AG 00 01–AGRICULTURAL CAPITAL ASSETS (OUTPUT POLICY) COVERAGE FORM ANALYSIS

AG 00 01–Agricultural Capital Assets (Output Policy) Coverage Form provides extremely broad coverage. It combines many of the best features of different Insurance Services Office (ISO) property coverage forms and then builds on them. The coverage provided is very attractive to the right risk.

AG 00 01–AGRICULTURAL CAPITAL ASSETS (OUTPUT POLICY) COVERAGE FORM ANALYSIS

Note: This analysis is of the 04 13 edition. Changes from the 10 10 edition are in bold print.

The opening statement cautions the named insured that certain provisions restrict coverage and encourages reading the coverage form carefully and completely to understand its various rights and duties in addition to what is and what is not covered. It defines the words “you” or “your” as the named insured on the declarations and “we," "us" and "our” as the insurance company that provides coverage. Because the term “named insured” is not defined, it applies to any and all entities listed on the declarations.

A. COVERAGE

The insurance company pays for direct physical loss of or damage from a covered cause of loss to covered property at a covered location.

Note: This sentence alone provides the basis for all coverage provided.

1. Covered Property

As used in this coverage form, covered property includes the following but only when there is a limit on the declarations for that particular type of property:

a. Building is covered and is broadly defined as buildings and structures. The following are included within the term building:

Moveable, non-permanent buildings and structures
Private dwellings and related private structures
Detached silos and silos that are attached to buildings
Completed additions to any covered building or structure
Building glass and glass that makes up part of a structure
Indoor and outdoor fixtures
Equipment, machinery, platforms, and bins but only when installed in a manner to keep it permanently in the building or structure
Personal property the named insured owns if it is used to maintain or service buildings and structures at covered locations. Examples of such personal property are floor coverings, outdoor furniture, appliances that are used to cook, wash, launder, or refrigerate. Other examples are equipment used to heat, air condition, or ventilate and fire extinguishing equipment. It is important to remember that these are examples, so other similar personal property is also covered as building.
Builders risks. This is restricted to only such risks that other insurance is NOT covering. Definitions in this form explain what items are considered to be builders risks. When the builders risk is covered under this item, the named insured's legal liability for similar property of others with respect to fixtures, machinery, and equipment in the definition of builders risk is also covered.

Example: Penelope's Pigs decides to build a new hog confinement facility on its premises. It purchases the needed construction materials and places them next to the construction area. Penelope hired contractors to construct the building during the day while other operations continue uninterrupted. The contractors leave their scaffolding and contractor’s equipment over the weekend and are not pleased when they return on Monday to find the construction materials, their scaffolding, and their equipment missing. This loss is covered under the definition of building because the material was on or within 1,000 feet of the covered location, was part of a construction project that the definition of builders risk included, and Penelope was legally liable for the property.

Awnings and canopies that are situated on or within 1,000 feet of a covered building
Corrals, pens, feed racks, chutes, and fences. Pasture fences and field fences are not considered building

Television and radio towers but only when located within 1,000 feet of a covered building. Antennas, satellite dishes, guy wires, lead-in wiring, masts, and property permanently mounted on or attached to such property are also covered but only if within 1,000 feet of covered building.
Signs without limitation as to where they are or that they are to be attached to a building. There is also no limitation as to how close the sign must be to a building.
Foundations for buildings and structures and foundations placed for boilers and machinery
Docks, piers, wharves, pilings, and bulkheads
Underground pipes, drains, and flues
Retaining walls

b. Business personal property that is located on or in buildings or structures at a covered location is covered. The same property in the open and in or on vehicles is also covered, but only when it is within 1,000 feet of a covered location. Business personal property includes the following:

Furniture and fixtures
Machinery and equipment. This includes irrigation equipment.

Stock
Grain, silage, beans, threshed seeds, and ground feed along with any blended livestock feed. However, these are covered only when inside buildings or structures or while in sacks, wagons, or trucks.
Grain that is in the open and placed in stacks, shocks, piles, or swaths. The only causes of loss that apply to this item are fire, lightning, windstorm, hail, vandalism, vehicles, and theft.

Note: This departs from ISO’s usual practice of identifying such property as Property Not Covered and then adding it back under D. Limitations for these limited perils.

Hay, straw, and fodder is covered only while inside buildings and structures

Note: This is another departure from ISO's usual practice of excluding and then placing as a Limitation.

Other farm products that are not in the three items described immediately above. Examples are materials, supplies, and related packing materials but only when they are usual farm operations.
All other owned personal property used in the business
Labor, material, or services the named insured furnishes or arranges for on personal property of others

DairyFarm

Example: In addition to owning the dairy, Harvey repairs milking equipment that belongs to others. A tornado strikes and destroys the repair building, including all the equipment in for repairs. Harvey's insurance company pays the value of the destroyed milking equipment to their owners and pays Harvey for his labor and materials invested in repairing the milking equipment.

The named insured's use interest in improvements and betterments, if it is a tenant.

Improvement and betterment are fixtures, alterations, installations, or additions made or added to a building the named insured does not own. They must have been acquired or made at its expense but cannot be legally removed.

Personal property the named insured leases and is under a contractual obligation to insure
Personal property that is intended to become part of the named insured's installation, erection, or fabrication project. It is covered while at the jobsite and while in temporary storage pending delivery to the jobsite. This provision does not apply to builders risks because A. Coverage 1. Covered Property a. Building above would cover that. This property is not subject to the 1,000-foot restriction.

Personal property of others while it is in the named insured's care, custody, or control. Property sold under an installation agreement is also covered if the named insured's responsibility for the property does not end until the purchaser accepts the property. The insurance company pays for loss or damage to personal property of others only for the account of the property's owner.
Mobile equipment is covered, but there are limitations:

Owned farm machinery, vehicles, and related equipment are covered. However, this coverage does not apply if covered under any other insurance. It is also not covered if either covered or excluded elsewhere in this policy. Furthermore, it is not covered when in the custody of a common or contract carrier.

Example: Pete's Poultry has an old pickup truck he does not license for road use because it is used only to move feed and supplies from the main storage building to the various poultry houses. It used to be insured under Pete's automobile insurance policy but was removed when he no longer licensed it, which also ended the physical damage insurance coverage on it. A fire occurs in the warehouse building where the truck is parked when it is not being used. The truck is included as covered property.

Leased, rented, or borrowed farm machinery, vehicles, and related equipment usual or incidental to farming operations and that are in the named insured's care, custody, or control. The named insured cannot have an ownership or lien interest in the property. The property is covered anywhere in the coverage territory except while on the property of the party that owns the property.

This category does not include dealers’ demonstration machinery, vehicles, or equipment. It also does not include automobiles, trucks, motorcycles, motorized bicycles, and tricycles, mopeds, dirt bikes, snowmobiles, four-wheel all-terrain vehicles, mobile homes, house trailers, vehicles other than farm wagons and farm trailers designed and licensed for road use, watercraft, aircraft, or equipment, or tires or parts of any of these.

Cotton pickers and harvester-thresher combines not specifically listed and described on AG 14 05–Scheduled Mobile Equipment are not included as covered mobile equipment.

c. Household Personal Property is the named insured's household personal property that is in or on dwellings, or detached structures in a covered location. Such property that is within 1,000 feet of the covered location that is either in the open or in or on vehicles is also covered.

When the named insured is an individual, household personal property that any family member owns that is at a covered location is covered. When a loss occurs, the named insured has the option of covering household personal property of others but only if that property is in a part of the named insured's residence dwelling or on grounds adjacent to it.

Business personal property is not covered as household personal property.

Example: John is the named insured. Larry, his brother, brings his family for an extended stay at John’s while John attends to business out of town. Larry’s delightful grandson accidentally overturns the wood burner, and the ensuing fire destroys most of the house, including both John’s personal property and everything that Larry brought for his stay. John asks his insurance carrier to cover Larry’s loss, and it does so but only because John’s limits of insurance were sufficient for both his and Larry’s losses.

2. Property Not Covered

Property is covered only when it is listed in the Property Covered Section and NOT listed in the Property Not Covered Section. The following property is not covered:

a. Accounts, bills, currency, food stamps, other evidences of debt, money, notes, securities, and valuable papers and records. The only exceptions are those specifically covered elsewhere.

Note: Limited coverage for some of this property is provided in the Additional Coverages Section.

b. Aircraft and watercraft. Their equipment or parts are also not covered. The only exception is for rowboats and then only when they are out of the water and at the named insured's covered location.

c. Livestock and poultry. There are two exceptions. The following livestock or poultry is covered:

That which has been slaughtered for use in manufacturing or processing operations

Any that is specially covered elsewhere in this policy.

AG 04 08–Livestock Coverage

AG 04 09–Poultry Coverage

d. Vehicles are not covered if they are being held for sales, lease, rental, or loan. Examples of such vehicles are automobiles, motorcycles, motor trucks, motor homes, tractors, and mobile equipment.

e. Business personal property and household personal property that is in transit by water or air. An exception applies when this property is being transported by a regularly scheduled airline or ferry service.

f. Bridges and roadways

g. Walks, patios, and driveways. This does not apply to such items when they are next to a dwelling.

h. Contents of any type of poultry house, other than such contents when covered elsewhere in the policy.

I. Property that is in the course of illegal transportation or trade and contraband.

Example: Charlie bought $50,000 worth of tobacco products in Kentucky. He loaded them into his truck and planned to sell them in New York. Charlie estimated that he would double his investment due to the difference in state taxes. Unfortunately, he had an accident when he entered the Holland Tunnel. The police noticed his cargo, and during the investigation, his plans were revealed. Charlie received no payment for the damaged tobacco products because, at the time of the accident, they were contraband.

j. The cost to excavate, grade, fill, or backfill, is only covered if it is a necessary part of fixing other covered property. All other costs that are incurred to stabilize or reconstruct land in any way are excluded.

k. Electronic data is not covered, but there are exceptions. Prepackaged software that is considered stock is covered. Electronic data that is combined with and that controls or operates the building’s security, elevator, heating, air conditioning, ventilating, or lighting systems is covered. (04 13 change) In addition, any electronic data that is covered as part of the Additional Coverages, Electronic Data is not excluded.

l. Any import or export property is not covered when it is covered by an ocean marine cargo or similar policy obtained by any party to cover such property.

OceanGoingCargoShip_2

Example: Lyle's Lambs raises, slaughters, and packages lamb for export to a number of countries. Lyle has Stanley Shipping and Freight Consolidators handle all transportation and shipping transactions. A customer calls to complain that a shipment did not arrive. Lyle has Stanley check on its whereabouts and discovers that the refrigerated container that contains the lamb is lost somewhere in the United States. Stanley purchases ocean marine cargo coverage on all shipments that leave the country. As a result, Lyle’s AG coverage form does not cover this loss. This also means that Lyle must demand payment from Stanley Shipping and Freight Consolidators.

m. Fine arts. However, specific coverage for it is provided under the Fine Arts Additional Coverage.

n. The following harvested crops, except as otherwise provided:

Tobacco, cotton, vegetables, root crops, potatoes, bulbs, fruits, and nursery stock. Coverage is provided if a limit is entered for it on the declarations.
Hay, straw, and fodder in stacks, windrows, or bales outside buildings. However, specific coverage is provided under the Hay, Straw, Fodder Outside Additional Coverage.
All other harvested crops that are outside buildings. The only exception is any coverage that is specifically provided elsewhere.

o. Grave markers and mausoleums, but Grave Markers Additional Coverage does provide coverage.

p. Land, water, lawns, and growing crops. Lawns that are part of vegetated roofs are covered. (04 13 change)

Note: Growing crops are different from harvested crops.

q. Property that is in transit except for the coverage Property in Transit Additional Coverage provides.

r. Property that is covered more specifically in this policy or in another insurance policy. This policy will respond on an excess basis over that other coverage form, but it will not drop down to primary coverage if that other coverage cannot be collected. Borrowed farm vehicles and equipment described as mobile equipment under business personal property are exceptions.

s. Property of others for which the named insured is legally responsible because it is a carrier for hire or because it made the transportation arrangements. The only exception is when this policy provides specific coverage for the exposure elsewhere.

t. Property that has been sold and delivered. The only exception is when the named insured sold the property subject to an installation agreement.

u. Property sold under an installment sales or leased property contract or agreement. The only exception is the coverage provided in the Installment Sales Property Additional Coverage.

v. Trees, shrubs, and plants. There are two exceptions. Trees, shrubs, and plants that are part of vegetated roofs are covered. (04 13 change) In addition, coverage is provided in the Trees, Shrubs, and Plants Additional Coverage. w. Licensed vehicles or self-propelled machines that are built to be used on public roads are not covered except for the following:

This kind of property the named insured manufactures, processes, or warehouses
This kind of property the named insured holds for sale, lease, loan, or rental. Motor vehicles, such as automobiles, motorcycles, motor trucks, motor homes, tractors and mobile equipment are not covered because item d. above excludes them.

x. Eggs. There is a separate endorsement available to provide coverage for eggs is needed.

y. Nursery stock, but this property can be added by entering a limit of insurance for it on the declarations

3. Additional Coverages

These coverages are provided automatically. Unless otherwise stated, additional limits are not available. The limits for these coverages are included in the limit of insurance that applies to the covered property on the declarations, except with respect to Automatic Increase Additional Coverage.

Note: If any of these coverages is very important to the insured, the limits entered for buildings or personal property should be increased to cover the exposure.

a. Brands and Labels Expense

The insurance company may exercise its option to take all or part of branded or labeled covered property a covered cause of loss damages and pay the agreed or appraisal value. If so, the named insured is allowed to remove all branding or labeling or to stamp the word salvage on the merchandise provided doing so does not physically damage the merchandise. The cost of the stamping, removal and any required relabeling is covered under this additional coverage.

b. Debris Removal (04 13 changes)

After a covered cause of loss causes physical loss or damage, debris remains that must be removed. This additional coverage applies to the costs to do so. This coverage is explained as follows:

(1) Actual expenses to remove debris are paid if all of the following apply:

The named insured actually incurs the debris removal expenses.
The debris to be removed is covered property.
The debris to be removed is not covered property but meets the other criteria in this paragraph and the criteria in paragraph (2) below. (04 13 addition)
The covered property became debris because a covered cause of loss occurred.
The loss occurs during the policy period.
The expenses are reported within 180 days of the date of direct physical loss or damage.

The coverage this paragraph provides is subject to the limitations outlined below.

(2) The 04 13 edition changes this paragraph significantly. The 10 10 edition limited itself to only items related to pollutants. This paragraph is needed because paragraph (1) is broadened to include debris of non-owned property. This paragraph limits that broadening of debris coverage. These items appear to be limiting, but they actually establish the boundaries for the broadened coverage in paragraph (1).

There is no coverage for the costs to remove the following items:

Debris that belongs to the named insured that is either not insured or is considered property not covered
Landlord’s property when the named insured is a tenant. However, it is still covered if the named insured is contractually obligated to insure the property.
Any property described in 2. Property Not Covered. This also applies to property that has limited coverage under Additional Coverages h. Trees, Shrubs, and Plants.

Note: This means that debris of trees, shrubs, and plants is not covered debris.

