverage when loss results from the named insured failing to use available and reasonable means to save covered property during and after the time of loss. In addition, there is no coverage when the named insured does not take available and reasonable means to save and preserve covered property endangered by a covered peril.

Examples:

Coverage may be denied in the following situations:

  • The named insured does not do anything to extinguish a small fire that starts in a supply closet and decides to wait until the fire department arrives. The fire spreads outside the supply closet area. The fire damage to the supply area is covered. The claim on the rest of the damage could be denied.

·         A tree limb falls on the roof and creates an opening. The named insured does not do anything to prevent further damage and waits for the adjuster to arrive the next day. Before the adjuster arrives, rain from a thunderstorm sends torrents of water through the hole. The rain damages walls and floor coverings and ruins hundreds of reams of special paper stock. The damage the falling tree caused is covered. The insurance company will probably decline the claim on the rest of the damage.

Note: These situations illustrate the problem of defining what a reasonable person should do. The lack of action in the first example could be explained by the named insured being afraid of fire of any kind. An argument could be made in the second example in favor of coverage if the named insured did not know about the approaching storm, was simply physically unable to take any action, or just did not realize the extent of the damage.

n. Pollutants

Loss caused due to a pollutant leaving where it is supposed to be is not covered. There are four exceptions.

·         The reason the pollutants are released or escape is due to a specified peril.

·         The pollutant release or escape causes a specified peril which then causes a loss. That resulting loss is covered.

·         Additional Coverages 8. Pollutant Cleanup and Removal

·         Supplemental Coverages 15. Tank Leakage

o. Rain, Snow, Ice, or Sleet

The insurance company does not pay for loss to personal property or stock that rain, snow, ice, or sleet causes when the personal property or stock is in the open even if covered by a temporary covering

This exclusion also applies to Supplemental Coverages 3. Carrier Liability. However, it does not apply to covered property in the custody of carriers for hire.

p. Seepage

There is no coverage for loss caused by continuous or repeated leakage of water or steam over more than a 14-day period.

Example: A slow leak goes on for months. It is not discovered until the sheetrock wall is thoroughly soaked and collapses. There is no coverage because the seepage occurred over a period of more than 14 days.

Note: The insurance company must prove that the leak went on continuously for more than 14 days.

Related Court Case: Seepage over Long Period Following Pipe Break Held Not Covered

q. Settling, Cracking, Shrinking, Bulging, Expanding, or Wrinkling

Loss caused by footings, foundations, pavement, walls, roofs, and ceilings settling, cracking, shrinking, bulging, expanding, or wrinkling is excluded. However, coverage applies to any resulting loss that a specified peril or breakage of building glass causes.

This exclusion does not apply to computers or mobile equipment.

Example:

The following situations would be covered:

·         A sinkhole undermines the foundation causing the exterior walls to bulge.

·         Ice buildup causes a roof to sag.

·         Rioters roll a car down into a covered building and crack the building's foundation.

r. Smog, Smoke, Vapor, or Gas

Industrial firms’ incinerators release harsh acids and chemicals into the air, bleaching or chipping paint or damaging plastic and rubber products. Agricultural smudging operations used to deter insects or keep crops from freezing can release greasy smoke that can discolor paint and do other damage to nearby buildings. Damage done by smog, smoke, vapor or gas from industrial operations or agricultural smudging is excluded.

The exclusion does not apply to computers and mobile equipment.

Related Court Case: Vapor From Chemical Overheating Held Not Within Scope Of Fire Or Smoke Perils

s. Temperature/Humidity

Damage to personal property or stock caused by changes in temperature or humidity is excluded.

There are three exceptions:

·         If such changes result in specified perils or building glass breakage, damage from the resulting specified peril or building glass breakage is covered.

·         Damage to computer caused by physical damage by a covered peril to the air conditioning unit that services the computer is covered.

·         If Supplemental Coverages, Carrier Liability or Spoilage apply, this exclusion does not apply to them.

Examples:

Coverage applies to the following situations:

  • A loose pipe on a storage rack falls on the computer ventilation system’s air damper and locks it in the closed position. The computer overheats, and its circuits melt down.
  • The air conditioning in a special fertilizer storage room fails. The room temperature rises, fumes accumulate, and an explosion destroys the storage room and its contents.

Coverage does not apply to the following situations:

  • A bird flies into and breaks a window in a laboratory used to test and produce genetically engineered crops. This changes the laboratory’s controlled temperature and humidity conditions and renders an expensive batch of genetically engineered corn useless.

·         An employee accidentally shuts off the freezer's electrical circuit and the fish farm's entire stock of frozen fish thaws and spoils.

t. Theft

There is no coverage for theft of the following property:

·         Building materials and supplies not yet attached to a building or structure. This exclusion does not apply to the named insured's specifically scheduled Builders' Risk Property or to its stock.

·         Property at a part of the named insured’s residence when it rents that part to others

·         The following property when away from a covered location:

o   Any property at a residential premises the named insured or another household member owns, rents, or occupies

Note: This residential premises is not a covered location. As a result, a homeowners or similar policy should cover this property.

There is coverage for the property the named insured or another member of its household brings while temporarily residing at the other location. There is also coverage for property of a resident of the named insured's household while that resident is a full-time student and the property is in the student's living quarters at school.

·         Trailers. This also includes their equipment.

·         Campers or camper bodies

·         Watercraft. This also includes their furnishings, equipment, engines, or motors.

Personal property placed for safekeeping in a bank, trust, or safe deposit company, public warehouse, or dwelling that the named insured or a household member owns, occupies, or rents is treated as being at a covered location. Therefore, because it is considered to be at a covered location, it is not subject to the exclusion and theft coverage applies.

u. Voluntary Parting/Unauthorized Transfer

The insurance company does not pay for loss due to either of the following:

This exclusion does not apply to Coverage Extensions 1. Fraud or Deceit.

A small vehicle parked in a field Description automatically generated

Examples:

Coverage does not apply to the following situations:

Scenario 1:

A product is sold to a person who bounces a check and then disappears with the product.

Scenario 2:

An employee permits a potential customer to test drive an item of mobile equipment but neither the customer nor the equipment ever returns.

v. Wear and Tear

Loss that wear, tear, marring, or scratching causes is excluded. If such a loss results in a specified peril or breakage of building glass occurring, coverage applies to the ensuing loss or damage.

Note: These losses are more in the line of costs of doing business.

w. Weather

There is no coverage if weather conditions contribute in any way to cause loss or damage due to a peril excluded under 1. Primary Exclusions. However, coverage applies for loss that a covered peril causes unless the ensuing loss itself is excluded.

Examples: Coverage does not apply to the following situations:

·         Heavy rain causes the river to rise and flood the building.

·         Torrential rains start a mudslide that forces the building off its foundations.

·         A tornado destroys the power station that supplies power to the named insured’s beef processing plant and all the meat spoils.

x. Windstorm or Hail

There is no coverage for loss that windstorm or hail causes to the following:

Note: The dairy and farm products would be covered if within a three sided or other type of structure while the watercraft requires a more substantial building.

ADDITIONAL PROPERTY NOT COVERED OR SUBJECT TO LIMITATIONS

1. Accounts Receivable

Coverage does not apply to accounts receivable losses that occur as a result of bookkeeping, accounting, or billing errors. Coverage also does not apply if the only proof that a loss occurred is a discrepancy discovered in an audit or while taking inventory.

2. Boilers

This limitation is about damage to a boiler, steam pipe, steam turbine and steam engine – not the damage they cause. They are not covered if anything within the equipment causes the damage, unless there is an explosion caused by fuel or gas in a firebox, combustion chamber, or flue.

Similarly, damage to hot water boilers and heaters are not covered if conditions or occurrences within them cause the damage and this extends to bursting, cracking, or rupturing.

3. Glassware/Fragile Articles

Breakage of fragile articles is excluded. However, there is coverage if a specified peril or breakage of building glass occurs and causes the breakage.

Fragile articles are items such as glassware, porcelains, statuary, and bric-a-brac.

This exclusion does not apply to glass that is part of a building. It also does not apply to bottles or containers held for sale, photographic and scientific instrument lenses, or fine arts.

4. Gutters and Downspouts

There is no coverage for loss to gutters and downspouts that sleet, snow, or ice causes.

5. Interior of Buildings

The insurance company does not pay for loss to the interior of buildings or structures that rain, snow, sleet, ice, sand, or dust cause. Such damage to personal property or stock inside buildings or structures is also excluded.

Related Court Case: "Opening" In Roof As Condition Of Interior Damage Coverage Examined

This exclusion does not apply in case of either of the following:

Example: A layer of snow and ice covers the roof of a barn on the Brown’s farm. The heat from the barn begins to melt the snow and ice, and water gets trapped. The trapped water seeps into the barn and drips inside the building. Water damage to the ceiling is covered because of the exception to this exclusion.

6. Missing Property

Coverage does not apply to property that is missing based only on a shortage disclosed through an inventory, by an accounting or bookkeeping transaction, or by anything else when there is no physical evidence to suggest what happened to it. This exclusion also applies to Supplemental Coverages 3. Carrier Liability. It does not apply to covered property in the custody of carriers for hire.

7. Tobacco Barns

Tobacco barns and their contents are not covered for fire loss, if the loss is due to an open fire used to cure or dry tobacco in the barn. The coverage does not apply when the open fire is active and for five days following the use of the open fire.

8. Valuable Papers and Records

There is no coverage for loss to valuable papers and records due to errors or omissions in copying or processing them.

Example: Keith copies the genealogical records for his hogs. While copying them the originals are caught in the photocopier, and they must be torn to remove them. There is no coverage for that damage.

OTHER COVERAGES

These coverages do not increase the limits that apply to covered property.

1. Collapse

a. Collapse must be sudden and unexpected. All or any part of the building or structure can cave in, fall down, give way, or fail.

Examples:

·         Coverage applies if carpenter ants eat through roof supports in sections of the roof inaccessible and there is no visible evidence of damage until the collapse occurs.

·         There is no coverage where visible termite damage to floor joists causes the floor to collapse.

·         Coverage applies to collapse of a building under construction when faulty temporary supports fail.

·         There is no coverage when improperly spaced girders are installed during renovation, and the building collapses six months after the named insured reoccupies it.

b. Coverage applies to direct physical loss or damage to covered property caused by or that results from collapse. However, there is coverage only if the following cause the collapse:

c. Collapse coverage as described in paragraph b. above does not apply to any of the following types of property: Antennas, satellite dish antennas, outdoor awnings, canopies and their supports, fences, gutters, downspouts, yard fixtures, outdoor swimming pools, piers, wharves, docks, beach or diving platforms and their appurtenances, retaining walls that are not part of buildings, walks, roadways, and other paved surfaces.

There are two exceptions:

Examples: The following situations are intended to clarify the intent of this limitation:

·         The wall of the building beside a dock collapses during a fire and causes the wharf that extends 100 feet into the harbor to collapse. This loss is covered.

·         The office building has satellite dishes and antennas on the roof. The roof collapses due to the weight of ice and snow, and the satellite dishes and antennas also collapse. This loss is covered.

·         Weight of ice and snow causes an antenna to collapse. This loss is excluded.

d. Personal property or stock that suddenly or unexpectedly caves in, falls down, gives way, or fails is covered even if the building or structure does not collapse. The cave in, falling down, giving way, or failure must result from one of the collapse perils or an event in b. above.

This coverage does not apply to the types of property listed in c. above. In addition, there is no coverage if the only loss or damage is marring or scratching.

Related Court Case: Imminent Collapse Covered Under Hidden Decay Provision

2. Computer Disturbance

Direct physical loss to computers that are caused by electrical or power supply disturbances is covered. Examples of electrical disturbance are electrical or magnetic damage and disturbance or erasure of electronic recordings. Examples of power supply disturbance are power supply interruptions, power surge, brownout, and blackout.

3. Electrical Breakdown

This coverage is not automatically provided. An entry for Electrical Breakdown Coverage must be shown on the declarations.

This coverage applies to direct physical damage to electric motors, generators, and transformers that is caused when their wiring, windings, or switches accidentally fail. Only equipment that is specifically described on the declarations is covered. The description of the equipment on the declarations must include the range of horsepower for motors and generators and the kilovolt amperes capacity for transformers.

Conduit, switch, or fuse cabinets, metering devices, and control equipment are also covered but ONLY the ones that are used exclusively with the motors and generators described in the paragraph above.

Loss payment is the lesser of the actual cost to repair or the cost to replace the damaged equipment. This coverage is part of the applicable limit for coverage described under Property Covered, not in addition to it.

The requirement to list equipment is waived if the limit on the declarations is $1,000. In that case, the most the insurance company pays per occurrence is $1,000.

4. Ordinance or Law–Undamaged Parts of a Building

This coverage is not automatically provided. It applies only if an entry on the declarations states that Ordinance or Law–Undamaged Parts of a Building Coverage is provided.

This coverage comes into play when a covered peril partially damages a covered building or structure. It applies if there is an ordinance or law in effect at the time of loss that regulates building construction or land use and requires demolishing the building’s undamaged portion.

There is no coverage for any costs related to enforcing any ordinance, law, or decree that requires any testing, treating, cleaning up, removing, or any other response to or assessment of the effects of pollutants.

The limit on the declarations for this coverage is both of the following:

d. If a limit for Ordinance or Law–Undamaged Parts of a Building is not on the declarations, this coverage is part of the applicable limit for the covered building or structure, not in addition to it.

Example: Percy’s Cannery occupies a two-story metal building. A tornado destroys more than 50% of it. A current ordinance requires that Percy demolish the undamaged portion and rebuild it with masonry-noncombustible construction. This coverage pays for the value of the undamaged part of the building that must be torn down. However, it does not pay the costs to demolish the building or to rebuild it as masonry-noncombustible.