Any property that belongs to others and is not included as Covered Property
Mud or dirt deposited on the grounds of the premises during a covered loss
Any pollutants from land or water

Polluted land or waters. The cost to restore or replace the polluted land or waters is also excluded.

(3) This paragraph explains the amount of coverage the basic limits provide. There are two distinct limitations:

(a) The total amount paid for a direct loss PLUS the debris removal is the lesser of:

· The actual physical loss or damage PLUS the debris removal expense

· The limit of insurance for the damaged covered property

(b) The total amount paid for debris removal is the lesser of:

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

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

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

· The actual debris removal expense

(4) This paragraph provides an additional amount of insurance to remove debris if one of the limitations in paragraph (3) above applies. The additional amount of coverage is $50,000, subject to the following:

(a) The total amount paid for a direct loss PLUS the debris removal is the lesser of:

· The actual physical loss or damage PLUS the debris removal expense

· The limit of insurance for the damaged covered property PLUS $50,000 Debris Removal Additional Coverage

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

· The total of the amount paid for the direct physical loss plus any applicable deductible amount multiplied by a factor of .25 PLUS $50,000. The formula is [(Paid loss amount + deductible amount) x .25] + $50,000 = Debris Removal Coverage Amount.

· The actual debris removal expense

The last point to make with respect to this coverage is that the maximum amount of insurance available for direct physical loss and debris removal expense does not exceed the coverage limit of insurance plus $50,000.

Example: Gordon's Shetlands, LLC is located on an island accessible only by ferry. Building their stables was a major project, and the recent fire was difficult to extinguish. The amount of loss is $200,000. The island is a National Preserve which means that any work must be coordinated with the federal government and must also meet the requirements of numerous environmental groups. One requirement is that the debris from the stable fire must either be used in the reconstruction or be completely removed from the island. Because Gordon wants a new stable, the only option is to remove the debris by ferry. The debris removal expense is $90,000.

The debris removal limit available is the $200,000 amount of loss multiplied by 25% or $50,000. Add the $50,000 additional debris limit for a total limit of $100,000. The debris removal expense is $90,000. The $90,000 debris removal expense is covered.

Unfortunately for Gordon’s there is a remaining cap on the payment. The most paid for the entire loss is the limit plus $50,000. Gordon carries only $200,000, so after the loss of $200,000 is paid only the $50,000 debris removal Additional Coverage is available to pay the $90,000 debris removal cost.

Note: AG 00 01 prior two examples to assist in explaining the effect of the deductible on calculating debris removal expense.

c. Automatic Increase

The limits of insurance for building and business personal property automatically increase by 2% each year. This percentage can be changed on the declarations or on AG 14 01–Scheduled Location and must specify the items involved. The coverage form states that AG 14 05–Scheduled Mobile Equipment can also be changed, but this must be done manually because the schedule does not provide a space in which to enter the percentage.

To determine the amount of increase available on the date of loss, divide the number of days since policy inception by 365. Then multiply the result by .02 (or the applicable percentage). The last step is to multiply this result by the limit of insurance.

Example: The limit of insurance is $1,000,000, the increase percentage is 2%, and the loss occurs 80 days into the policy term. The $1,000,000 limit is multiplied by the 80 days of coverage divided by 365 days in a year, or 219. That figure is multiplied by 2% for a total additional limit of $4,384 that is available on that date of loss.

Note: The limits on any policy with an automatic renewal increase should be increased to the ending value upon renewal or higher. Using the same limits as on the initial policy would represent a reduction of values.

Example: Tom's Turkey Farm's blanket limit on 01/01/2022 is $2,000,000. The amount of automatic increase is 3%. On 12/31/2022, the available limit of insurance is the original $2,000,000 limit increased by 3% or $2,060,000. When Tom’s asks for the policy to be renewed “as is” should it be the increased limit of be $2,060,000, or should it be reduced back to $2,000,000?

d. Fire Department Service Charge (04 13 changes)

Some rural and suburban areas charge a fire department service fee to supplement their revenues from taxes. If the named insured must pay a service fee because it signed a contract before the loss occurred or must do so because of a local ordinance or law, this coverage reimburses it for such fees for up to $10,000 per covered location. The $10,000 limit applies regardless of the number of departments that respond or the number of services provided. The limit can be increased.

Note: Prior editions of this coverage form were open-ended and subject to various interpretations. One was that each fire department service fee was subject to the $10,000 limit. If multiple departments responded, each fee charged was capped at $10,000. Under this new wording, the single $10,000 limit applies if multiple departments respond. This could be a significant restriction of coverage in certain situations where multiple departments respond.

Note: This additional coverage is not subject to a deductible.

e. Ordinance or Law (04 13 changes)

This additional coverage deals with each of the three distinct types of ordinance or law coverages.

(1) Coverage

(a) Coverage A applies to the undamaged portions of a building that must be demolished. Coverage applies if there is a covered loss, and the part of the building that was not damaged must be demolished due to a requirement to comply with a law or ordinance that mandates that the part of the building that was not damaged be demolished.
(04 13 addition)

Note: The words “comply with” replace the words “enforcement of” of the prior edition.

Example: Marty's Maize Products occupies a 100-year-old well-maintained, five-story joisted masonry building located on the river just west of downtown. While it has been remodeled over the years, it still does not comply with many current codes and ordinances. However, it is grandfathered, and many of these codes do not affect the building because it was built before the codes and ordinances were enacted.

A severe late October storm damages over 60% of the building. According to current ordinances, any structure damaged 50% or more must be brought into compliance with all current codes. Current codes restrict joisted masonry construction to not more than three stories high. In this case, the undamaged portion of the building must be torn down to not more than three stories high, or the entire building must be torn down and rebuilt. Coverage A pays for the undamaged portion of the building that must be torn down.

(b) Coverage B pays for demolishing the undamaged portion of the building and for removing its debris. This applies only when the demolition is a result of complying with a law or ordinance mandating the demolition of such undamaged property. The limit for this additional coverage is $100,000. This limit can be increased.

According to the lead-in language in this section, this limit is part of the limit of insurance on the declarations, not in addition to it. As a result, if the direct damage loss, including Coverage A exhausts the limits, nothing remains for Coverage B. If the named insured increases the limit for Coverage B, it should consider increasing the blanket limit of insurance by the same amount.

This additional coverage is not subject to coinsurance.

Note: The words “comply with” replace the words “enforcement of” in the 10 10 edition.

Example: Continuing the example above, Coverage B pays for the costs to demolish the undamaged portion.
The building construction was solid, and the only practical way to demolish it was by implosion. The $100,000 limit pays for both the demolition and the removal of the debris from that previously undamaged portion.

(c) Coverage C pays the additional costs to rebuild or repair because of a requirement to comply with the minimum standards of laws or ordinances. The limit for this coverage is $100,000. This limit can be increased.

According to the lead-in language in this section, this limit is part of the limit of insurance on the declarations, not in addition to it. If the direct damage loss, including Coverage A exhausts the limits, nothing remains for Coverage C. If the named insured increases the limit for Coverage C, it should consider increasing the blanket limit of insurance by the same amount.

Note: The words “comply with” replace the words “enforcement of” in the 10 10 edition.

Example: Continuing the example above, Coverage C pays for the upgrades needed to comply with current codes. Because the building must be rebuilt, the $100,000 can be used to improve the building and have it comply with current codes. The $100,000 can be used to pay the difference between joisted masonry construction and masonry noncombustible, make the building handicapped accessible, and other required improvements.

Loss or damage to covered property by a covered cause of loss must occur before this coverage is triggered. If part of the damage is from a covered cause of loss and part is not, payment under this additional coverage is proportional.

This coverage is not provided to help the named insured correct problems that should have been corrected before but were ignored. The named insured must pay for any outstanding violations that have not been corrected, such as outstanding required upgrades or compliance with the Americans with Disabilities Act (ADA), not the insurance company. Only those upgrades that had been grandfathered are covered. In addition, this coverage does not apply with respect to any laws or ordinances that relate to pollution.

(2) Application of Coverage(s)

The coverage described above applies only if qualifications (a) and (b) below are met. Item (c) below explains how partially covered losses are handled.

(a) Ordinance or Law

This coverage applies to only specific types of ordinances or laws. They must establish land use or zoning related to demolishing, building, or repairing buildings. They must apply to the covered location and be in effect at the time of loss. However, the coverage provided responds to only the ordinance or law's minimum requirements. Costs incurred to comply with recommendations above the minimum requirements are not covered.

(b) Ordinance or Law–Direct Physical Damage (04 13 change)

The covered building must sustain direct physical damage by a covered cause of loss. The loss must then result in a requirement to comply with the ordinance or law. If a building is damaged by both a covered and an uncovered loss, and the total damages require complying with the ordinance or law, this coverage applies, subject to limitation (c) below.

However, coverage does not apply if the direct physical damage to the building is excluded, and such damage is the only damage that is subject of the ordinance or law.

Note: The words “comply with” replace the words “enforcement of” in the 10 10 edition.

(c) Limitation (04 13 change)

When both a covered and an excluded loss damage a building, the insurance company pays only the part of any ordinance or law loss that represents the proportion that the covered direct physical damage bears to the total of such damage.

An exception applies to this limitation. If the covered portioned of loss would have triggered the ordinance or law requirements, the insurance company will pay the entire amount of the loss that would be payable under Coverages A, B or C.

Example: Sylvester's Slaughterhouse is located next to the railroad tracks near the stockyards a few blocks south of the downtown business area. It was built in 1905 and is grandfathered from many current building codes and ordinances. An earthquake occurs, some gas lines rupture, and a fire breaks out. The fire department extinguishes the fire but not before Sylvester’s building is more than 80% damaged. One of the new code requirements is that if more than 60% of a building is damaged, then the entire building must be demolished. The rebuilt building must then meet all current building codes. Sylvester’s policy does not cover the earthquake damage. The building limit is $5,000,000, but $1,000,000 is undamaged but must be torn down. The cost to demolish is $50,000, and the cost to meet current codes is $1,500,000.

Scenario 1: It is determined that 40% of building damage was due to fire and 40% was due to earthquake. Coverage A is covered for $1,000,000 X .40 = $400,000. Coverage B has a value of $100,000. The cost to demolish the undamaged portion is $50,000, but the most paid is 40% of the $50,000 cost to demolish the undamaged portion, or $20,000. Coverage C has a value of $100,000. The cost to meet current codes is $1,500,000 but payment is limited to 40% of the $100,000 limit, or $40,000.

Scenario 2: It is determined that 60% of building damage was due to fire and 20% was due to earthquake. Sylvester’s full value limit of insurance is $5,000,000. Because the fire damage triggered the ordinance, the entire amount of the ordinance is covered. Therefore $1,000,000 Coverage A, $50,000 coverage B and $100,000 Coverage C limits are paid.

Note: The words “comply with” replace the words “enforcement of” in the 10 10 edition.

(3) The Insurance Company Does Not Pay for:

(a) Enforcing any ordinance or law that requires that covered property be demolished, repaired, replaced, reconstructed, remodeled, or remediated due to contamination by pollutants or any presence or activity of fungi, wet rot, or dry rot

(b) Any costs in conjunction with enforcing or complying with any ordinance or law that requires any insured or others to act in any way to respond to or assess pollutants, fungi, wet rot, or dry rot (04 13 addition)

(4) A specific Loss Payment c Loss Condition applies to this Additional Coverage.

(5) Each building must be separately evaluated at the time of loss to determine if it satisfies the terms of this Additional Coverage.

(6) The costs to comply with ordinances or laws that the named insured was required to comply with prior to the loss but did not comply with are not covered.

(7) This section provides an example of proportionate loss payment.

f. Personal Effects

Business Personal Property insurance is extended to apply to personal effects owned by the named insured, its officers, partners, and employees for loss or damage caused or resulting from covered causes of loss. There are two important exceptions. There is no coverage for theft, and coverage applies only if Business Personal Property coverage is provided.

g. Reward Payment

The named insured can offer rewards for any legal purpose, but the insurance company reimburses the named insured in only certain cases. One is when a reward is made for information that leads to the arrest and conviction of a person or persons who committed a crime that was a covered cause of loss to covered property. Another is a reward for returning stolen property in cases where the loss was due to theft. The most paid under this additional coverage is $10,000, subject to the replacement cost value of the item or items damaged or stolen. This limit can be increased.

The only persons who can receive a reward payment are those who are not associated with the named insured or the crime. Only one reward payment applies to each occurrence. The reward notice must be posted before the informant provides the information. A payment is not made until after the person or persons responsible are convicted, or the property is returned.

Note: Insurance companies can and do offer rewards as part of their claim handling procedures. This reward payment option provides a reward amount that the named insured can offer without first asking permission to do so.

h. Trees, Shrubs, and Plants (04 13 changes)

Business Personal Property and Household Personal Property insurance extends to apply to outdoor trees, shrubs, and plants, including debris removal expense. This Additional Coverage does not apply to stocks of trees, shrubs, or plants or to trees, shrubs, and plants that are part of vegetated roofs. Coverage applies for the specified causes of loss of fire, lightning, explosion, hail, smoke, aircraft, vehicles, riot, civil commotion, vandalism, leakage from fire extinguishing equipment, sinkhole collapse, volcanic action, falling objects, or water damage as limited in the definition of specified causes of loss. Smoke includes the emission or puff back of smoke, soot, fumes, or vapors from boilers, furnaces, or related equipment. Losses due to wind, weight of snow, ice or sleet, and vehicles are excluded.

This additional coverage also covers the costs to remove debris of trees, shrubs, and plants that belong to others. The debris removal extension does not apply if the named insured is a tenant at the covered location, and the landlord owns such property.

The most the insurance company pays in any one occurrence is $25,000. This is further limited to $1,000 for each tree, shrub, or plant. These limits apply regardless of the number or types of items lost or damaged in that occurrence.

TreeDamageLightning_2

Example: Lightning strikes an oak tree. The tree falls over a power line. Extreme care must be taken to remove it, and the total cost is $1,000. The tree’s value is $750. Although the total loss is $1,750 only $1,000 is paid due to the per tree sublimit.

i. Electronic Data (04 13 change)

This Additional Coverage does not apply to stocks of pre-packaged software or to electronic data that is combined with and that controls or operates the building’s security, elevator, heating, air conditioning, ventilating, or lighting systems. (04 13 addition)

Note: This Additional Coverage does not cover these items because they are already covered due to exceptions in the electronic data exclusion.

This Additional Coverage applies to the cost to replace or restore destroyed or corrupted electronic data. The data must be corrupted by the specified causes of loss of fire, lightning, wind, explosion, hail, smoke, aircraft, vehicles, riot, civil commotion, vandalism, leakage from fire extinguishing equipment, sinkhole collapse, volcanic action, falling objects, weight of snow, ice, or sleet or water damage as limited in the definition of specified causes of loss, collapse, virus, harmful code, or similar instruction introduced into the system. Smoke includes the emission or puff back of smoke, soot, fumes, or vapors from boilers, furnaces, or related equipment.