$100,000 Building replacement cost – coverage applies

$ 55,000 in tornado damage – coverage applies

$ 45,000 value of undamaged portion of building

$ 25,000 to demolish undamaged portion of building – not covered

$  5,000 additional cost to replace undamaged  portion of building as masonry-noncombustible – not covered

The policy will pay the cost to rebuild Percy’s building ($55,000 for tornado damage and $45,000 for the undamaged portion). However, the additional cost to demolish and rebuild as masonry-noncombustible for the undamaged portion of the building will not be covered.

Note: Supplemental - Coverages 6. Ordinance or Law–Increased Costs

If a limit is listed for this coverage on the declarations, it will pay the increased cost to demolish and rebuild the undamaged portion of building.

5. Tearing Out and Replacing

It is very important to stop water, other liquids, powder, or molten material that leaks from a broken system or appliance. Locating and gaining access to the break is the first step. The second is to repair the break. The last step is to repair or replace the property damaged by the leak. The insurance provided elsewhere in this coverage form covers the last step.

The named insured is responsible for the first two steps. This coverage pays for any damages to otherwise undamaged portions of the building that are part of step one in order to gain access to the break.

This coverage does not pay for the damage to the appliance or system from which the substance escaped. However, it does pay to replace or repair damaged parts of fire extinguishing equipment if the damage is due to either of the following:

Examples: Tearing Out and Replacing coverage applies to the following situations:

  • A water pipe bursts inside the second-floor wall. However, the wall is not damaged, and the situation goes unnoticed. Water begins to drip through the first-floor ceiling and the plumber traces the problem to the second-floor pipe.
    The plumber must remove part of the second-floor wall to repair the pipe. This coverage pays the costs to tear out the second-floor wall to get to the pipe. It also pays the costs to repair the wall after the pipe is repaired. It does not cover the cost to repair the damaged pipe itself.
  • The sprinkler system discharges and the discharge causes some older pipes to burst. This coverage pays for the damage to the sprinkler system.

6. Theft Damage–Non-owned Property

Coverage applies to direct physical damage due to theft or attempted theft to either of the following:

 Example: Craven Farms leases a building in town to store extra equipment, packaging materials, and pallets. The lease states that Craven Farms is responsible for theft damage. Thieves break in and damage the loading dock door. Craven’s equipment and the building owner’s cleaning equipment are stolen. This Other Coverage insures the damage to the building and the cleaning equipment that was stolen. Other parts of this coverage form cover Craven’s equipment.

WHAT MUST BE DONE IN CASE OF LOSS

1. Notice

The named insured has the following obligations if there is a loss:

a. Give the insurance company or its agent prompt notice of the claim, including a description of the property. It is not required to be in writing unless the company requests it.

b. Notify the police, but this is required only if the loss is the result of a crime.

c. Notify the credit card company, but this is required only if the loss involves a credit card.

Note: AG 0100 does not define prompt notification. However, any unreasonable delay could allow the company to deny the claim because of lack of cooperation.

Related Court Case: Does Untimely Notice Bar Recovery?

2. Protect Property

The named insured must make reasonable efforts to protect covered property from further damage during and after a covered loss. Reasonable costs incurred for repairs and emergency measures taken specifically to protect covered property from further damage by the same or another covered peril are paid but only if the named insured keeps accurate records of these costs. Payments made are part of the limit of insurance and not in addition to it.

The insurance company does not pay for any repairs made or emergency measures performed on property that a covered peril did not damage.

Examples: The following situations are intended to clarify the named insured's responsibilities:

  • The cost to board up windows before a hurricane makes landfall is not covered.
  • The cost to board up damaged windows after the hurricane is covered.
  • The plastic purchased and installed to prevent rain from entering through a hail damaged roof is covered.
  • Security guards hired to protect property following a theft that included disabling the alarm system is covered until the alarm is restored.

3. Proof of Loss

The named insured must submit a signed and sworn proof of loss to the insurance company within 60 days after the company requests it which includes the following information:

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

b. Details on other insurance policies that may apply to the loss

c. The names of all parties with an interest in the property. This includes the named insured’s interests as well as the interests of any mortgagees and lienholders.

d. Any changes in title to or occupancy of covered property that occurred during the policy period

e. Detailed estimates to repair or replace the covered property

f. Inventories of both damaged and undamaged covered property. The inventory must include detailed quantities, descriptions, costs, the actual cash value, and the amount of loss. Bills, receipts, and other documents that substantiate inventory are an important part of the documentation.

Note: The proof of loss is the most important document the named insured presents to the insurance company. It should be done carefully and thoroughly. The fact that the named insured signs and swears to it means that any inaccuracies may be considered fraudulent and subject to criminal prosecution. This includes federal action if the proof of loss is mailed.

Related Court Case: Insured Fails To Produce Required Documents Following Fire Loss

4. Examination

The named insured must agree to be examined under oath and swear to statements given. The insurance company can conduct these examinations as often as it wants if the requests are reasonable. When more than one person is questioned, the insurance company can request that each person examined be questioned separately to prevent collusion.

Note: The insurance company can deny coverage if the named insured refuses to be examined this way.

Related Court Case: Insured's Failure to Cooperate Relieved Carrier of Its Obligation to Pay Claim

5. Records

The named insured must produce any and all records that relate to the claim’s loss, value, or expense. It must also let the insurance company make copies or extracts of them as often as requested but only within reason.

Related Court Case: Church Financial Records Held Subject To Review by Insurer

6. Damaged Property

The named insured is required to display the damaged and undamaged property to the insurance company as often as is requested but only within reason. The insurance company is also permitted to take samples of both damaged and undamaged property.

The insurance company may decide to take all or any part of the damaged property at its appraised or agreed value because the company controls the salvage after a covered loss. Supplemental Coverages 2. Brands and Labels Expense is an important exception to this condition.

Note: Samples are important to determine the extent of loss to certain property where the amount of loss may not be readily apparent or obvious.

Related Court Case: Destruction of Damaged Property Eliminates Coverage

7. Volunteer Payments

The named insured can make voluntary payments, assume obligations, pay or offer rewards, and incur other expenses. However, it does so at its own expense. The insurance company is not obligated to reimburse any of these unless the named insured did so to protect the property from further damage.

8. Abandonment

The named insured is not allowed to abandon property to the insurance company without its consent.

Note: The insurance company decides what property it takes. The named insured remains responsible for the covered property that is damaged until the insurance company decides what it will do.

Example: Clyde’s older bulldozer falls off a trailer and tumbles into a ravine. He cannot avoid paying the cost to recover the bulldozer and clean up the fuel tank spill by abandoning it to the insurance company.

9. Cooperation

The named insured must cooperate with the insurance company in performing all acts this coverage form requires. Not cooperating with the company’s reasonable requests can lead to the claim being denied.

10. Intent to Continue Business, Income Coverage

The named insured must resume all or part of its business operations as soon as possible after a loss if it intends to remain in business.

VALUATION

1. Actual Cash Value

The valuation basis for covered property at the time of loss is actual cash value unless replacement cost is entered on the declarations. This valuation does not apply to stock and other property specified in paragraphs 3 through 16 below.