The virus, harmful code, and similar destructive code must have been introduced intending to cause damage. Coverage does not apply if damage is caused by employees or contracted entities operating outside of their responsibilities. If the electronic data is not replaced, the insurance company pays only the cost of blank media used to store the data, or the value of the data, whichever is less. The $100,000 limit applies as an aggregate amount in any single policy year. This limit can be increased. Damage that begins in one year and continues to another period is considered to be a single occurrence within the first year and subject to the one limit as of the initial date of damage.

Example: Cyrus was warned repeatedly not to open unsolicited email, but this one looks like the exception to the rule. It only takes a moment for the Melissa virus to infiltrate and corrupt the system. Because all of the computers in the company are on the same network, the virus soon works its way through the entire system. Cyrus calls an outside expert to decontaminate the network and retrieve data. The expert charges $25,000. This additional coverage pays the expense.

j. Household Personal Property Off Covered Location

This additional coverage is for Household Personal Property that is located more than 1,000 feet from the covered location. The coverage territory for Household Personal Property temporarily away from the named insured's covered location is any place in the world, but there are three restrictions.

The named insured cannot own or lease the location.
The property cannot be in transit.
The property cannot be in any country or jurisdiction subject to United States of America embargo, trade, or other economic sanctions.

Coverage applies only as permitted by the country or jurisdiction where the property is located.

When the named insured is an individual, an added restriction applies. Any household personal property of the named insured or personal property of any family member that is kept at an insured’s residence that is not at a covered location is subject to a special limit that is equal to 10% of the household personal property limit or $5,000, whichever is greater. This limit can be increased.

The restriction does not apply to any property that is located within the United States, including its territories or possessions, Puerto Rico or Canada.

The restriction also does not apply to any property that is removed because the dwelling where the named insured lives is being repaired, renovated, or rebuilt and is not being suitable to live in or to store property. Such removed property is subject to only the limit of insurance on the declarations, as the lead in wording explains.

Coverage disputes must be filed and resolved in courts in the basic territory.

Example: Kelly’s daughter Pamela is at college. While at college, her personal property is covered without restriction because it is in the United States, she is 19, and she was living with Kelly before she went to college. Pamela will spend her sophomore year studying in New Zealand. Her personal property is still covered but is now subject to 10% of the household personal property limit or $5,000, whichever is greater.

k. Household Personal Property Refrigerated Products

This additional coverage pays up to $1,000 for loss or damage to frozen or refrigerated Household Personal Property in the residence dwelling or an adjacent structure. The damage must be caused by or result from a change in temperature caused by electrical service being interrupted or mechanical breakdown of refrigeration equipment. This Additional Coverage is not subject to a deductible.

This Additional Coverage applies only if the named insured is an individual. It does not apply to property the named insured does not own. It also does not apply if the refrigeration was not maintained in proper working order prior to the loss occurring.

l. Water Damage

The insurance company pays the necessary costs to tear out and replace parts of the building or structure in order to gain access to and repair a damaged system. Costs to repair the defect that caused the water or steam to escape from the system that contained it are not covered.

This Additional Coverage applies only when a covered water damage loss occurs as a result of a defect in the plumbing, heating, air conditioning, ventilation, or a sprinkler system. It does not apply to sumps, sump pumps, or related equipment.

Note: This coverage is needed because undamaged property walls, floors, and ceilings may need to be destroyed in order to find and repair the system. This property is excluded in the standard coverage because it was not damaged prior to the intentional destruction caused by or on behalf of the named insured.

Example: Murray notices water dripping from an overhead light fixture, so he calls a plumber. The plumber listens and attempts to follow the pipes. He identifies the potential problem spot. The break is behind a plastered wall that he opens up. The plumber repairs the break, and Murray calls in a plasterer to repair the wall. This coverage pays the plumber’s demolition costs and for the plasterer’s repair bill. It does not pay the cost to repair the break.

m. Grave Markers

This Additional Coverage extends Household Personal Property coverage to apply to loss or damage by specified causes of loss to grave markers and mausoleums on or away from covered locations. The most paid in any one occurrence is $25,000, limited to $5,000 on any one grave marker or mausoleum, regardless of the number of items damaged.

n. Limited Coverage for Fungi, Wet Rot, and Dry Rot (04 13 change)

(1) This coverage applies only when fungi, wet rot, or dry rot results from a specified cause of loss (other than fire or lightning) or flood (if AG 10 04–Flood Coverage insures the affected location) that occurred during the policy period. The named insured must have taken reasonable measures to protect and preserve the property from additional damage both when the loss occurred and afterwards.

This Additional Coverage does not apply to trees, plants, shrubs, or lawns that are part of vegetated roofs. (04 13 addition)

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

Direct physical loss or damage to covered property that fungi, wet rot or dry rot causes. This includes removal costs.
Necessary costs to tear out and replace parts of the building or property in order to reach the fungi, wet rot, or dry rot
If there are any reasons to believe that fungi, wet rot, or dry rot is still present after the damaged property is removed, repaired, replaced, or restored, the costs of necessary testing that must be done is also covered.

(3) $15,000 is the most paid for loss or damage that takes place during the 12-month policy period unless a different limit is selected. This limit applies to each location if AG 14 01–Scheduled Location option is selected. The limit applies regardless of the number of claims that arise out of all occurrences of covered causes of loss, even if the fungi, wet rot, or dry rot continues to be present, active, or recurs in subsequent policy periods.

(4) The limit for this coverage is a sublimit. It does not increase the Limit of Insurance that applies to any covered property. It is the most paid if a particular loss involves loss or damage by fungi, wet rot, or dry rot and other covered loss or damage.

(5) This coverage does not change the coverage that Additional Coverage–Collapse or the Frozen Plumbing exclusion exception provides.

(6) If Business Income and Extra Expense/Dwelling Loss of Use Coverage applies to the covered location, and if the operations suspended meets its terms and conditions, one of the following applies:

The insurance company's payment is limited to the amount of loss and/or expense sustained in up to a 90-day period if the loss that resulted in fungi, wet rot, or dry rot did not require such suspension, but the suspension was due to the loss or damage they caused. A different number of days can be selected. The days do not have to be consecutive.

If a covered suspension was caused by loss or damage other than fungi, wet rot, or dry rot but remediating them lengthens the period of restoration, the insurance company pays such loss and/or expense sustained during the delay for up to 90 days. A different number of days can be selected. The days do not have to be consecutive.

o. Hay, Straw, Fodder Outside

This Additional Coverage extends Business Personal Property coverage to apply to loss or damage caused by or that result from only fire, lightning, windstorm, hail, vandalism, vehicles, and theft to hay, straw or fodder that has been placed in stacks, bales, or windrows outside of buildings.

The limit of insurance is $100,000 per stack, bale or windrow.

The definition of stacks, windrows and bales requires that at least 100 feet must exist between each separate stack, bale or windrow.

4. Additional Coverages Each with A $100,000 Limit (Except as Otherwise Indicated)

Each of the following coverages has a $100,000 limit, but some may modify the limit within their descriptions. This limit applies separately to each coverage and is not considered a part of the limit of insurance. As a result, losses paid under these coverages do not reduce the limit of insurance that applies to the covered property on the declarations or the scheduled location endorsement that applies to the covered property.

a. Accounts Receivable

A covered cause of loss may damage customer records to the extent that the named insured cannot collect monies it is owed. In that case, this Additional Coverage extends Business Personal Property insurance to apply to the expenses incurred to recreate financial records, and to pay interest charges on loans taken out to offset the loss. It also pays collection expenses, and other related expenses. Coverage does not apply to accounts receivable that exist only as electronic data. A customer's previous 12-month history can be used in cases where accurate records cannot be reconstructed in any other way.

The named insured is indemnified for a loss, not rewarded. For this reason, undamaged accounts, accounts that can be collected, allowances for bad debts, and unearned interest and service charges are deducted from the amount of loss paid.

Example: An explosion that starts a fire in Herman's office destroys the file cabinet that contains his customer records. Based on his recollection of his financial statements, Herman knows others owe him about $100,000, but he is not sure he can collect the individual amounts without physical proof. The insurance company works with his accountant to establish a value and begins to reduce the loss by contacting various customers. After pursuing every possible avenue of recovery, the insurance company pays $25,000 for the uncollectible accounts receivables and $25,000 for the expenses incurred to reconstruct records and collect the other $75,000.

b. Business Personal Property off Covered Location

This additional coverage is for Business Personal Property temporarily situated more than 1,000 feet from the covered location. The coverage territory for Business Personal Property temporarily away from the named insured's covered location is any place in the world. There are three restrictions:

The named insured cannot own or lease the location
The property cannot be in transit
The property cannot be in any country or jurisdiction subject to United States of America embargo, trade, or other economic sanctions.

This Additional Coverage applies only as the country or jurisdiction where the property is located permits. Coverage disputes must be filed and resolved in courts in the basic territory. This limit can be increased.

c. Fine Arts

This Additional Coverage extends Business Personal Property and Household Personal Property coverages to apply to fine arts. The most important point is that it values them at their market value – not replacement cost or actual cash value. The limits of insurance are $100,000 for Business Personal Property fine arts and $5,000 for Household Personal Property fine arts in any one occurrence. These limits can be increased.

Note: There is no requirement for the named insured to provide a schedule of fine arts but having proper documentation of property values is helpful at the time of loss. Whenever large values or significant property is involved, a separate inland marine scheduled fine arts coverage form or policy may be more appropriate.

AAIS Fine Arts Coverage Forms

ISO Commercial Fine Arts Coverage Form

Fine Arts Insurance

Note: Transit for fine arts is not covered in this section. Coverage for it can be provided in the Transit Additional Coverage but only for fine arts described on the Declarations. Unfortunately, there is no space on the Declarations to describe the Fine Arts, so a separate declarations endorsement will be required.

d. Valuable Papers and Records

This Additional Coverage extends Business Personal Property coverage to apply to valuable papers and records the named insured owns and similar property of others in its care, custody, and control. It does not apply to valuable papers and records in electronic data form, or that cannot be replaced with property of like kind and quality unless specifically listed and described on the declarations. It also does not apply to property held as samples or for delivery after a sale. This limit can be increased.

Note: The declarations does not include a space to describe the valuable papers so a separate declarations endorsement will be required for valuable papers and records that cannot be replaced.

5. Additional Coverages Each with A $50,000 Limit (Except as Otherwise Indicated)

Each of the following coverages has a $50,000 limit, but some may modify the limit within their descriptions. This limit applies separately to each coverage separately and is not considered within the limit of insurance. As a result, losses paid under these coverages do not reduce the limit of insurance that applies to the covered property on the declarations or the scheduled location endorsement.

a. Consequential Loss

This Additional Coverage responds to the reduction in value of a part or parts of Business Personal Property that cannot be marketed because of loss or damage to other parts of the same product. This limit can be increased.

Example: PJ Manufacturing produces a combined peanut butter and jelly product in the same container. The peanut butter is produced in a different section of the plant than where the jelly is produced. The products are not combined until the very end of the production process. If a fire destroys the peanut butter section of the facility without affecting the jelly operation, the jelly loses its value because it is less valuable when packaged and sold separately. This additional coverage pays for the product’s reduced value when it is sold without one of the ingredients due to a covered loss.

b. Fire Extinguishing Systems Expense

This Additional Coverage applies to two separate items. It pays the lesser of the named insured's costs to recharge or replace its fire extinguishers and fire extinguishing systems caused by or that result from a covered cause of loss. The cost of any required hydrostatic testing is covered as a cost. This additional coverage also pays for loss or damage to covered property that results when chemicals in such systems are accidentally discharged. However, there is no coverage for loss or damage that arises out of installing or testing such systems. This limit can be increased.

Example: Elmer is shoved up against the switch that activates the rendering plant's auxiliary lighting system. In his confusion, he doesn’t look carefully and inadvertently flips the manual switch for the fire extinguishing system instead. When the electricity is restored, he sees the damage his mistake caused. The contents of the rendering tank are ruined, and the area must be washed down and the extinguishing chemicals replaced. Elmer's $20,000 mistake is covered.

c. Inventory and Appraisal Expense

This Additional Coverage extends Business Personal Property coverage to apply to inventories and appraisals the insurance company requires. It does not apply to any expenses for public adjusters, public accountants, or any of their associates and subordinates. No coverage applies for the costs associated with the Appraisal Loss Condition. This limit can be increased.

Note: The named insured must provide a complete inventory of damaged and undamaged property when the insurance company requests it. This information is vital to accurately value a loss. Inventories are expensive and the named insured is responsible for the expense of providing them without this coverage. Note that the insurance company does not pay under this coverage unless it is the party that asks for the inventory and appraisal. However, this coverage does not apply if the inventory and appraisal request is due to a dispute between the named insured and the insurance company.

d. Pollution Cleanup and Removal

The expense of extracting pollutants from land or water is covered if a covered cause of loss causes the event that causes the pollution damage. The named insured must report the incident to the insurance company within 180 days of the event. The $50,000 limit at each covered location is an aggregate amount that applies to the entire policy period and is not an occurrence limit. This Additional Coverage does not apply to expenses to test for, monitor, or assess the effects of pollutants, except for those that occur during the cleanup process. It also does not apply to any coverage that is provided under the Bulk Liquid Tank Storage Additional Coverage. This limit can be increased.

e. Property in Transit

This Additional Coverage extends Business Personal Property insurance to apply to covered property when it is away from covered locations and being during transported between points within the coverage territory. Coverage applies regardless of the type of carrier or mode of transportation involved.

Covered business personal property in transit does not include the following:

Property that is in the possession of the postal service of a government
Property of others that the named insured is handling as a carrier for hire
Import shipments until the date the shipment is discharged from the import conveyance or until the ocean marine coverage ends, whichever date is later
Export shipments after the date when the ocean marine policy takes effect or until the shipment is placed on the outgoing conveyance, whichever date is earlier
Works of fine art that are not described on the declarations

Note: The declarations does not contain a fine arts description section. A separate declarations endorsement will be needed when fine arts transit coverage is needed.

Property is covered while with a carrier for hire until it is either delivered or returned to the named insured. It is also covered during the time the carrier for hire holds it in storage but only if the storage is temporarily awaiting delivery. If the named insured transports the property, coverage begins when the vehicle leaves the premises and ends when it arrives at its destination.

The two coverage extensions provided do not increase the limit of insurance. One extends coverage to apply while the property is with Packing or Consolidating Companies. The other extends coverage to apply to the insured’s interest in property that is sold Free on Board (FOB) Point of Origin.

There are two additional exclusions that apply specifically to this coverage:

There is no coverage if the loss is due to improper packing, stowage, or general rough handling.
There is no coverage if the loss is caused by or results from breakdown of refrigeration equipment. The only exception is when the equipment belongs to others, and they are carriers for hire.

Note: This means there is no coverage if the loss is caused by or results from breakdown of refrigeration equipment while property is transported on the named insured’s own vehicles.

Valuation Loss Condition does not apply and is replaced, with respect to transported property, by three possible valuations. These must be considered in order. The second valuation applies only if the first does not. The third valuation applies only if the second does not.

If a value for the property is established and both the shipper and the insured agree to it before a loss occurs, that value is used.
If neither the insured nor the shipper establishes a value before a loss occurs, the value is based on either the net sales or purchase invoice price.
If neither of the methods above determines a value, the value is the actual net cost, the cost to restore the property to its condition prior to the loss, or the property’s replacement cost, whichever is less.

Regardless of the method used, prepaid freight charges and other shipping charges the named insured incurs are also included.

The coverage territory is broadened. The standard coverage territory requires that covered property be located within the United States, its territories and possessions, Puerto Rico, and Canada. The broadening feature is that property is also covered during transportation by air between points in the coverage territory.

A condition is added. It lets the insured accept Released Bills of Lading that limit the amount of a carrier’s responsibility to pay the named insured in case of loss.

The limit of insurance applies in any one occurrence, regardless of the number of vehicles, conveyances, containers or other methods or modes of transportation involved in the loss. The limit can be increased.

f. Installment Sales Property

Business Personal Property coverage extends to apply to two additional types of property. One is property the named insured sold under an installment sales contract. This includes deferred or delayed payment and conditional sales agreements. The second type is leased property, as described in the Definitions Section.

Coverage for these types of property applies for only the named insured's interest.

Coverage can also apply on a dual interest basis if there is an entry for dual interest on the declarations. Dual interest means both the named insured and the purchaser's interests if there is an entry for dual interest on the declarations. This limit can be increased.

Note: The declarations does not contain a dual interest section. A separate declarations endorsement will be needed when duel interest coverage is needed.

Property sold on an installment sales basis is covered until the purchaser makes the final payment on it. Leased property is covered until the end of the lease period. However, coverage does not apply beyond the policy’s expiration date.

This insurance does not apply to any covered property after the named insured's interest in it ends even when the coverage is dual interest.

Valuation of covered property under this additional coverage is on one of two bases:

Property sold but not yet delivered is valued at the named insured's net selling price after all discounts and allowances.
Under single interest installment sales, the insurance company pays only the proportion of any loss or damage that the amount of the named insured's interest bears to the property's value.

When dual interest coverage is selected, these provisions are binding on all parties to a dual interest installment sales contract. However, the coverage for one party is not impaired if the other party with interest in the property does not comply with the provisions, as long as the first party tried to get the second party to comply.

g. Bulk Liquid Tank Storage

This Additional Coverage is actually an additional covered cause of loss. It covers unintended leakage of bulk liquids stored in covered aboveground tanks that is not the result of any other covered cause of loss. The most paid is $50,000 per occurrence, subject to a $100,000 annual aggregate limit of insurance. These limits can be increased.

This additional coverage does not apply to costs to test for, monitor, or assess pollutants. However, testing costs done in conjunction with extracting pollutants from the land or water at the named insured's covered location is covered.

The Valuation Loss Condition does not apply to this additional coverage. Bulk liquid that the named insured owns or leases, and bulk liquids of others in its care, custody, or control are valued at the liquids' replacement cost. Bulk liquid sold but not yet delivered is valued at the named insured's net selling price after all discounts and allowances.

BulkLiquidStorage

Example: Able’s Anhydrous Ammonia tanks were secured in a fenced, gated, and locked enclosure. Some aspiring local meth producers made it through the fence one night and had just opened the spigot on one of the tanks when the local deputy spotted them. After an unsuccessful two-hour pursuit, the deputy returned to the tank and discovered that much of the contents had leaked out. This loss was covered up to the $50,000 limit.

h. Business Personal Property Temporarily in Portable Storage Units (04 13 addition)

This additional coverage extends business personal property insurance to apply to such property temporarily in portable storage units that is within 1,000 feet of a covered location. Temporary storage units also include detached trailers.

The limitation or exclusion in the policy that applies to loss or damage to property due to sleet, ice, snow, rain, or sand applies to this additional coverage.

This additional coverage is subject to the following two conditions:

All coverage 90 days after the covered property is initially placed in the storage unit.
No coverage applies once the storage unit has been at the covered location and in use for more than 90 consecutive days. This applies even if the covered property was in the storage unit less than 90 days when the loss or damage occurred.

The limit of $50,000 applies per occurrence and not per temporary storage unit, but the limit can be increased.

Note: This coverage is for the business personal property, not the storage unit. These units are being used because of a temporary storage crunch, so could involve only one unit or multiple units. The idea is that room will be found in the permanent building and structures so that the storage units and this coverage is no longer needed. This additional coverage does not apply to the temporary storage unit itself. It also does not apply to loss or damage that the policy covers elsewhere.

6. Additional Crime Coverages

Each of these crime coverages has limits separate and apart from other limits in AG 00 01. Some of these limits can be increased.

a. Employee Theft

This coverage applies when an employee steals the named insured's property, whether it is money, securities, or other property. Theft is covered whether the employee acts alone or in collusion with others, as well as in cases where the particular employee cannot be identified. The most the insurance company pays is $25,000 in a single occurrence. This limit can be increased.

The insurance company pays for such losses that could have been committed at any time but that are discovered during the policy period and for up to 60 days after the policy expires or is cancelled. A loss is considered discovered when the named insured first becomes aware of facts that lead it to assume that a covered loss has occurred or when the named insured receives notice of a potential or an actual covered claim.

The insurance company does not pay any part of any loss that can be proved by only a profit and loss calculation or an inventory. However, the named insured can use information from those to support any part of a covered loss that can be proven using other means.

There is no coverage under this Additional Coverage for loss caused by an employee or an employee of a predecessor of the named insured if insurance similar to this insurance for that employee was cancelled and never reinstated.

This Additional Coverage is cancelled immediately with respect to any employee as soon as the named insured, or any of its partners, members, managers, officers, directors, or trustees discovers that the employee committed theft or any other criminal or dishonest act either before or after being employed. This does not apply if the party who knew about the dishonesty colluded with that employee to commit the loss.

The Limit of Insurance applies for only the policy period and is not cumulative from year to year, regardless of the number of years coverage is in place.

Example: Al's Angus Beef Cattle and Emporium is very surprised when Felicia, their comptroller, does not report to work one Monday morning. They are even more surprised when she cannot be reached at home. Repeated attempts to reach her fail, and the police are contacted. Al decides to outsource the comptroller functions until Felicia is found. The outsourcing firm performs an audit that reveals that Felicia had been skimming money for at least 10 years. The loss over that time period is at least $2.5 million. The police then report that they have been successful in locating Felicia in Guinea-Bissau, and she is not returning. Al had never increased his employee dishonesty above the $50,000, so that is the most that will be paid even though 10 different policy periods were involved.

b. Forgery or Alteration

This Additional Coverage insures losses that involve forgery or alteration. The forgery or alteration can be due to any type of written promise that is drawn by or from the named insured or an agent acting on the named insured’s behalf. Forgeries by the named insured or its employees are not covered. As it relates to this coverage, a substitute check, as the Check Clearing for the 21st Century Act defines, is treated the same as the original it replaces. The limit is $25,000 in a single occurrence. This limit can be increased.

Note: Any of a number of negotiable instruments can be forged to transfer funds from the named insured. Most standard coverage forms and policies exclude these losses. Any forgery by an employee would be covered under employee dishonesty instead of under this coverage.

c. Money and Securities

Property Not Covered specifically excludes money and securities. This Additional Coverage fills that gap and insures losses to money and securities due to theft, disappearance, or destruction. The money and securities must be in a covered building, in a bank or safe depository institution’s building, or in the custody of a messenger or armored car company.

Note: The wording “covered building” is problematic because the term covered building is not defined. If the named insured does not own a building but only occupies a unit within a building, does the named insured have coverage and if so, where? This problem also arises with the banking or safe depository buildings when the bank or safe depository does not own and occupy the entire building. In crime forms the defined term “premises” is used instead of building. It is limited to the interior of the part of a building the named insured occupies. The good news for the named insured is that the lack of clarity will make this coverage broader than that available under the crime forms although it could result in some denials that will need to be reconsidered.

The limits are $25,000 inside the building and $10,000 outside buildings when the money and securities are in the custody of a messenger or an armored car service. These limits can be increased. Coverage does not apply to acts of the named insured or its employees.

d. Credit Card and Electronic Fund Transfer Cards or Other Access Devices; Forgery; Counterfeit Money

This Additional Coverage is for only individual named insureds and is an extension of Household Personal Property. Coverage applies to the obligation the named insured or a family member may have to a credit card or electronic fund transfer card (debit) company because a card issued to him or her was used by unauthorized persons. All of the card issuing company’s terms and conditions must be met before payment is made.

Other coverages provided include loss caused by forgery or alteration of a check or negotiable instrument or by the named insured or family member accepting any counterfeit United States or Canadian paper currency.

None of these coverages applies to business losses or dishonesty on the part of the named insured or a family member.

The limit for this coverage is $500 and is not subject to a deductible. This limit can be increased.

e. Money Orders and Counterfeit Money

This Additional Coverage extends Business Personal Property insurance to cover losses that result from the named insured accepting the following items:

Money orders that any bank, express company, or post office issued but that are not honored when presented for payment
Counterfeit money the named insured accepts during regular business transactions

The item must have been accepted in good faith, and the presenter must have received merchandise, service, or money in exchange.

Example: John stopped at Jessica’s farm stand and purchased a dozen peaches, a dozen tomatoes and a fresh baked pie. The price was $15.65. He had some small bills but not enough to cover the cost, so he offered a $100 bill. She accepted the bill and gave him the food plus $84.35 in change. The bank informed Jessica that the bill was counterfeit and refused to accept it in her deposit. Jessica can submit a claim for the entire amount.

The limit of insurance is $5,000 and is not subject to a deductible. This limit can be increased.

7. Business Income and Extra Expense/Dwelling Loss of Use

This coverage applies if a there is limit on the declarations for one or more of the following three options:

Option 1–Business Income and Extra Expense Including Rental Value
Option 2–Business Income and Extra Expense Other Than Rental Value
Option 3–Rental Value and Extra Expense

Note: While all three options may be used at the same time, the declarations is not designed to accommodate them. A manuscript schedule is needed to identify the option that applies to each location.

a. Business Income

When the named insured must suspend operations, there is coverage for the loss of business income the named insured sustains during the period of restoration. Coverage applies only if the suspension is the result of a direct physical loss or damage to property at the named insured’s covered location. When the suspension is because of damage to Business Personal Property not in a building, that property must be within 1,000 feet of the covered location, either in the open or in or on a vehicle. When only part of the location is occupied by the named insured, there is coverage when its operations must be suspended a loss at another part of the location prevents access to named insured’s part of the location.

Business income is the net profit or loss before income taxes added to payroll and other expenses that continue even though a loss has occurred. The definition of net income for manufacturing operations includes the net sales value of production.

Example: Ezra's Egg Farm's financial statement reflects a $50,000 net loss for the last 12 months. However, the continuing expenses and payroll are $500,000. Looking to the future, Ezra's net profit will be $50,000, and continuing expenses will drop to $400,000. Since business income always looks to the future, the business income limit should be the net profit of $50,000 added to $400,000 in continuing expenses for a total of $450,000.

It is important to note that coverage does not apply to operations that are suspended when the damaged property is growing crops, poultry, or livestock.

b. Extra Expense

This coverage applies to the extra expenses incurred during the period of restoration that would not have been incurred if a covered loss had not occurred. Three types of extra expense can be covered and paid.

Extra expenses that are incurred in order to eliminate or reduce any suspension of operations as well as those incurred to continue operations. The expenses can be incurred either at the covered location or at temporary replacement locations. Relocation expenses and costs to equip and operate a temporary location are also covered extra expenses.
Extra expenses that are incurred to minimize a suspension of operations when it is not possible to continue operations.
Extra expenses that are incurred to reduce the business income. These expenses are limited to those needed to repair or replace property or to research, replace, or restore information lost with respect to valuable papers and records.

It is important to note that coverage does not apply to operations that are suspended when the damaged property is growing crops, poultry, or livestock.

c. Additional Limitation–Interruption of Computer Operations (04 13 change)

Loss of business income or extra expenses incurred due to an electronic data loss is not covered. There are two exceptions:

Coverage applies when the loss is due to electronic data that is a part of a buildings elevator, heating, ventilating, security or air conditioning system being damaged. The electronic data must operate or control these systems. (4 13 change)
Coverage provided under Additional Coverage–Interruption of Computer Operations

d. Dwelling Loss of Use

This insurance covers the following up to the limit of insurance on the declarations:

The named insured's additional living expenses if a covered cause loss makes its covered principal residence uninhabitable. This applies only if the named insured is an individual. The expenses covered are only those necessary increases in living expenses that the named insured must incur to maintain a normal standard of living. Payment is limited to the shortest amount of time required to either repair or replace the damaged property or to relocate and settle elsewhere.

Example: Joan and John’s house is vandalized. They must move out while repairs are made, and John decides it is a perfect time for a family vacation. The family spends a week at a luxury resort. When they return, their house is complete. John turns in the vacation expenses as dwelling loss of use and is very disappointed when only the cost of lodging and dining in their immediate area is reimbursed.

The fair rental value of a covered dwelling or detached structure that the named insured owns, rents, or holds for rent that cannot be occupied due to a covered loss. This coverage applies to only property used as a residence or a private garage. There is no coverage for expenses that do not continue during the period it cannot be occupied. Payment is limited to the shortest amount of time to repair or replace the damaged property.

Example: Calvin rents one of John’s garages in order to store his convertible over the winter. The garage was damaged by the vandalism, but the convertible was not. However, Calvin decides to no longer store the car with John. The garage is repaired after only a week, but John is not able to rent it out again for four months. John is paid only for one week’s rental value.

A civil authority may prohibit a covered dwelling or structure from being occupied by issuing an emergency order. When the reason for the order is because of direct damage by a covered cause of loss to nearby premises, dwelling loss of use coverage applies for up to four weeks.

Note: The term “neighboring” is used to describe the premises that must be damaged. It does not provide a distance as it provided in the Civil Authority Additional Coverage. In a farm community, “neighboring” could be very far reaching.

Dwelling loss of use coverage is not subject to a deductible, and the expiration date does not affect the length of payment.

e. Additional Coverages

The limits for the following coverages are part of the limits of insurance on the declarations or on the scheduled location endorsement, not in addition to them except for e. Additional Coverage (6) Newly Acquired Locations.

(1) Civil Authority

Business income that is lost or extra expense that is incurred is covered for up to four weeks when civil authority prohibits access to the covered location. This coverage is subject to a number of limitations:

· The civil authority action must be due to direct damage to a property that is caused by a covered cause of loss.

· The named insured’s property must be within one mile of the damaged property

· The civil authority's actions must be one of more of the following:

o A response to dangerous physical conditions as a result of the damage

o A concern about a continuation of the covered cause of loss

o Due to a need for unobstructed access to the damaged property

Note: Government authorities have the right to restrict access to certain areas for the public good at certain times, such as during wildfires, floods, earthquakes, civil commotion, and other widespread events that must be contained. It is easier for government authorities to control the situation, look for victims, and control looting if people are prohibited from entering the area. However, this coverage is limited to only when such damages are due to a covered cause of loss. For example, coverage applies if access is denied because of wind damage. It does not apply if access is denied because of flooding.

In addition, this coverage applies only when the damaged property is within one mile of the covered location claiming business income and/or extra expense. This requirement will result in this coverage being almost useless in an agricultural setting because of the distance between most agricultural operations.