Related Court Case: Coffee Roasting Plant Argues Value Of Damaged Beans

Limited Replacement Cost valuation for buildings that should be actual cash value is provided if both of the following apply:

Limited Replacement Cost does not include any increased cost due to enforcing any ordinances that regulate any property’s construction, repair, use, or demolition.

Awnings, canopies, floor coverings, outdoor furniture, equipment or appliances for refrigerating, ventilating, cooking, dishwashing, or laundering are not eligible for this limited replacement cost treatment.

Note: AG 0100 does not define the calculation of actual cash value. It is usually considered to be replacement cost new minus accumulated depreciation. However, depreciation is not defined. It could be Internal Revenue Service (IRS) tax table depreciation, depreciation as used with Generally Accepted Accounting Principles (GAAP), or something else.

Stock does not usually depreciate. However, it can become obsolete. Brick and cement buildings depreciate more slowly than frame buildings. Roofs depreciate faster than the rest of the building. Some types of machinery and equipment are functionally used up or obsolete in months, while others can be used for many years. Computers depreciate rapidly. Automobiles depreciate based on age and mileage. Construction equipment and forklifts usually depreciate more slowly.

Actual cash value is not the same as market value. Market value is the property’s selling price on the open market.

2. Replacement Cost

When Replacement Cost is entered on the declarations, the insurance company pays a covered loss without a deduction for depreciation. This valuation does not apply to stock.

Replacement cost is limited to the lesser of the following:

This valuation does not apply until the covered property damaged or destroyed is actually repaired or replaced. The named insured can first make a claim for the damaged property’s actual cash value before it is repaired or replaced. It can later request replacement cost valuation as long as it notifies the insurance company of its intent to do so within 180 days after the loss.

Certain property is not eligible for replacement cost valuation and is valued on an actual cash value basis. This includes the following:

Related Court Case: Replacement Cost Valuation Clause Ambiguous: Functional Replacement Allowed

3. Builders’ Risk Property

The valuation of a covered building or structure listed on the declarations as Builders' Risk Property is based on its replacement cost without a deduction for depreciation.

Replacement cost is the sum of the following:

·         The cost to repair or replace with materials of similar kind and quality on the same site and to be used for the same purposes

·         Labor, delivery charges, and reasonable overhead and profit

However, the insurance company does not pay more than the amount the named insured pays to repair or replace the property that was damaged or destroyed.

Note: This provision does not apply to Valuation 7. Pairs or Sets or 8. Loss to Parts.

4. Stated Amount

The following sections are suspended when Stated Amount is entered on the declarations:

HOW MUCH WE PAY

·         8. Coinsurance Property Other Than Builders’ Risk Property

·         9. Coinsurance Builders’ Risk Property

The suspension applies until the Stated Amount Expiration Date on the declarations.

5. Fine Arts

Fine arts are valued based on their actual cash value on the date of loss. This valuation does not apply to items of Fine Art specifically listed and described on the declarations.

6. Glass

The value of glass that a covered peril damages or destroys is the cost of safety glazing material but only as required by an ordinance, law, or decree.

7. Pair or Set

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

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

8. Loss to Parts

The value of a lost or damaged part of property that consists of several parts is the cost to repair or replace only the lost or damaged part.

A clock on a table Description automatically generated

Example: Jimmy Ray’s building caught on fire. He grabbed his valuable clock and ran out of the building. The winder key fell out during his haste and remained in the building.

He was happy to have saved the clock, but it would not work without the key. So, he wanted the entire clock replaced.

The insurance company denied paying for the clock but paid to replace the key.

9. Property of Others

Property of others is valued on its actual cash value when the loss occurs.

10. Stock

Stock is valued at actual cash value, except:

A stack of bags of grain Description automatically generated

Example: Nathan stocks a variety of seed in his distribution operation. Some of the seed he stocks is subject to Valued Seed and some at Foundation Seed valuation.

If a loss occurs after the commodity market closes for the day, the value of a commodity item is based on the last closing price.

11. Tenants’ Improvements

The value of damaged Tenants’ Improvements is actual cash value if they are repaired or replaced at the expense of the insured within a reasonable time.

Tenants’ improvements damaged or undamaged but lost due to lease cancellation and not replaced after a loss are based on how much of the original value to the insured is left based on the current lease.

The valuation formula is: A/B x C

Where:

A = Number of days between the date of loss and the end of the lease

B = Number of days from the date of the installation to the expiration date of the lease

C = Original cost of the tenants improvements.

(If the lease has a renewal option, use the last date in the option as the new lease expiration date.)

However, if repairs are made at the expense of others, there is no payment under this policy.

Related Article: Improvements and Betterments

12. Installment Sales

Two situations can arise in installment sales when valuing the property after loss:

·         If there is a total loss, the remaining balance still owed to the insured will be paid.

·         If there is a partial loss and the purchaser refuses to make further payments because of the loss and the named insured has repossessed the property. This valuation is a two-step process.   

Step 1: determine the amount of money still due from the purchaser for the item.

Step 2: determine the realized value of the stock.

Ø  If Step 1 is less than Step 2, there is no loss payment under this policy.

Ø  If Step 1 is greater than Step 2, the carrier will pay the difference between Step 1 and Step 2.

Examples:

Marty sells his harvester to Larry on January 1. The sales agreement obligates Larry to pay Marty $500 per month for the next 12 months. A fire in March damages the harvester. Larry informs Marty that he does not have insurance coverage on the harvester and cannot pay him.

Scenario 1: The fire totally destroyed the harvester. The value is $4,500 ($500 per month X nine months).

Scenario 2: The fire did not totally destroy the harvester. Larry still cannot pay, Marty repossesses the harvester, and has it valued. The value is $2,000. The insurance company pays only $2,500 because that is difference between its realized value and the amount Marty owed Larry.

Scenario 3: The fire did not totally destroy the harvester. Larry still cannot pay, Marty repossesses the harvester, and has it valued. The value is $6,000. The insurance company will not pay because the difference between its realized value is greater than the amount Marty owed Larry.

13. Accounts Receivable

a. The form states this is the value of stock accounts receivable and is based on the lowest of the following:

·         The total sum of accounts receivable due is reduced by the following:

o   Records of accounts receivable not lost but amounts are due

o   When a different method can establish the amounts due

o   Amounts due from lost records that were already collected by the named insured.

o   Unearned interest and service charges

o   Allowances for bad debts

b. The named insured may not be able to determine the actual accounts receivable due at the time of loss. In that case, the amount is determined as follows:

·         Step 1: The values will be calculated using the total of the average monthly accounts receivable for the 12 months prior to the loss month.

·         Step 2:  The sum total from the calculation in Step 1 will be adjusted for any normal variances in the month for which the loss occurred.

Editor’s note: The coverage form uses the term “stock accounts receivable” instead of just accounts receivable for this valuation. This may be an error, or it could mean this valuation applies to only accounts receivables for stock.

14. Valuable Papers and Records

Valuable papers and records are valued based on the sum of the following costs:

Note: Supplemental Coverages 17. Valuable Papers and Records–Cost of Research covers research costs.

15. Earnings

The insurance company uses three factors to determine the value of an earnings loss:

a. The named insured's business’ experience prior to the loss and the expected experience for the period of interruption of earnings if there was no loss

b. The named insured's continuing operating expenses it incurs to resume operations at the level that existed before the loss occurred. Ordinary payroll expense is a continuing expense unless an entry on the declarations excludes or limits it.

c. Relevant and appropriate documentation. The following are examples:

·         Financial records and accounting procedures

·         Bills, invoices, and vouchers

·         Contracts, deeds, and liens

·         Feasibility and status reports

·         Records that document budgets and marketing objectives and results

The named insured may be able to resume all or any part of its operations but does not. In that case, the insurance company does not pay for any increase in loss as a result of the named insured’s decision. If the named insured does not resume operations when it should (or does not resume at all), payment is based on the period of time it should have taken to resume business operations on a timely basis.

A loss of earnings may be due to a loss at a dependent location. In that case, the insurance company reduces earnings by the amount the named insured could have saved by resuming operations using other suppliers or customers.

16. Extra Expense

The salvage value of all property purchased for temporary use during the restoration period is deducted from the value of the extra expense claim.

HOW MUCH WE PAY

1. Insurable Interest

The most the insurance company pays is the named insured’s insurable interest in the property.

Example: John and Mary co-own a feed store. Mary buys out John’s interest but forgets to remove John’s name from the insurance policy. The store burns down. The claims adjuster advises Mary that she alone is entitled to the insurance proceeds because John has no insurable interest in the property, even though he is still listed as a co-owner.

2. Deductible

The insurance company applies any coinsurance, value reporting, or premium adjustment terms to determine the amount of the loss. The deductible on the declarations is then subtracted and any remaining amount is paid up to the limit of insurance.

The deductible applies per occurrence. When more than one deductible could apply, only the largest one is applied.

The insurance company does not pay any loss until it exceeds the deductible.

3. Peak Season Increase

If a limit and peak season amount are on the declarations, the only limit used to settle the loss is the peak season limit if the loss occurred between 12:01 AM on the first day of the peak season and 12:01 AM on the last day of the peak season.

4. Inflation Protection

The limit of insurance for the described property automatically increases by the daily pro-rated factor of the annual percentage entered on the declarations for Inflation Protection.

Example: The policy period is 01/01/2025 to 01/01/2026. The building limit is $1,000,000. The annual Inflation Protection percentage is 8%. The loss occurs on 01/31/2025. The limit available to pay for the loss is calculated as follows: 31/365 = .085 X .08 = .007 X $1,000,000 = $7,000 + $1,000,000 = $1,007,000. (Figures are rounded for illustration purposes.)

5. Loss Settlement Terms

The insurance company pays the least of the following:

a. The amount determined under Valuation

b. The cost to repair, replace, or rebuild the property with material of similar kind and quality

c. The limit that applies to the covered property

This is further subject to other sections in How Much We Pay.

6. Insurance under More Than One Coverage

Two or more coverages in the coverage form may apply to the same loss. In that case, the insurance company does not pay more than the value of the actual claim, loss, or damage sustained.

7. Insurance under More Than One Policy

a. The named insured may have other coverage that follows the same stipulations as this coverage form. In such cases, this coverage form will only pay its proportional share of the covered loss. This proportional share is determined by the ratio of its limit of insurance to the total limits of insurance across all policies that provide coverage on the same basis.

Example: Policy #1 has a $100,000 limit, and Policy #2 has a $50,000 limit. The loss before applying any deductible is $10,000. Policy #1 pays 66 2/3% of the loss, and Policy #2 pays 33 1/3% of the loss.

b. The named insured may have other coverage that insures the loss other than as described above. In that case, this coverage form pays only the amount of covered loss that exceeds the amount due from that other coverage, whether collectible or not. Any payment is subject to the limit of insurance that applies.

Example: Sadie’s Seeds has a separate Inland Marine Accounts Receivable Policy with a $25,000 limit with different terms and conditions. With this coverage form, she also has a $5,000 limit for Accounts Receivable under Supplemental Coverages. When a covered loss occurs, the separate Accounts Receivable policy pays its limit of $25,000, while this coverage form pays up to its limit of $5,000.

Related Court Case: Other Insurance Clauses Held To Pro Rata Despite Standard and Super Escape Differences

8. Coinsurance, Property Other Than Builders’ Risk Property

The coinsurance terms apply individually to each type of covered property subject to coinsurance.

When coinsurance applies to a coverage, the insurance company only pays a portion of the loss if the coverage limit is less than the percentage of the property's value stated on the declarations.

The four steps to determine the amount of the loss to be paid are as follows:

Step 1. The value of the covered item is multiplied by the coinsurance percentage.

Step 2. The limit of insurance for the covered item is divided by Step 1.

Step 3. The amount of the loss is multiplied by the percentage developed in Step 2.

Step 4. Subtract the deductible from the Step 3 loss amount.

·         If step 4. is more than the limit of insurance, the limit of insurance is paid.

·         If step 4. is less than the limit of insurance, the sum of Step 4 is paid, and the insured is responsible for the remaining amount.

Example: The building limit is $500,000 and the coinsurance percentage is 90%. The loss amount is $100,000 and the deductible is $1,000. The value of the building at the time of the loss is $700,000. $700,000 X .90 = $630,000. Because $500,000 is less than $630,000, a coinsurance penalty is applied as follows:

Step 1. $700,000 X .90 = $630,000

Step 2. $500,000/$630,000 = .794

Step 3. $100,000 X .794 = $79,400

Step 4. $79,400 - $1000 = $78,400

The carrier pays $78,400 of the loss, and the insured is responsible for the remaining $21,600.

Related Article: Coinsurance Clause

9. Coinsurance, Builders’ Risk Property

This coinsurance is the same as above; however, the limit of insurance must be 100% of the estimated completed building value.

Example: Betty Lou’s Ranch is building a horse ring and stable. The estimated completed value and limit of insurance is $750,000. The deductible is $3,000.

One month into the project, Betty Lou decides to increase the size of the building, and the new estimated value at completion is $1,000,000. However, the insurance agent is not informed of the change.

A tornado strikes the premises a month before construction is scheduled to be complete and causes $400,000 in damage to the nearly completed structure. The amount of loss paid is as follows:

Step 1. $1,000,000 X 100% = $1,000,000

Step 2. $750,000/$1,000,000 = .75

Step 3. $400,000 X .75 = $300,000

Step 4. $300,000 - $3,000 = $297,000

The carrier pays $297,000 and Betty Lou is responsible for the remaining $103,000.

Note: Construction projects should be reviewed periodically to be certain the limit and the estimated value are the same. This is because costs can increase more on long-term projects and the 100% coinsurance requirement is very stringent.

10. Value Reporting, 100% Coinsurance

Value reporting allows the named insured the benefits of 100% coinsurance without a potential coinsurance penalty.

The following terms apply separately to each type of covered property that is subject to Value Reporting.

a. Other Insurance

This may apply to items covered in this section. If the other insurance is contributing and written on the same reporting terms, it is subject to Other Insurance item 7. a. – proportional sharing.