Example: The bridge leading to Daisy’s Dairy Farm is the main route for firefighters to access a wildfire approximately 10 miles away. The local authorities close the bridge to all traffic except for traffic related to the firefighting activities. This forces Daisy’s to cease all deliveries for almost two weeks, resulting in all milk produced during the time period being destroyed. This loss is not covered because the fire is more than one mile away.

(2) Alterations and New Buildings

This Additional Coverage extends business income and extra expense coverage to new buildings and alterations at covered locations. Coverage applies if the new buildings are complete or are under construction at the time of loss. The alterations must be to existing buildings or to additions to those buildings.

This coverage also extends the business income and extra expense coverage for suspension due to damage to any machinery, equipment, supplies, or building materials on or within 1,000 feet of the insured location. In order for coverage to apply, the machinery, equipment, supplies, or building materials must be used in the construction or have something to do with occupying the new building.

If direct physical loss or damage causes the start of operations to be delayed, the business income period of restoration begins on the date operations would have begun had there been no loss.

(3) Extended Business Income

This Additional Coverage acknowledges that it usually takes a certain amount of time to resume operations after a loss occurs. It provides time for the named insured to return operations to the level that existed before the loss. Coverage applies for up to 90 days, but the number of days can be increased. This coverage ends as soon as operations return to pre-loss levels, even if doing so takes less than 90 days.

Note: Under rental value, this additional coverage does not apply to dwellings and their detached structures.

FarmSupplyStore

Example: Farm Supply Company has a loyal clientele. A fire causes Farm to close for three months, forcing its regular customers to make needed purchases elsewhere. Farm worries because its receipts for the first week after it is back in operation are only 70% of what they were before the loss. However, business picks up as the weeks go by, and things are back to normal two months after the business re-opens. The insurance company makes up the difference in receipts for those two months because Farm's limits were sufficient for both the loss of business income and the extended period of time needed to resume normal operations.

(4) Contractual Penalties

Many companies enter into agreements with their customers that include penalties if a job is not completed by a certain time. The supplier must pay the penalty unless there is a release clause, even if a fire or other type of fortuitous events causes the delay. The named insured may have such a written contract or agreement and therefore required to pay a penalty because a covered loss occurred. In such a case, this Additional Coverage pays up to $25,000 in a single occurrence, subject to an annual aggregate of $100,000. This coverage is subject to all of the following conditions:

The named insured failed to deliver its product as promised in the contract.
The failure to deliver as promised is because of a direct physical loss to covered property. The loss must the result of a covered cause of loss.
The named insured paid the penalty to the customer(s).

EquipmentDealers141

Example: Tisdale's Tractors bids on a job to supply small tractors to a national farm supply and nursery store chain. Because any delay in shipping the tractors will adversely affect sales at those stores, missed shipping deadlines result in a 15% penalty fee by a specific clause inserted in the contract. A tornado causes extensive damage to Tisdale's main manufacturing plant. Production resumed relatively quickly, but a $10,000 delivery deadline contractual penalty was imposed that Tisdale had to pay. This additional coverage reimbursed him for that amount.

(5) Business Income and Extra Expense Caused by Dependent Properties

A dependent property is any location the named insured does not operate that has an impact on its income. The location may be operated by a supplier, a customer, or be a natural draw, but the important detail is that the named insured does not own or control the operation and even though it has a direct impact on the named insured’s income. This Additional Coverage pays up to $100,000 in a single occurrence for the actual loss of business income the named insured sustains and/or the necessary extra expenses it incurs because of direct physical loss or damage by a covered cause of loss at a dependent property's premises. The coverage applies only if Business Income and Extra Expense coverage is selected on the declarations.

Necessary extra expenses are those the named insured incurs during the period of restoration it would not have incurred if there was no loss. Examples are expenses incurred to eliminate or reduce the suspension and continue operations or minimize the suspension if operations cannot continue.

Example: Fred's Farm Fun has a lucrative business selling miniature farm toy replicas of equipment from a major national farm equipment manufacturer on the state fair circuit. A major fire at the location where the replicas are manufactured results in Fred’s supply quickly being depleted and his income virtually disappearing. Fred has this coverage, and the fire was a covered cause of loss. As a result, he receives up to $100,000 to apply to his loss of business income during the time the manufacturing facility is closed. However, Fred's business income loss would not be covered if the loss was due to an earthquake that was not a covered cause of loss.

(6) Newly Acquired Locations (04 13 change)

This coverage applies only when the scheduled location endorsement is attached because the standard blanket coverage automatically covers all locations without having to schedule them.

When a new location is acquired during the policy period, this Additional Coverage extends Business Income and Extra Expense coverage to it for up to $250,000 at each such location. This limit can be increased. (04 13 addition) This coverage does not apply to fairs or exhibitions. Coverage ends at the earlier of 90 days after the acquisition, at expiration, or when the named insured reports the values to the insurance company. Additional premium is charged for the values reported from the date of acquisition. Coinsurance does not apply because this extension is additional insurance.

(7) Interruption of Computer Operations (04 13 change)

This Additional Coverage extends Business Income and Extra Expense coverage. Coverage applies if an operation is suspended when electronic data is destroyed or corrupted by one of the Specified Causes of Loss or Collapse and computer operations are interrupted. The coverage also applies when computer operations are interrupted, and the business operations are suspended because a virus or similar instructions are introduced into a computer system with the intent to damage or destroy the data.

The $50,000 annual aggregate limit is the most paid for all loss sustained and expenses incurred in any one policy year, regardless of the number of events, computer systems, or locations involved.

This Additional Coverage does not apply to losses or expenses after the period of restoration ends, even in cases where part of the annual aggregate limit remains.

This Additional Coverage does not apply when 7. Business Income and Extra Expense c. Additional Limitation–Interruption of Computer Operations exception applies. (04 13 addition)

Example: Yogi at Yank's Yorkshires inadvertently opens an email attachment that contains a virus that shuts down Yank's computer system for a week. Thanks to this coverage, Yank's loss of business income for that week of down time is covered.

(8) Food Contamination (04 13 changes)

This Additional Coverage pays for loss of income and certain expenses if the Board of Health or another authorized governmental entity closes the named insured's business at a covered location because the authority discovered or suspected food contamination. The items covered are:

Expenses the named insured incurs to clean equipment to meet requirements
The named insured’s actual costs to replace food that was either suspected to be or actually was contaminated
Unless covered by workers compensation insurance, all expenses the named insured paid to provide the necessary medical tests or vaccinations for employees who may have been infected. Such expenses for leased and temporary employees are also paid. (04 13 addition)
Loss of business income due to ordered business closure. There is a 24-hour waiting period before coverage begins.
Advertising expenses the named insured incurs specifically to restore its reputation

The maximum single occurrence payment for the sum of the first four items is $25,000. An additional $10,000 is available to pay for advertising expenses. These limits can be increased.

Coverage does not apply to any fines or penalties imposed on the named insured as a result of actual or suspected food contamination at the covered location.

Food contamination is defined. It is an outbreak (was “incident” in the 10 10 edition) of food poisoning or food-related illness (words added in the 04 13 edition) of one or more persons (was “individuals as a result of” in the prior edition) that arises out of the following:

Tainted food the named insured distributed (word added in the 04 13 edition) or purchased
Food that has been stored, handled, processed, or prepared improperly in the course of the named insured’s business operations (words added in the 04 13 edition. Deleted “manufactured” in the
10 10 edition)
Food contaminated by bacteria or virus transmitted by the named insured, its employees, temporary employees, or leased employees (04 13 major change)

Example: The Main County Board of Health closes Farm Families Produce Stand because four members of a family contracted E. coli, and they all agreed it must have been due to eating food purchased from the stand. The closure lasts five days during the testing and while awaiting results. The investigation cleared Farm Families of all charges. Farm Families Produce Stand is thrilled with the results but also realizes that its reputation has been harmed by the allegation, so it must spend money on advertising to encourage customers to return. This coverage pays the following:

The stand was closed for five days, but only four days loss income is covered because of the 24-hour waiting period.
Food valued at $250 was removed for testing.
Farm Families paid over $6,000 to a local advertising firm for a positive advertising campaign.

Some produce needed to be destroyed because it passed its freshness peak during the five-day closure. The value of this produce is not a covered loss.

B. COVERED CAUSES OF LOSS (04 13 change)

Covered causes of loss means direct physical loss or damage. This is a very broad statement that is then limited by stating that losses may be excluded or limited in the policy. (The 04 13 edition removes the words “risks of” in the prior edition.)

The exclusions are found mainly in the Exclusions Section, and the limits are found mainly in the Limitations Section. However, the wording does not mention either of those sections. It is important to realize that losses may be excluded or limited in any section of the policy and by endorsements. Exclusions and limitations can show up in some very unexpected places, such as Definitions.

C. EXCLUSIONS

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 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.

a. Earth Movement (04 13 change)

There is no coverage for loss or damage caused by or that results from earthquake. Aftershocks and tremors of an earthquake are also excluded. Landslide, mine subsidence, and earth sinking are also excluded. However, sinkhole collapse is not. When if any of these excluded losses cause fire or explosion, the loss or damage from the ensuing fire or explosion is covered. (04 13 addition)

Coverage also does not apply to volcanic eruption, explosion, or effusion. However, if any of these cause fire, breakage of building glass, or volcanic action, the insurance company pays for the loss or damage from the ensuing fire, breakage of building glass, or volcanic action. Volcanic action includes loss or damage from airborne volcanic blast or airborne shockwaves, particulate matter, ash or dust, and lava flow but does not include the expense to remove them from undamaged property. All volcanic action eruptions that occur within any 168-hour period are considered a single occurrence.

The cause of the earth movement is irrelevant. The underlying cause may or may not be an act of nature. Earth movement as this exclusion describes is excluded, regardless of the underlying cause. (04 13 addition)

Accounts receivable, computers, property on exhibition, fine arts, mobile equipment, property in transit, salespersons samples, or valuable papers and records are not subject to this exclusion.

Related Article: AG 10 01–Earthquake Volcanic Eruption

b. Governmental Action

Loss or damage to covered property caused by order of any governmental authority to seize or destroy it is excluded. However, the insurance company does pay for such loss or damage when government action is taken to form a fire stop in order to prevent a fire from continuing to spread. This exception applies only when this policy includes fire as a covered cause of loss.

FarmOutBuildings

Example: The fire department chief orders that several small barns and outbuildings be destroyed to block the spread of a wildfire that threatens the milking barn and homestead. The exception to this exclusion pays for the barns and outbuildings that were destroyed.

c. Intentional Loss

Coverage does not apply to loss or damage that arises from an act an insured commits intending to cause a loss. When the intentional loss results in an innocent insured sustaining loss, there is also no coverage for that innocent insured’s losses.

Example: The Forest family is concerned about falling corn prices. Jerry is the oldest, but the farm is owned jointly by seven brothers and sisters. Jerry decides to take matters into his hands and intentionally burns three outbuildings in order to get some ready cash to tide the family over until the next planting season. The fire marshal determines that the loss is due to arson, and the crime is traced back to Jerry. Jerry is convicted. Now the remaining six family members must find a way to survive the corn price problem, pay for Jerry’s legal bills, and replace the destroyed buildings because no insurance money is available due to this exclusion.

d. Nuclear Hazard

There is no coverage for loss or damage caused by nuclear reaction, radiation, or radioactive contamination, regardless of cause. There is one exception. If a fire results from the nuclear event, coverage applies to the loss or damage that resulting fire causes.

e. Utility Services

Loss or damage because a power, water, communication, or other utility service fails to provide or provides insufficient capacity is excluded. However, this is only when the failure originates at an off-site location. Damage from power surge that occurs because of a power failure is also excluded. There is coverage when a utility failure or power surge results in a covered cause of loss that results in loss or damage but only for the ensuing loss. This exclusion does not apply to resulting loss to computers.

Communication services is a broad term that includes Internet access or access to any electronic, cellular, or satellite network. However, it is not limited to just these.

f. War and Military Action

Coverage does not apply to loss or damage caused by or that result from war, undeclared war, or civil war. This includes any warlike action by a military force or actions to hinder or defend against an actual or expected attack by any government or sovereign authority that uses military personnel or other agents. It also includes acts of insurrection, rebellion, revolution, usurped power, or action any government authority takes to hinder or defend against any of these actions.

Note: This exclusion does not apply to terrorism. If terrorism is to be excluded or limited one of the terrorism endorsements must be attached.

Related Article: Terrorism and Insurance

g. Water

Loss or damage caused by action of water outside the building is excluded. This exclusion breaks down into five separate sections to make it clearer. Each defines exactly what water means.

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

(2) Mudslide and mudflow which occurs when a sudden large volume of water mixes with unstable soil conditions.

(3) Water that discharges in any way from a sewer, drain, sump, or sump pump. This includes discharge from related equipment. Related equipment is not defined. Examples of discharge are back up and overflows, but the term is not limited to just these.

(4) Water is water-saturated ground that creates hydrostatic pressure against a building's surface or subsurface portions. Water is any water that enters through foundations, walls, floors, paved surfaces, basements, doors, windows, and other building openings.

(5) Water is also when any of the waters described in (1), (3), and (4) above carry waterborne material. Water is also when material is moved or carried by mudslides or mudflow described in (2) above.

Example: A storm surge scoops up Linda’s barn, transports it to Jared’s property, and deposits it on top of Jared’s garage. The damage that Linda’s barn causes to Jared’s garage is excluded as water damage.

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

Much like other exclusions, if fire or explosion occurs because of any action of water, coverage applies to the loss or damage the fire or explosion causes. In addition, if a sprinkler leakage loss occurs due to these actions of water, coverage applies to the loss or damage the sprinkler leakage causes. Sprinkler leakage coverage applies only if
the policy includes sprinkler leakage as a covered cause of loss.

Example: Continuing the previous example, Linda’s barn cuts Jared’s overhead power lines, causing sparks to fly. The sparks ignite the garage roof, and it burns down. This coverage responds to the fire damage.

Accounts receivable, computers, property on exhibition, fine arts, mobile equipment, property in transit, salespersons samples, or valuable papers and records are not subject to this exclusion.

Related Article: AG 10 04–Flood Coverage

h. Certain Computer-Related Losses

Note: This is similar to the IL 09 35–Exclusion of Certain Computer-Related Losses and to similar wording in the OP 00 01–Capital Assets. Unfortunately, while much of the wording is the same, the outline form is not the same, which could lead to confusion when this exclusion is adjusted. The exclusion is meant to exclude only losses that are related to the failure of a computer to recognize a date or time. However, that is not how it is currently written.

The insurance company does not pay for loss or damage when it is due to failure, malfunction, or inadequacy of any computer, computer application, computer operation system, computer network, or microprocessor.

This exclusion also applies to the failure of any other computerized part or any other product.

In addition, when the products and services that depend on the computer fail, malfunction or are inadequate an inability to accept or process a date or time, there is no coverage. In addition, coverage does not apply to the cost of anything the named insured must do to remedy such problems.

If any item excluded above results in a specified cause of loss or in elevator collision coverage applies for the resulting damage.