In contrast, other insurance may be specific and, therefore, not subject to the same terms. If this is the case, coverage is subject to Other Insurance item 7. b. – and coverage is in excess.

b. Reporting

This policy requires monthly reporting. The report is due within 30 days of the last day of each business month. This means that if a policy is effective 3/1-3/1, the first report is due on 4/30 for the values reported on 3/31.

The policy can be amended to weekly reporting or four-week reporting if so noted on the declarations. Weekly reports must be filed with the carrier at the close of business each Saturday. Four-week reports must be filed at the close of business day each four-week period.

Estimated amounts may be filed and then amended before the end of the reporting month.

c. Premium

The premium at the beginning of the policy year is a deposit. The final premium is computed at the end of the policy year. If the declarations states Monthly Adjustment, the premium is adjusted at the end of each month based on reported values.

·         If the premium is more than the deposit, the insured pays the carrier.

·         If the premium is less than the deposit, the carrier returns money to the insured.

·         If values exceed the limit of insurance, the premium is computed on the limit of insurance because coverage cannot exceed the limit of insurance.

d. Terms

Reporting terms can be amended throughout the policy period.

e. First Report Not Received but Loss Occurred

If a loss occurs after the first report is due but before it is received, loss payment is capped at 75% of the limit of insurance.

Example: The policy period is January 1 to January 1. The first report is due on or before March 1.  A loss occurs on February 15 before the insurance company receives the report. The limit of insurance is $1,000,000. As a result, only $750,000 is available to pay the loss.

f. Loss Adjustment

Using the latest reported values, the loss is adjusted as follows:

Step 1. The value of the covered property is established as of the date of loss

Step 2. Deduct the value of specific insurance, over reporting of specific insurance, and underreporting of reported values from the Step 1.

Step 3. Divide the lesser of Step 2 or the limit of insurance by Step 1.

Step 4. Multiply the amount of loss by Step 3

Step 5. Subtract the deductible from Step 4.

Note: The most the insurance company pays is the sum of step 5. It does not pay any remaining part of the loss.

Examples: The stock limit is $100,000. The deductible is $1,000. The last value reported is $90,000 and is the actual value as of the reporting date. The loss amount is $50,000.

Scenario 1: There is no specific insurance.

Step 1. The total stock value on the date of loss is $100,000.

Step 2. This figure is not reduced by any deductions.

Step 3. $100,000 divided by $100,000 equals 100%.

Step 4. $50,000 loss multiplied by 100% equals $50,000.

Step 5. $50,000 reduced by the $1,000 deductible equals $49,000. This is the amount of loss paid.

Scenario 2: There is $50,000 of specific insurance.

Step 1. The total value of the stock as of the date of loss is $100,000.

Step 2. $100,000 reduced by $50,000 of specific insurance equals $50,000.

Step 3. $50,000 divided by $100,000 equals 50%.

Step 4. $50,000 loss multiplied by 50% equals $25,000.

Step 5. $25,000 reduced by the$1,000 deductible equals $24,000. This is the amount of loss paid.

Note: The insurance company that provides the specific insurance should pay part of this loss. However, the named insured still pays the deductible.

Scenario 3: The named insured reported values of $75,000 instead of $90,000.

Step 1. The total value of the stock as of the date of loss is $100,000.

Step 2. $100,000 reduced by $15,000 ($90,000 - $75,000) = $85,000.

Step 3. $85,000 divided by $100,000 equals 85%.

Step 4. $50,000 multiplied by 85% equals $42,500.

Step 5. $42,500 reduced by the $1,000 deductible equals $41,500. This is the amount of loss paid.

Note: The named insured pays $8,500 because of under-reporting and the deductible.

Related Article: CP 13 10–Value Reporting Form

11. Coinsurance, Income Coverage

Coinsurance terms apply separately to each Income Coverage Limit on the declarations subject to coinsurance. Extra expense coverage is not subject to any coinsurance terms.

The value of the net income plus continuing expenses for the 12 months following the inception date is calculated at the time of loss. That value is multiplied by the coinsurance percentage on the declarations. There is no penalty if that calculated value is less than the limit of insurance and loss is paid based on this coverage form’s other terms. However, a penalty is assessed against any loss payment if the calculated value is more. It is calculated as follows:

Step 1. Multiply the net income plus continuing expense projected value by the coinsurance percentage.

Step 2. Divide the income coverage limit by Step 1.

Step 3. Multiply the total amount of loss by Step 2.

Step 4. Subtract the deductible from Step 3.

The maximum amount the insurance company will pay is the sum determined in Step 4. It does not pay any remaining part of the loss.

Certain expenses are deducted from the total of all operating expenses in order to perform the calculations above. They are:

12. Premium Adjustment, Income Coverage

This is similar to a value reporting method, except it is for income coverage and requires only an annual report. These terms apply separately to each Income Coverage limit on the declarations, and they are subject to Value Reporting and Coinsurance.

A complete report of income value for the latest available 12 months operating experience must be filed with the company when this coverage is requested. At the end of each 12 months, a report of values must be developed for those 12 months and forwarded to the carrier within 120 days. When the policy expires or is canceled, a report for the values that have occurred since the last report was filed must be provided to the company within 120 days of the cancellation or expiration. If reports are not filed appropriately or income coverage is not applicable, the carrier will not adjust the premium.

The premium for this coverage is an advance premium – not a deposit. That means that it is meant to be a full premium. The limit of insurance is the reported limits times the coinsurance percentage. The final premium is compared to the advance premium, and a return premium is provided if the final premium is less than the starting premium.

If the final premium is more than the advance premium, there is no additional charge. The insured could not have collected more than the limit initially reported, so they cannot be charged premium for coverage not provided.

The loss is adjusted based on whichever option results in a lower amount:

Note: The coinsurance provision uses the 12 months after the inception or last anniversary of the policy.

Note: This coverage is advantageous to the named insured with fluctuating values due to significant economic changes when it is difficult to accurately project future earnings or expenses. It allows the named insured to overestimate the limit it needs and receive a return premium if the estimate is too high. The named insured loses the excess premium it could have invested in an interest-bearing account instead of an insurance policy. However, it benefits by having an adequate limit if a loss occurs during an economic upturn.

13. Maximum Period of Indemnity, Income Coverage

This coverage eliminates the coinsurance provision for any income item where this coverage is entered on the declaration and a number of days are shown. The insured receives payment for losses that occur but for no more than the actual loss and for no longer than the number of days shown subject to the limit of insurance on the declarations.

Example: Kathy’s Kitchen Delectables wants to avoid worrying about coinsurance and selects the maximum period of indemnity option. Kathy's limit is $120,000 with a 90-day maximum period of indemnity. A covered loss halts operations for 150 days. The loss for the first 90 days amounts to $100,000. The most paid is $100,000 because Kathy selected a 90-day maximum period of indemnity.

14. Monthly Limitation, Income Coverage

This coverage allows the insured to select a monthly percentage limitation. Three or more percentages can apply in succeeding 30-day intervals. The insured can choose the percentage and the number of periods. If a loss occurs, the percentage times the limit of insurance determines the amount of insurance available for the particular time period. Once the limit is exhausted, the insured is responsible for the remaining loss.