In addition, the insurance company does not pay to repair, replace, or modify any of these items to correct deficiencies or change any of their features.

i. Ordinance or Law (04 13 change)

Loss or damage due to a governmental authority enforcing any law that regulates construction, use, or repair of any property or that requires tearing down property and removing its debris or with the insured complying with such a law is excluded. This applies whenever the ordinance or law is enforced or complied with. This exclusion does not apply to the extent of the coverage that 3. Additional Coverages e. Ordinance or Law provides.

Note: Local governments develop ordinances and laws that apply to construction and remodeling of buildings. Some buildings receive special exceptions known as "grandfathering" as long as they remain standing and are not damaged beyond a certain amount or percentage. However, once a substantial loss occurs that requires remodeling or rebuilding, the local ordinances and laws may then apply. This exclusion applies to all costs associated with meeting them.

j. Fungi or Wet or Dry Rot

There is no coverage for any aspect of fungi, wet rot, or dry rot. However, if fungi, wet rot, or dry rot causes a specified cause of loss, coverage applies to any damage it causes.

This exclusion does not apply when the fungi, wet or dry rot results from fire or lightning. In addition, it does not apply to losses covered under Limited Coverage for Fungi, Wet Rot, and Dry Rot Additional Coverage.

k. Virus or Bacteria

Coverage does not apply to loss or damage when it is caused by or is the result of any virus, bacteria, or other microorganism that is capable of inducing physical distress, illness, or disease. This exclusion supersedes any pollution exclusion.

This exclusion does not apply to loss or damage that is due to fungi, wet rot, or dry rot described in Exclusion j. or for loss coverage in
Business Income and Extra Expense/Dwelling Loss of Use (8) Food Contamination Additional Coverage

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 results from any of these events.

a. Electrical Apparatus

There is no coverage for loss or damage that is caused by or that results from artificially generated electrical, magnetic, or electromagnetic energy damaging, disrupting, disturbing, or in any way interfering with electrical or electronic wires, devices, appliances, systems, or networks or with devices, appliances, systems, or networks that utilize cellular or satellite technology.

The definition of electrical, magnetic, or electromagnetic energy within this exclusion is very broad and includes electrical current and arcing, electrical charges that magnetic or electromagnetic fields produce electromagnetic energy pulses, and electromagnetic waves or microwaves as examples. If fire results from an excluded cause of loss, the loss or damage that fire causes is covered.

Very importantly, losses to computers that result from any of the above are not excluded.

b. Consequential Loss

Indirect losses that result from another loss are excluded. The indirect losses listed are loss of market, loss of use, delay or loss of business income and extra expense. The exception to this exclusion is the coverage this policy provides for Business Income and Extra Expense but only when that coverage is selected on the declarations.

c. Smoke, Vapor, Gas

The insurance company does not pay for loss or damage that arises out of smoke, vapor, or gas from industrial or agricultural smudging operations. However, emissions or puff backs of smoke, soot, fumes, or vapors from boilers, furnaces, or related equipment are covered. Mobile equipment is not subject to any part of this exclusion.

d. Other Types of Losses

This exclusion has ten sub-exclusions that primarily involve natural or wear and tear losses. Most are usually considered part of the cost of doing business and therefore not covered.

(1) Wear and tear

This is loss or damage that results from the intended use of the property or simply because it exists. This is considered a maintenance issue and not an insurance issue.

(2) Rust or other corrosion, decay, or deterioration

Hidden or latent defect or any quality in the property that causes it to damage or destroy itself is excluded.

(3) Smog

When fog mixes with smoke it becomes polluted and is called smog. Any loss due to smog is not covered.

(4) Shrinking, expanding, cracking, bulging, and settling

These normal events apply to virtually all buildings and some types of business personal property. They must be anticipated and addressed in construction and design for buildings and in storage issues with respect to business personal property.

(5) Nesting or infestation

This is loss or damage caused by nesting or infestation of animals, birds, insects, or rodents. Loss or damage from discharge or secretion of animal, bird, insect, or rodent waste products is also excluded.

Note: This is a limited animal damage exclusion because if an animal or rodent enters a house and causes damage that is not related to a discharge, nesting or infestation, there is coverage.

Example: It is deer hunting season, and a deer that is being chased leaps over a fence and through the bay window of Miller’s primary residence. The deer panics as it attempts to find an exit and finally leaps back out the way it came in. The Miller family returns home to find the smashed window, destroyed living room and dining room furniture, and destroyed kitchen appliances along with blood stained carpeting throughout. All damage is covered because the damage is not due to nesting or infestation. The blood is not considered a secretion because it is a result of the overall destruction.

(6) Mechanical breakdown

This is excluded because all machines and machinery eventually break down. Loss or damage caused by rupture and bursting due to centrifugal force is considered mechanical breakdown and therefore, also excluded.

There is an exception. When an elevator collision occurs because of mechanical breakdown damage to the elevator shaft and other property is covered.

In addition, coverage is available that provides very specific equipment breakdown coverage.

(7) Dampness or dryness of atmosphere/changes in or extremes of temperature

These excluded causes of loss apply only to business personal property and household personal property.

An exception applies to computers. If a computer is damaged by temperature extremes that are the result of its servicing air conditioning system failing, coverage applies, but only if a covered cause of loss damaged the air conditioning system.

(8) Marring or scratching

This applies to only business personal property and household personal property. This type of damage is inevitable, should be expected, and is excluded.

(9) Theft of household personal property

Loss due to theft of household personal property that is situated more than 1,000 feet away from the named insured's covered location primary residence is excluded. The following exceptions apply if the named insured is an individual:

Theft coverage does apply at the temporary residence of the named insured or any family member. This exception does not apply to full time students away at school.
Theft coverage applies when the named insured or family member is a full-time student. The student must have lived away from the primary residence at some point during the 60 days immediately preceding the loss.

Note: This is not a requirement that the student must have lived at the location where the theft occurred at some point during that 60 days, just that the student was not living at the primary residence but was living some place that is not defined.

This exclusion does not apply with respect to the coverage provided under 6. Additional Crime Coverages as follows:

a. Employee Theft
d. Credit Card and Electronic Fund Transfer Cards or Other Access Devices; Forgery; Counterfeit Money.

(10) Tobacco barns

Loss or damage to tobacco barns and their contents caused by open fires used to dry or cure tobacco in the barn is excluded. However, this exclusion applies only if the loss or damage occurs during or within five days following the open-fire curing or drying.

If any of these excluded other types of losses (Paragraphs 2. d. (1)-2. d. (10)) results in a specified cause of loss or glass breakage, coverage applies to the ensuing loss or damage.

e. Explosion

There is no coverage for loss or damage caused by or that results from explosion of alcohol stills, steam generators, steam boilers, steam pipes, steam engines, or steam turbines that the named insured owns or operates or has in its care, custody, or control. Loss or damage caused by electric arcing, water pipes bursting or rupturing, pressure relief devices rupturing, bursting, or operating, or rupture or bursting due to expansion or swelling of the contents of any building or structure due to water is also excluded.

If an alcohol still, steam generator, steam boiler, steam pipe, steam engine, or steam turbine explodes and results in fire or a combustion explosion, coverage applies to the resulting loss or damage. Coverage also applies to loss or damage caused by or that results from explosion of gases or fuel inside a fired vessel's furnace or inside flues or passageways that combustion gases pass through. It also does not apply to any humidity, moisture, vapor, or liquid.

f. Liquid Seepage or Leakage

Any loss that results from the leakage or seepage of liquid or condensation of humidity, moisture, or vapor that is present continuously or repeatedly over a period of 14 or more days is excluded. However, this exclusion does not apply to unintended leakage damage or loss Bulk Liquid Tank Storage Additional Coverage provides. It also does not apply when the humidity, moisture, vapor, or liquid is considered to be a pollutant.

g. Frozen Plumbing

Loss or damage caused by the freezing of water, other liquids, powder, or molten material that flows or leaks from heating, air conditioning, plumbing, ventilating, or other equipment is excluded. However, this exclusion does not apply if the named insured either maintained heat in the building or drained and shut off the supply. This exclusion does not apply to freezing of fire protection devices.

A covered water, other liquids, powder, or molten material loss may occur. In that case, coverage also applies to the costs to tear out, repair, or replace any building walls damaged to gain access to the leak.

Note: The placement of this paragraph is odd because it does not refer to the frozen plumbing and does not appear to be an exception to it. It is more of a standalone extension of coverage but without a specific limit of insurance.
The Water Damage Additional Coverage provides this same type of coverage.

h. Dishonesty (04 13 changes)

Coverage does not apply to dishonest or criminal acts by the named insured, its partners, members of a limited liability company (LLC), officers of a corporation, managers, employees, or authorized representatives. This exclusion applies whether these parties act alone, in collusion with each other, or in collusion with any other party.

Whenever this exclusion uses the term “employee”, it applies to permanent, leased, and temporary employees. The phrase “dishonest or criminal act” includes theft.

There is also no coverage for theft that anyone else entrusted with property commits. This exclusion applies whether the person who committed the theft acts alone or in collusion with others.

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

There is one exception. There is coverage if employees or authorized representatives destroy property. This destruction exception does not extend to theft.

This exclusion applies except for the coverage that Employee Theft Additional Coverage provides. The exclusion also does not apply to carriers for hire.

i. False Pretense

The insurance company does not pay for loss if the named insured or someone entrusted with covered property is tricked and gives it away. This does not exclude any coverage that may be specifically provided elsewhere in the policy.

Example: Smitty is really excited. His farm has been selected to receive 10 new milking machines in exchange for the current machines in use. The only requirement is that the vendor be allowed to film a commercial around the new machines. The vendor removes the existing machines with the promise that the new machines will arrive before the evening milking. Smitty waits all day, but the machines never arrive. He calls the number on the business card but receives no answer. He realizes that his machines are gone and will not be replaced. He turns in a claim for the 10 machines, but he is informed that because he gave them away, he has no coverage.

Note: The cows weren’t too happy either.

j. Exposed Property

There is no coverage for rain, snow, ice or sleet caused damage to covered business personal property or household personal property that is in the open.

This exclusion does not apply to such loss or damage to mobile equipment or property that is in the custody of carriers for hire.

k. Pollution

Loss or damage from any action of pollutants is excluded. There are two exceptions.

If a specified cause of loss causes the loss, there is coverage for the pollution damage.

Example: The Ace Tractor Company's manufacturing plant catches fire, and the greasy smoke ruins the upholstered seats on the tractors stored in an adjacent storage building. This pollution damage is covered.

FarmImplementDealer

If a pollutant’s action results in a specified cause of loss, the insurance company pays for the ensuing loss or damage from that specified cause of loss.

FertilizerManufacturer

Example: After years of corrosive chemicals eating through the electrical conduit in Frankie's Fertilizer Factory, a spark causes an explosion. The pollution loss the chemicals caused is excluded, but coverage applies to the damage the explosion caused because it is a specified cause of loss.

l. Neglect

There is no coverage for any resulting damage if an insured does take reasonable measures to save and preserve property from further damage after a covered loss. The damage not covered includes damage that occurs at the time of the loss and damage that occurs after the loss.

Note: Examples of reasonable action is calling 911 when a loss begins to occur, using available fire protection equipment, attempting to move items out of the path of an anticipated cause of loss, closing storm shutters and utilizing other loss mitigating techniques. After the loss, actions such as placing tarps over property, hiring security personnel to guard against theft, erecting temporary fencing, boarding up windows, patching a damaged roof, and similar measures to prevent additional damage might be considered reasonable after a loss.

m. Errors or Omissions

Coverage does not apply to loss or damage that is the result of computer errors or omissions. These are oversights or mistakes in processing, recording, or storing information on media or computers.

However, coverage does apply to loss or damage caused by or that result from ensuing fire or explosion if the policy covers these causes of loss.

n. Installation, Testing, Repair

Loss or damage caused by or that results from installation, testing, repair, or services to a computer or its software are excluded. Coverage does apply to loss or damage due to fire or explosion when the policy covers these causes of loss.

o. Collapse

Collapse is excluded. Any abrupt caving in or falling down, loss of structural integrity so that is in danger of falling down or caving in, and any cracking, bulging, sagging, bending, leaning, settling, shrinking, or expanding of property or parts of property are all excluded.

There are exceptions:

The coverage provided under Additional Coverage–Collapse
When a collapse causes a covered cause of loss, the loss or damage due to that resulting cause of loss is covered.
Loss or damage from a collapse that is caused by any of the following or a combination of any of the following is covered:

o Specified causes of loss

o Building glass breakage

o Weight from rain that accumulates on a roof

Note: This applies to only rain on the roof. This means that collapse due to weight of rain on awnings, canopies, tents and other property or overhangs is excluded.

o Weight from people or personal property. There is no restriction as to what must collapse because of this weight.

Note: The idea of providing collapse coverage by first excluding it may appear contradictory but is actually quite logical. Insurance companies must be absolutely certain that the coverage provided is limited to what they intend. In this case, the intent is to provide only limited coverage for collapse. One way to be certain that coverage is limited is to first exclude it completely and then create a carefully written exception.

Related Court Cases:

Imminent Collapse Covered Under Hidden Decay Provision

Policy Is Ambiguous About Collapse

Support Beam Failure Excluded Under the Policy

p. Collision, Upset, or Overturn

This exclusion relates only to the tires and inner tubes of mobile equipment. There is no coverage when collision upset or overturn damages only the tires or inner tubes on mobile equipment. If the collision, upset or overturn also damages other parts of the mobile equipment, the tire and inner tube damage is also covered.

Example: Jane loses control of her backhoe, and it sideswipes a tree stump.

Scenario 1: The tire is pierced by a branch coming out of the stump. The damage to the tire and inner tube is excluded because they were the only damaged part of the backhoe.

Scenario 2: The entire front end is crumpled, and the tire and inner tube are pierced by a branch coming out of the stump. All damage is covered.

q. Foreign Objects

There is no coverage for loss or damage when it caused by a foreign object while it is being taken into mobile equipment and also after it has been taken into mobile equipment.

Note: This exclusion does not specifically say that it applies only to damage to the mobile equipment. Therefore, could it be applied to damage caused by a foreign object that is taken in and then flung out such as a rock picked up by mowing equipment that is flung into other covered property? Compare this wording to similar wording in FP 10 60–Cases of Loss Form – Farm Property which specifically states that it applies to loss or damage that is sustained by farm machinery.

3. Anti-Concurrent Causation Exclusions

The third group of exclusions applies to loss or damage caused by or that results from any of the following excluded loss events. In every case, if loss or damage by a covered cause of loss occurs as a result of one of these excluded events, coverage applies to the loss or damage from the covered cause of loss event. However, coverage does not apply if one of the following events causes a loss that the policy excludes elsewhere.

Note: These anti-concurrent causation exclusions are unique because if coverage applies to a loss under one of the covered causes of loss, except for these exclusions, the loss is still covered. On the other hand, if the loss would have been excluded anyway, it remains excluded.

a. Weather Conditions

Loss or damage from any condition of the weather is excluded but only if the weather condition contributes to a cause or event excluded by C. Exclusions but only those in paragraph 1.

Example: Excessive unexpected rain causes creeks to rise well above flood stage. The previous decision not to purchase flood coverage due to the expense causes Bart to rethink his position, and he figures he has nothing to lose now that his $1,000,000 building is destroyed. He claims that rain was the culprit because it is a covered cause of loss, and he intentionally neglects to mention flood. While the proximate cause of this loss is weather conditions because flood is excluded, the weather exclusion applies, and there is no coverage.

b. Acts or Decisions

Loss or damage that is due to acts or decisions that any person, group, organization, or government entity makes are excluded. When the loss or damage is due to the failure to act or make a decision, it is also excluded.

Example: Musicville, Tennessee knows it needs to upgrade several bridges and other structures to make them more earthquake resistant. After a series of meetings, the city develops a ten-year plan to do so. Only half of the work is done when an earthquake strikes the region five years later, and Zoe believes that the uninsured damage to her business is more the result of lack of city planning than the earthquake. She submits a claim on that basis but loss or damage as a result of the city's decisions and actions is also excluded because earthquake is not a covered cause of loss.

c. Plan, Design Faults

This is a very broad exclusion and applies to property at any location, whether covered or not. Any loss or damage to covered property is excluded because it is faulty, inadequate, or defective:

In its planning, zoning, development, surveying, or siting
With the design, specifications, workmanship, repair, construction, renovation, remodeling, grading or compacting
In material used in its repair, construction, renovation or remodeling
In its maintenance

Example: Perrytown zones the area below the dam for agribusiness use, and a number of buildings and structures are built there. The dam fails, and the water released ultimately inundates the area. Parties that do not have flood coverage submit claims that cite faulty zoning. They argue that the city should not have zoned the property as it did because of the chance that the dam might break. Coverage does not apply to either the zoning issue or to flooding.

4. Special Exclusions

The exclusions in this section and their provisions apply to only certain coverages.

a. Business Income and Extra Expense Coverage

(1) Loss caused by or that results from damage to or destruction of finished stock is excluded. The time to reproduce the finished stock is also excluded.

This exclusion does not apply to Extra Expense because these are time-related incidents.

Example: A windstorm destroys the contents of Wilber's Windmills. The only stock destroyed is finished stock awaiting shipment to customers. Wilber adds the time needed to reproduce the finished stock to the business income loss, but the insurance company declines that part of the claim, explaining that the loss to finished stock is paid based on its selling price. Paying for the time to reproduce it is a duplicate payment.

(2) Loss that is due to physical loss or damage to radio or television antennas and satellite dishes is excluded.

(3) Increases in the amount of loss because strikers or others interfere at the location where rebuilding is taking place are excluded. However, such increases are covered if the strikers or others are at other locations.

Any increases because a license, lease, or contract is suspended, lapses or is cancelled are also excluded. However, if the lapse or cancellation is a result of a covered loss event, coverage does apply but only during the period of restoration and the extended business income time period.

(4) There is no coverage under Extra Expense if a license, lease, or contract is suspended, lapses, or cancels beyond the period of restoration.

(5) Consequential losses that are not business income or extra expense are excluded.

b. Valuable Papers and Records

There is no coverage for errors or omissions that occur when valuable papers or records are being copied or processed. There is also no coverage when electronic records are damaged because of electrical or magnetic injury, disturbance, or when the records are erased. Coverage also does not apply when the following unauthorized instructions result in valuable papers or records being transferred to a place or person, resulting in loss or damage.

c. Accounts Receivable

Three unique exclusions apply to accounts receivable coverage. There is no payment for loss or damage:

Caused when records are altered, concealed, falsified, or destroyed. However, this applies only if such actions were taken to hide the fact that money, securities, or other property had been taken, withheld, or given improperly.
That are the result of errors or omissions in bookkeeping, accounting, or billing
When the only proof that has loss has occurred an inventory computation or an audit of the records

5. Additional Exclusion

Loss or Damage to Products

MachineTool040516

MachineTool0523

Loss or damage to merchandise, goods, or products is not covered if it is the result of an error or omission. The error or omission may be by an entity or a person and may occur on premises or while the item is off premises having work performed on it.

There is no limitation as to when the error or omission must occur. It may occur during planning, testing, processing, packaging, installation, maintenance, or repair.

This is a far-reaching exclusion because it applies if the product’s form, quality or its very substance is impacted.

The only exception is when a covered cause of loss results from an error or omission. Any ensuing damage from that resulting cause of loss is covered.

D. LIMITATIONS

Limitations must be read carefully. They do not exclude coverage entirely. Instead, they limit the conditions under which coverage is provided. This means that while each listed item will provide some coverage, a significant amount of coverage is excluded.

1. The insurance company does not pay for direct or indirect loss or damage to the following property.

Note: The exceptions within each of the items provided a limited amount of coverage.

a. Loss or damage to steam boilers, pipes, engines, or turbines is excluded when a condition within them causes or results in the damage.

The only exception is that coverage does apply when a gas or fuel explosion inside the furnace of a fired vessel or inside a flue that combustible gases pass through causes the loss or damage.

b. Loss or damage to any water-heating device caused by or that result from a condition or event within it is excluded. Water heaters and hot water boilers are examples of water-heating devices. The only exception is that loss or damage that an explosion causes is covered.

c. Loss or damage to the interior of a building and business personal property inside the building when it is caused by rain, snow, sleet, ice, sand, or dust is excluded.

The exception is that coverage applies when a covered cause of loss first damages the building walls or roof, and the excluded elements enter through the opening the damage created. Coverage also applies if snow, sleet, or ice on the building thaws and causes the loss.

Note: Leaving doors and windows open is not the same as an opening created when a building is damaged. Any loss that results is excluded.

Example: A massive dust storm strikes Mike's Prairie Chickens. Afterwards, Mike finds dust covering just about everything. The walls and roof are not damaged, and there is no obvious point where the dust entered. The insurance company determines that the dust entered through poorly fitting windows. Mike must pay to clean and remove the dust without insurance company contribution.

d. The insurance company does not pay any property loss that can be proved solely on an inventory shortage report or observation.

The one exception is that this exclusion does not apply to Money and Securities Additional Crime Coverages.

e. There is no coverage when property is transferred to a person or place that is off the premises when that transfer is based on unauthorized instructions.

Related Article: CR 04 17–Fraudulent Impersonation

f. (04 13 addition) Lawns, trees, shrubs, and plants that are part of vegetated roofs are covered but not without some limitations. There is no coverage for loss or damage due to any of the following:

Soil that supports the vegetated roof being too damp or too dry
Atmosphere that is too damp or too dry
Temperature fluctuations or extremes
Disease of any kind
Rain, snow, ice, sleet, frost, or hail

2. The insurance company pays only for loss or damage to the following property if a Specified Cause of Loss or breakage of building glass causes the loss or damage:

a. The breaking of fragile articles, such as statuary, marbles, glassware, chinaware, and porcelains. However, building glass, containers that hold property for sale, photographic lenses, lenses used with scientific instruments, and fine arts are not subject to this limitation.

b. Builders' machinery, tools, and equipment when owned by the named insured or have been entrusted to the named insured. This limitation does not apply if the property is within 1,000 feet of the covered location. It also does not apply to Business Income and Extra Expense/Dwelling Loss of Use coverage.

3. The following covered property is subject to the sublimits that are part of the limit of insurance for covered property, not in addition to it. This means that instead of the full limit applying to these items, only the sublimit applies. These limitations do not apply to Business Income and Extra Expense/Dwelling Loss of Use coverage. The good news is that the sublimits apply to only theft. The sublimit applies per occurrence, not per item.

a. Furs are subject to $5,000 sublimit. This includes fur garments and even garments that only trimmed with fur

b. Jewelry, watches, watch movements, jewels, pearls, gold, and similar property are subject to a $5,000 sublimit. Jewelry and watches that are valued at less than $100 each are not subject to this sublimit.

Example: Marvin loves to make jewelry and sells it at the family store, art fairs, and other exhibitions. He is preparing for a busy summer, so he has stock valued at $25,000 on his farm when a break-in occurs and all of the items are taken. Because no item is worth more than $100, the entire loss is covered.

c. Firearms and related equipment is subject to a $10,000 sublimit. It is further limited to no more than $2,500 for any one firearm. These limits apply, regardless of the number of items or types of items damaged or lost in the occurrence.

d. Goldware, gold-plated ware, silverware, silver-plated ware, platinum, platinum-plated ware, and pewterware are subject to a $5,000 sublimit. These include many household items such as trophies, tea sets, flatware and more.

4. There is no coverage for the cost to repair a defect in a system in order to stop water, other liquids, powder, or molten material from escaping. The two exceptions are that the repair of such a defect in a fire extinguishing system is covered when caused by freezing or because a substance is coming from an automatic fire protection system. This limitation applies only to direct damage and not to Business Income and Extra Expense, and Dwelling Loss of Use coverage.

E. ADDITIONAL COVERAGE–COLLAPSE

This additional coverage provides limited insurance protection against abrupt collapse.

Note: The approach to first exclude collapse as a covered cause of loss and then to add it back as a defined cause of loss was developed after a number of court cases interpreted the collapse coverage that previous forms and policies provided more broadly than insurance companies had intended.

1. Abrupt collapse is specifically defined with respect to this additional coverage. It is the abrupt caving in or falling down of a building (or any part of it) where the end result is that the building (or a part of it) cannot be occupied or used as intended.

GrainProcessingFacility

Example: The building inspector visits George's Ginormous Grains processing facility because of complaints by its employees. The inspector finds serious termite infestation, declares the building to be in imminent danger of collapse, and condemns it. George submits a claim that the insurance company denies because the building is still standing and has not collapsed.

2. The insurance company pays for direct physical loss or damage to covered property caused by the abrupt collapse of a covered building, any part of a covered building, or that contains covered property subject to the following:

a. Unless an insured knew about it before the abrupt collapse took place, building decay that is not visible or that is hidden from view

b. Unless an insured knew about it before the abrupt collapse took place, insect or vermin damage that is not visible or that is hidden from view

c. Using defective construction, remodeling, or renovation methods or materials if the abrupt collapse took place during construction, remodeling, or renovation

d. Using defective construction, remodeling, or renovation methods or materials if the abrupt collapse took place after construction, remodeling, or renovation was complete, but only if caused in part by:

A cause of loss as stated in paragraphs a. and b. above
A specified cause of loss
Breakage of building glass
Weight-load of people or property
Weight-load of rain that collects on a roof

Example: Cooper's Crates & Coops is constructing a new building. It will be two stories high and house raw materials used to construct crates and coops. Construction is nearly complete when the building suddenly collapses and is completely destroyed. The loss is covered because it was determined that the trusses were not attached properly. The insurance company can subrogate against the contractor and seek recovery.

3. Coverage does not apply:

a. When buildings or any part of a building is at risk of caving in or falling down but have not yet caved in or fallen down

b. When a portion of a building remains standing. It may have separated from another part of the building, but as long as it is standing, it has not collapsed

c. When a building or any part of the building remain standing. It may be leaning, sagging, expanding, bulging, shrinking, bending, settling, or cracking but as long as it is standing, it has not collapsed.

4. There is no coverage when any of the following property independently collapses:

a. Outdoor radio or television towers, antennas, satellite dishes, guy wires, their lead-in wiring, and masts

b. Awnings, canopies, gutters, downspouts, and fences

c. Yard fixtures

d. Outdoor swimming pools

e. Bulkheads, piers, pilings, wharves, and docks

f. Beach or diving platforms or appurtenances

g. Retaining walls

h. Undergrounds pipes, drains, and flues

i. Roadways, walks, and other paved surfaces

There is an exception. If the items above are covered under this policy, there is coverage when a covered building first collapses on that property and causes that property to then collapse.

5. Personal property occasionally collapses, but the building does not. In that case, the loss is covered only if all of the following apply:

The collapse was due to a cause of loss as stated in 2. a., 2. b., 2. c. or 2. d. above.
The personal property that collapses is inside a building.
The personal property that collapses is not one of the kinds listed in paragraph 4. above, regardless of whether it is considered real or personal property.

Coverage does not apply if personal property collapses, and marring or scratching is the only damage the collapse causes.

6. The personal property must abruptly cave in or fall down. It is not covered if it leans, sags, expands, bulges, shrinks, bends, settles, or cracks but has not abruptly caved in or fallen down.

7. This collapse coverage is an additional covered cause of loss. It does not provide additional limits of insurance.

8. Whenever the term Covered Cause of Loss is used in this policy it includes this Additional Coverage–Collapse subject to the limitations established in this Additional Coverage.

F. LIMITS OF INSURANCE

1. The most the insurance company pays for loss or damage in any one occurrence is the Limit of Insurance that applies to that particular coverage on the declarations.

The Limit of Insurance that applies to Business Income and Extra Expense Newly Acquired Locations is in addition to the Limit of Insurance for Business Income and Extra Expense on the declarations.

2. Loss payments under the following Additional Coverages for Business Income and Extra Expense/Dwelling Loss of Use do not increase the Limit of Insurance:

Alterations and New Buildings
Business Income and Extra Expense Caused by Dependent Properties
Civil Authority
Contractual Penalties
Extended Business Income
Food Contamination
Interruption of Computer Operations

G. DEDUCTIBLE

In case of loss or damage, deductibles apply per occurrence in the following sequence:

The insurance company first reduces the amount of loss by any of the following that apply:

Coinsurance
Agreed Value
Functional Replacement Cost

The company does not pay anything if the amount of loss after these adjustments is equal to or less than the amount of deductible. However, if the amount of loss is more than the deductible, it pays the amount that remains after applying the deductible.

If a loss event involves two or more items of covered property and limits, the losses are not combined to determine how the deductible is applied. It is applied only once in each occurrence.

Related Article: AG 03 01–Multiple Deductibles

Note: This section of the policy has two examples to explain how deductibles are applied in an attempt to eliminate confusion.

H. LOSS CONDITIONS

This is the first of three separate sets of conditions. These are in addition to those in IL 00 17–Common Policy Conditions.

This arrangement may make locating a specific condition somewhat difficult but using the Agricultural Capital Assets (Output Policy) Coverage Form Index makes it easier.

1. Abandonment

Property cannot be abandoned by the insured to the insurance company.

Note: The named insured owns the property after a loss until and unless the insurance company decides to accept it. It also is responsible for all expenses associated with ownership of any property until and unless the insurance company decides to accept it and assume its ownership.

Example: Mindy is moving the irrigation equipment from one field to another. Unfortunately, she tries to move too far to the right and ends up toppling over a scenic overlook. It takes a major rescue effort to extract Mindy and to take her to the hospital. The county informs her that she is responsible to remove the equipment from the hillside, but she knows it will be expensive. She decides to agree to a quick settlement in order for the insurance company to assume the salvage and make it responsible for the removal. Her plan goes awry when the insurance company explains that they are pleased with the quick settlement but has no interest in the salvage. As a result, Mindy remains responsible for the cleanup and removal.

2. Appraisal

The insurance company and the named insured may not always agree on the value of lost or damaged property or the actual amount of loss. This condition is designed to establish a way to solve these problems and resolve disputes.