Note: This is not the same as the Insurance Services office (ISO) Monthly Limitation.

Example: Joe’s Grapevines selects a $120,000 limit and monthly limitations of 25%, 50%, 75%, and 100%.

A loss occurs, and the restoration period is 55 days. Because the restoration period is less than 60 days, the second percentage is multiplied by the limit of insurance to determine the most paid for the loss.

 $120,000 X .50 = $60,000

LOSS PAYMENT

1. Our Options

The insurance company decides how to pay a claim, and the policy spells out the four options it can consider.

The first two options concern only financial compensation, while the last two require direct involvement with the property. Once proof of loss is submitted and accepted, the insurance company has 30 days to inform the insured of which option will be chosen.

Related Court Case: , Insurer Decision to Repair, Instead of Replacing a Trailer, Is Not a Breach of Contract

2. Your Losses

Losses are settled with the named insured. Payments are made to the named insured and/or any loss payee specified in the policy. An insured loss should be paid within 30 days after the insurance company receives satisfactory proof of loss and the amount of the loss is agreed upon in writing or determined through a filed appraisal award.

Note: Other Conditions 1. Appraisal has details on the appraisal process.

3. Property of Others

The insurance company adjusts losses with and pays either of the following:

a. The named insured on the property owner’s behalf

b. The property’s owner, subject to its interest

However, the insurance company pays only one party. If it pays one, it does not pay the other. It also has the option to defend the named insured against suits the property owner brings against it. If the company defends, it does so at its own expense.

4. Loss of Use of Dwellings

Loss under Supplemental Coverages 5. Loss of Use of Dwellings is paid monthly. The named insured must give the insurance company proof of its higher living costs.

OTHER CONDITIONS

1. Appraisal

The insurance company and the named insured do not always agree on the value of a covered claim. This condition provides one method to solve disputed claims.

Either party can request an appraisal to determine the value of a disputed claim. Once a request is made, both parties have 20 days to appoint their own independent and qualified appraisers and provide the names of these appraisers to the other party. The two appraisers then have 15 days to select a competent and impartial umpire. If they are unable to agree on an umpire within that time frame, either party can ask a judge in the court of record in the state where the property is located to appoint one.

The appraisers then determine the value of the claim. Any differences are submitted to the umpire. The amount of loss is established when any two of the three parties agree.

Each party pays its own appraiser. Both parties share the cost of the umpire and other expenses.

2. Benefit to Others

The insurance provided does not directly or indirectly benefit any party with custody of the named insured's property.

3. Builders’ Risk Property

Builders' Risk coverage for any building identified as such on the declarations ends on the earliest of the following events:

Note: The important point is that coverage ends on the earliest of any of these dates, especially with respect to coverage continuing for up to 90 days after construction is complete. If construction on the building ends the day before the expiration date, coverage ends on the expiration date. There is no coverage if a loss occurs the day after.

4. Conformity with Statute

Any condition in this coverage form that conflicts with any applicable law is amended to conform to that law.

5. Control of Property

The coverage provided is not affected by any act or negligence beyond the named insured’s control.

Examples:

Scenario 1: Increase in hazard: A crack house moves into the building adjacent to the named insured's business.

Scenario 2: Government action to over-seed rain clouds produces high winds and damaging hail.

6. Death

If the named insured passes away, the individual who has custody of the named insured's property will be considered an insured until a qualified legal representative is appointed. Once appointed, the named insured's legal representative also becomes an insured. Both individuals are insureds, but only in relation to the property covered by this insurance policy.

Note: This condition applies only if the named insured is an individual. Individuals die but corporations do not. Partnerships dissolve immediately when one of the partners dies, and the surviving partner or partners are absolutely responsible for the partnership’s assets after another partner dies. Limited Liability Companies dissolve when a member dies unless the Operating Agreement is amended.

7. Liberalization

If the insurance company broadens policy coverages without charging an additional premium, and this change occurs during the policy period or within six months of the policy's inception date, then the broadened coverage will apply to this policy.

Note: We find the six-months wording to be confusing and are unsure of the intent.

Example: The Agribusiness Property and Income Coverage Form for Mindy’s Farm is effective 8/1/2025. On 12/1/2025, the insurance company changed the form to eliminate the need to apply deductibles in cases of total loss and did not charge an additional premium for this revision. A tornado completely destroys Mindy’s building on 4/20/2026. The deductible does not apply to Mindy’s loss because the coverage form was revised during the term of Mindy’s policy, so the liberalization clause applies.

8. Misrepresentation, Concealment, or Fraud

Coverage is void for any insured named on this coverage form if any insured engages in the following actions before or after a loss:

a. Willfully concealed or misrepresented a material fact or circumstance relating to the insurance or to the item(s) being insured or to the named insured’s interest in them

Note:  It's important to understand that a material fact is a crucial piece of information that can impact the decision to issue a policy. If a fact is deemed material, it means it could influence an underwriter's decision to approve or deny a policy.

b. Engaged in fraud or false swearing concerning anything that relates to this insurance

Note: This is an extremely important condition because insurance coverages and policies are issued in utmost good faith. The insurance company must be able to believe its customer. Conversely, such instances must be significant (material). If a minor event occurs that would not have impacted the underwriter’s decision to offer a policy, then it is unfair to disallow coverage just because of a technicality.

Note: It is important to note that one insured’s lies voids coverage for all insureds on the policy, not just for the one that lied.

Related Court Cases:

Insurer Can Rescind Policy Based On Insured's Material Misrepresentations on Application

Misrepresentations Voids Entire Policy

9. Policy Period

The only losses the insurance company pays are those that occur during the policy period.

10. Recoveries

Communication is an important part of the recoveries process. When either the named insured or the insurance company recovers property that was part of an insurance settlement or receives a payment from whoever was responsible for the loss or damage, the recovering party has a responsibility to notify the other party.

The recovery expenses are reimbursed and then the named insured must decide whether to keep the recovered item or allow the insurance company to keep it. If the named insured keeps the recovered property, the claim payment must be returned unless both parties agree that the refund should be less due to damage to the property or other reasons.

If the claim that was paid is less than the agreed upon loss, due to deductibles or limitations within the policy, the recovery amounts are prorated based on the interest of each party in the loss.

11. Restoration of Limits

The limits provided in the policy are not reduced when any payment is made. The only exception is Additional Coverage. 8. Pollutant Clean Up and Removal, which is subject to aggregate limits.

12. Subrogation

When the insurance company pays a loss for

 the named insured, the insurance company gains all recovery rights for that loss. This means that if the loss was caused by someone else, the insurance company can use the named insured’s rights to ask the negligent entity to reimburse them for the paid loss. The named insured must not waive their rights or impair them except when in writing under the following circumstances:

o   An insured

o   A tenant

o   A business that is owned or controlled by the named insured

o   A business that owns or controls the named insured

There is an exception. Builders’ Risk property rights of recovery cannot be waived prior to a loss. In addition, the named insured cannot waive rights of recovery from an architect, engineer, contractor, or subcontractor for loss to any building or structure that is identified as Builders’ Risk property.

Examples:

  • Patrick (the named insured) tells Lauren (a friend) that the loss was not her fault and that she does not have to pay for the fire damage she caused to the building. In this case, Patrick jeopardized the insurance company’s subrogation rights. The insurance company may not have to pay the Patrick for his claim because this action violates the subrogation condition.
  • Patrick owns the building and Lauren is his tenant. The lease mutually waives any rights of recovery against each other. Lauren causes a covered loss. In this case, coverage applies, and the insurance company cannot subrogate against Lauren because of the lease conditions.

Related Article: Transfer of the Rights of Recovery (Subrogation)

Related Court Cases:

Lease Releases Landlord and Tenant

Subrogation by Landlord's Insurer Barred

Waivers of Subrogation and Definition of Work to Be Insured Were Ambiguous

Waiver of Subrogation Applies To All Losses

Mutual Subrogation Waiver Clause Barred Recovery by Property Owners Insurer

13. Suit against Us

The insurance company cannot be sued unless both of the following criteria apply:

·         All the coverage form’s terms are met; and,

·         the suit is brought within two years, of the named insured first knowing about the loss, or;

o   within the shortest period permitted by any law that invalidates this condition.

Example: A hailstorm damages Kathy’s roof. It also damages the roofs of hundreds of other buildings in the area. She cannot find a contractor to inspect her damage because there are so many claims. She decides to wait until the following spring when she contacts a contractor who verifies the damage and she then submits a claim to the insurance company.

The company denies the claim because of the length of time between the damage and the notice. Kathy responds by arguing that she could not file a claim until she knew that a loss actually occurred.

The company changes its mind and discusses the matter with the contractor. The company offers $10,000 for the repairs but the contractor insists that the repairs will cost $25,000.

Neither party is willing to compromise. Kathy sues the insurance company because she satisfied all the coverage form’s terms and conditions and the two-year time limitation is approaching.

14. Territorial Limits

The coverage territory for covered property is the United States of America, its territories and possessions, Puerto Rico, and Canada. However, these territorial limits do not apply to Supplemental Coverages 7. Overseas Transit and Location.

15. Mortgage Provisions

The insurance company has specific obligations to mortgagees named on the declarations.

·         If there is more than one mortgagee, each is paid in the order of precedence.

·         Insurance for the mortgagee’s benefit is not affected and continues, regardless of any actions by the named insured that may void coverage. It does not continue, however, if the mortgagee knew about changes in ownership or increase in hazard and did not tell the insurance company.

·         The insurance company must give the mortgagee at least ten days notice of cancellation if the named insured does not pay the premium or 30 days notice for all other reasons. The insurance company may request that the mortgagee pay the premium if the named insured does not.

·         The mortgagee may be paid for a loss in a case where the insurance coverage for the named insured’s benefit is void. In that case, the mortgagee's right for that portion of the mortgage debt transfers to the insurance company. However, it does not affect the mortgagee's right to collect the remaining amount of the mortgage debt from the named insured.

·         The insurance company may choose to pay the mortgagee the outstanding principal balance and any accrued interest to obtain a full assignment of the mortgagee's interest and any other instruments given as security for the mortgage debt.

Note: This could benefit the company if it believes it can earn more interest income on the mortgage than on its current investments or if it can sell the mortgage for a premium.

·         The insurance company must give the mortgagee at least ten days written notice before the expiration date of its intent to not renew.

Example: The building that Lou’s Compost and Fertilizer occupies is insured for $500,000. First Guaranty holds a $300,000 mortgage on the building.

Lou agrees to a dynamite manufacturing company moving into an unused portion of the building and an explosion causes a $100,000 loss.

The insurance company denies Lou’s claim. Because of the mortgage on the building, the insurance company pays First Guaranty $100,000 and this payment reduces Lou's mortgage to $200,000. The insurance company then notifies Lou that he owes it $100,000.

Related Court Cases:

Cancellation Validated By Proof of Mailing of Notice

Payment of Policy Proceeds to Insured Did Not Relieve Insurer of Obligation to Mortgagee

16. Loss Payees

If there is a loss payee shown on the declarations any covered loss is paid to the named insured and the loss payee as their interests appear. If there are multiple loss payees, they are paid in precedence order.

If a loss payee is actually a Lender’s Loss Payee and is so identified on the declarations, they are paid as any other loss payee. However, the Lender’s Loss Payee has additional rights under this policy. If the named insured voids the policy due to acts, neglect of failure to comply with terms of the policy, the Lender Loss Payee’s interest remains in effect provided it was not aware of changes in ownership or increases in hazard without notifying the carrier.

The Lender Loss Payee must be notified as follows:

·         10 days prior to cancellation if due to nonpayment

o   The Lender Loss Payee may be requested to pay premium that the named insured has not paid.

·         10 days prior to expiration for any nonrenewal

·         30 days prior for any other reason

If the insurance company pays the Lender Loss Payee for a loss that is void to the named insured, the insurance company takes over the Lender Loss Payee’s rights for repayment of the debt from the insured and the Lender Loss Payee still has its rights for debt. If the insurance company wants to consolidate the debt, it can pay the Lender Loss Payee for its remaining principle and interest and receive full rights to the named insured’s property.

17. Vacancy

The vacancy condition restricts coverage.

After the building has been vacant for more than 60 consecutive days, the following penalties apply:

o   Attempted theft

o   Breakage of building glass

o   Sprinkler leakage but only if the named insured did not protect the system from freezing

o   Theft

o   Vandalism

o   Water damage

All payments are reduced by 15% if the covered cause of the loss is other than the one listed above.

The next section of this condition describes the term vacancy and it varies based upon occupancy and ownership. Vacancy is based on building or structure, not by location.

A building or structure the named insured owns is subject to the 30% rule. The building is considered vacant if less than 30% of its square footage is occupied as intended.

 

Example: Melvin’s Cannery owns four buildings on its premises and one building in town. The building in town is scheduled on the policy as a retail location but all stock has been removed. This building is vacant.

When the named insured leases a building or structure, the 30% rule continues to apply, but it is applied only to the portion of that building leased by the named insured.

Example: Melvin’s Cannery leases a small part of a commercial strip building for a retail location. Its major tenant moves out and leaves the building 80% vacant. Although the commercial strip building is vacant for the owner, Melvin, who occupies the leased space as intended, would not incur a vacancy penalty if a loss occurs.

Buildings or structures under construction or being renovated are not considered vacant.

Example: If the retail building in the first example in this section is being renovated, it is not considered vacant even though the stock has been removed.

The insurance company can agree to cover a vacant building or structure. It does so by adding a Vacancy Permitted time period on the declarations next to the specific building or structure. Any loss that occurs during that time period is treated as though the building or structure is not vacant.

Related Court Cases:

Extensive Renovation Qualifies Property for Vacancy Clause Exception

Sprinkler System Renovation In Building Did Not Render It Occupied: Vacancy Exclusion Applied