When the two parties cannot agree on the value of property, one of them submits a written request for an appraisal.
Each party then hires an independent, competent, and impartial appraiser.
The appraisers then choose an umpire. If they cannot agree on one, they can request that a judge of a court in the jurisdiction do so.
At this point, each appraiser states the value of the property and the amount of loss. If they agree on the amount, the loss is settled. Disagreements and differences are submitted to the umpire.
Any decision made or agreement reached by any two of the three parties is binding on all parties.

The expenses associated with this process are not included as part of the expenses the insurance company pays to settle the loss. The named insured pays the costs of its appraiser. The insurance company pays the costs of its appraiser. Both parties share the costs of the umpire and any other appraisal expenses equally.

3. Duties in the Event of Loss or Damage

a. The insurance company requires that the named insured act reasonably after a loss. If it does not, the company may refuse to pay the loss. The named insured is responsible for the following:

(1) Notify the police if there is reason to believe that a law may have been broken.

Note: While this seems logical, the named insured might not want to do this if a family member could be implicated or for fear of reprisal. The insurance company reserves the right to refuse to pay a loss if the named insured refuses to notify the police for any reason.

(2) Give the insurance company prompt notice of the loss or damage, including a description of the property involved.

Note: The notice is not an in-depth report but provides enough information for the insurance company to begin to process the claim and determine its response. The term "prompt" has been challenged in some court cases and usually means to inform the company as soon as it is known that a loss has occurred. The details are addressed and worked out later.

(3) Give the insurance company a description of how, when, and where the loss occurred as soon as possible.

Note: This is different from the notice of loss. The company initially simply wants to quickly know that a loss occurred and is not interested in the details. This is where the insurance company now wants to examine the details in order to determine if the loss is covered. "How" has to do with the cause of the loss and determining if it is a covered cause of loss. "When" refers to the exact time the loss occurred. Only losses that occur during the policy period are covered. "Where" refers to the covered location on the declarations or elsewhere in the policy. If the location is not listed, coverage may not apply, or coverage for property away from the location may apply to the loss.

(4) Employ reasonable measures to protect covered property from further damage.

Note: This means to act as if there is no insurance coverage. The named insured should not decide to take a vacation immediately after a loss occurs. To employ reasonable measures to protect property means just that. Unusual or extraordinary measures are not required. Placing tarps over property, boarding up windows, and hiring security guards are examples of reasonable measures to take after a loss. The insurance company considers any expenses the named insured incurs to protect property from further damage when it settles the loss, but they do not increase the limit of insurance. In addition, and if possible, the named insured should separate damaged property from undamaged property and set it aside for examination.

(5) Provide a complete inventory of both damaged and undamaged property when the insurance company asks for it, including quantities, costs, values, and the amount of loss claimed.

Note: This information is essential for the insurance company to determine a fair settlement. Because the named insured owns and controls the property, it must provide the information. The Inventory and Appraisal Expense Additional Coverage may cover some of these costs.

(6) The insurance company has the right and duty to verify the information the named insured provides. Therefore, as often as reasonable, it must be allowed to inspect the property, examine and make copies of books and records, and take samples of damaged and undamaged property for inspection, testing, and analysis.

Note: The important part of this loss condition is that the company has the right to do this as often as it reasonably requires. However, it does not mean that it can harass the named insured or be unreasonable in its demands.

(7) Send the insurance company a signed and sworn proof of loss with the information it asks for to help it investigate the claim within 60 days of the request. The company must provide the necessary forms and specify the information needed.

(8) Cooperate with the insurance company as it investigates and settles the claim.

(9) Do not involve the insurance company with settlements or any other arrangements without its permission. The named insured bears the costs of any voluntary payments it makes or expenses it incurs without the company's permission.

Example: Penelope's Produce sells farm produce on consignment brought in by neighboring farmers. Her sales building sustains serious smoke damage from a fire in an adjacent building. When the farmers learn of it, they want to know what happened to their merchandise. Penelope knows she has coverage for the property of her customers, decides to help the insurance company by attempting to explain the coverage to them, and actually reimburses a few of them for their losses. When the company learns of this, it informs Penelope that it is not responsible for any of her statements or settlements and does not reimburse any payments she made without its written permission.

(10) Get back into business as quickly as possible if the named insured intends to resume operations and stay in business.

b. The insurance company may examine any insured under oath individually. The examination is not required to be in the presence of any other insured. The examination must be reasonable in both time and number of examinations. The examination must relate to the insurance provided, the claim, or the named insured’s records and books. The named insured must acknowledge in writing that the answers given in any examination are true and factual to the best of its knowledge.

Note: Thorough investigation is an important part of the claims process. The insurance company must have access to some information that a given insured may not want to divulge. Claims adjusters like to think their customers are honest, but the number of cases and the prevalence of fraud forces them to be cautious. While the insurance company cannot harass the named insured or use strong-arm tactics in order to gather information, it must be diligent in the process and protect its assets.

4. Loss Payment

a. The insurance company has four options to choose from to settle a covered loss. It may:

Make a cash settlement for the value of the property that is lost or damaged
Pay cash settlement for the cost of repairing or replacing the lost or damaged property. Because the coverage form includes some ordinance or law coverage, its impact on the loss payment is explained in item b. below.
Take all or part of the property but only after its value is agreed upon by the parties or the appraisal option is completed.
Actually repair or rebuild the damaged property or replace the damaged property with other property of similar kind and quality. Because the coverage form includes some ordinance or law coverage, its impact on the loss payment is explained in item b. below.

Note: The insurance company controls these options, not the named insured.

Coverage Form Error Alert: Reference is made to item b in two specific places in paragraph a. in the actual AG 00 01. This appears to be an error because it is the same reference that was made in the previous edition. Item b. in the previous edition was the ordinance or law paragraph. This leads to a further question as to whether the reference should be to only c. or to both b. and c.

b. Party Walls

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

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

c. Ordinance or Law

The lead-in language in this section is confusing because of its numerical references. What it states is that all paragraphs in this area are subject to the apportionment procedure described in Ordinance or Law Additional Coverage. Each coverage has its own unique loss payment provision.

(1) Loss payment under Coverage A cannot be for only the undamaged portion of the building. It must apply to both the damaged and undamaged portions of a building involved in a loss.

The actual cost is the most paid, regardless of the limit of insurance on the declarations. If the building is repaired, rebuilt, or reconstructed, the most paid is the cost to repair, rebuild, or reconstruct the property at the same location with a building similar to the one destroyed. The most paid is the building’s actual cash value if it is not repaired, rebuilt, or reconstructed.

RetailFarmEquipment

Example: A tornado destroys the majority of Iggy’s pig farm. His family has lived on the farm for over a century, and he plans on rebuilding. Unfortunately, the county informs him that rezoning from 10 years earlier had placed his farm within the village limits, so he is now subject to village zoning which prohibits livestock operations.

If Iggy wants to continue pig farming, he must purchase land outside of the village and rebuild there.

He decides to move forward.

The insurance company will pay him the value of the damaged part of each building based on the standard policy. It will then pay him the value of the undamaged parts of each building based on this Coverage A. He is paid replacement cost if he rebuilds but only actual cash value if he doesn’t.

(2) The most paid to demolish the undamaged portions of a building required to be torn down due to an ordinance or law is the limit of insurance for Coverage B or the actual expenses, whichever is less.

Example: Iggy’s building must be demolished. The cost to tear down the undamaged part and remove its debris is paid under Coverage B, but the cost to remove the damaged portions of debris is paid under Debris Removal Additional Coverage.

(3) The most paid under Coverage C is the limit of insurance for the coverage. However, the property must actually be repaired or replaced as soon as reasonably possible, but not more than two years after the date of loss. The payment cannot be for more than the actual amount needed for ordinance or law repairs at the loss location. If the ordinance requires that the building be relocated, the payment is limited to the increases needed to meet the ordinance or law requirements at the new location or the limit of insurance, whichever is less.

Example: Iggy is moving out of the village because of the town ordinances or laws, so his Coverage C costs will be the lesser of those costs needed to meet ordinance requirements at the new location or the limit of Coverage C which is less.

d. The insurance company has 30 days to inform the insured of how it plans on settling the loss. The 30 days starts on the day it receives the sworn proof of loss.

e. The most the insurance company pays is the named insured's financial interest in the covered property.

f. The insurance company adjusts claims for property the named insured does not own directly with that property’s owner. This payment must satisfy all claims for the property because the insurance company pays the value of the property only once. The most it pays is the owner's financial interest in the property.

g. The insurance company can decide to defend the named insured against suits due to claims by the owners of property. If the insurance company defends, all expenses are paid by the company.

h. Once the signed and sworn proof of loss is filed, the insurance company must pay the loss within 30 days of receiving it. This is only if the named insured has met all of its obligations within policy’s terms and conditions and the amount of loss is established. This can be done through an agreement between the named insured and the insurance company or through the appraisal condition.

5. Recovered Property

When either the insurance company or the named insured recover property after the loss on it is paid, the party that recovers the property must promptly inform the other party. The named insured has the option to either return the claim payment and keep the recovered property or keep the payment and let the insurance company have the recovered property. The insurance company is responsible for the expense of the recovery and any needed repairs to the recovered property, subject to the limit of insurance.

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Example: Burglars remove the entire inventory of farm tractor global positioning satellite (GPS) units from Elvin's Environmental Electronic Specialties. Elvin carries only the latest in agricultural electronic and technological gear. The insurance company pays the entire loss. The police recovered the stolen GPS units from a storage warehouse about six months later. They notify Elvin, and he notifies the insurance company. The insurance company offers to exchange the GPS units recovered for the claim payment is made. Elvin refuses the offer because the units are now old technology that has been replaced by more advanced and sophisticated models. The company takes the property as salvage and sells it for a much lower price. Elvin’s refusal to accept the merchandise does not affect the claim.

6. Vacancy and Unoccupancy

When a property is considered vacant at the time of loss severe penalties apply. Because of this, it is important that the named insured understands exactly what the insurance company means by the words vacant and unoccupied.

If the named insured is a tenant, the term "building" means a dwelling, unit, or suite that the named is renting or leasing. The dwelling is considered to be vacant when there is not enough household personal property on premises for the named insured to use it as a dwelling. A unit or suite is considered vacant when there is not enough business personal property in the suite or unit for the named insured to use it as it intended to be used.

Example: The Mavis Homestead is owned by the Mavis Family, LLC and Truman Mavis and is rented to his mother, Mildred Mavis. She moved into an assisted living facility but hopes to return home even though the family believes it will never happen. All of her furnishings remain in the house except for the small amount she took to the facility. A windstorm occurs five years after she moved out. Mildred’s loss of household personal property is covered because the building is not considered vacant due to household property remaining in the home.

If the named insured is a building owner or general lessee, the term "building" means the entire building or structure. If 31% or more of the total square foot area is rented to a lessee or sub-lessee and the building is being used by that lessee or sub-lessees to conduct its customary operations the building is NOT vacant.

If the named insured owns the building and is occupying it, as long as 31% or more of the total square foot area is being used to conduct its customary operations, the building is not vacant.

Example: Candy Plus is a retail operation with 10 locations. Location #8 is closed down, but all business personal property remains in the building until a decision is made on its future.

Scenario 1: Candy Plus owns the building. The building is considered vacant because no customary operations are being conducted from the building.

Scenario 2: Candy Plus is a tenant in the building. The building is not considered vacant because there is sufficient business personal property in the building for customary operations to be performed.

A dwelling is considered unoccupied if the named insured, a family member or a tenant of that dwelling has not been physically present in that dwelling for 60 or more consecutive days.

Other buildings or structures are considered unoccupied based on customary operations. Once those operations have ceased for 60 or more consecutive days, the buildings or structures are considered unoccupied.

Example: Mildred has not lived in the Mavis Homestead for over five years, even though she has kept all of her furnishings in the house, anticipating her return. However, members of the family stop by regularly because the house is located in the midst of the many farm buildings. When the windstorm destroyed the dwelling, the building is not considered vacant because Patricia could prove she had visited it within the past 60 days.

(3) Buildings under construction or renovation are not considered vacant or unoccupied.

Note: The named insured may try to stretch the non-vacancy issue from time to time. In turn, the insurance company may attempt to treat a building being remodeled as vacant. If the building or an area is temporarily vacated in order to perform major renovations and the tenant will return as soon as the work is completed, the building is still treated as occupied and not vacant.

b. Vacancy and Unoccupancy Provision (04 13 change)

If the building that sustained covered loss or damage is vacant or unoccupied for a period of 60 or more consecutive days before the loss, the insurance company does not pay anything if the loss or damage is caused by or results from vandalism, sprinkler leakage (unless the system was protected against freezing), breakage of building glass, water damage, water damage, theft, or attempted theft.

The insurance company reduces the loss amount by 15% if any other covered cause of loss caused the loss.

Example: The City Market has problems. Because only 50% of it is currently occupied, its owner decides to do some major remodeling and renovating. This forces some of the occupants to move elsewhere, reducing the occupancy rate to 25%. Vandals enter the premises one night and use some of the construction materials and equipment to destroy windows and knock down some interior walls. The insurance company adjuster reviews the details of the loss, looks at the occupancy rate, and denies coverage. He changes his mind and pays the entire loss when the owner shows him the contracts for the renovation and proves that the renovations were under way.

Note: Insurance companies want to insure viable, ongoing businesses. Premiums charged are based on an active occupancy. Surcharges are made when a property is vacant or unoccupied. Because vacancy or unoccupancy may not be discovered until after a loss, the Loss Conditions limit coverage if such conditions are not disclosed before a loss occurs.

7. Valuation

a. If not excepted below or by a change on the declarations, a property loss is adjusted on a replacement cost basis. Replacement cost is considered the actual cost to repair or replace lost, damaged, or destroyed property without any reduction in the amount of the loss for depreciation.

(1) Actual cash valuation is the valuation used for household personal property and manuscripts and mobile equipment. The valuations for household personal property or mobile equipment can be changed to replacement cost by an entry on the declarations.

(2) The named insured has the option to initially request an actual cash value settlement and then, at a later date, request a replacement cost valuation settlement. The change to replacement cost can occur only if the insurance company is notified of the intention to do so within 180 days after the date of loss.

Note: The reason for the two-step valuation settlement is so that the named insured can secure sufficient cash upfront to start the rebuilding. Once the rebuilding or repair is underway or complete, the replacement cost settlement will reimburse the named insured for the project.

Example: Paul’s barn burns down. Its actual cash value is $180,000 but its replacement cost value is $300,000. He signs a contract to have the barn rebuilt, but a down payment of 40% is required for the project to start. Paul requests and receives the $150,000 actual cash value settlement and uses part of that for the $120,000 down payment. He notifies the adjuster that he will be requesting a replacement cost settlement when the barn is complete. Once the barn is almost complete, he contacts the adjuster and requests the replacement cost settlement. The final settlement is $120,000 ($300,000 - $180,000 = $120,000).

(3) Replacement cost value is not paid until after the property is actually repaired or replaced on a timely basis. Otherwise, payment is on an actual cash value basis.

Improvements and betterments losses are valued at replacement cost if the named insured repairs or replaces them at its own cost. However, if not, the loss is valued on a proportional basis of its original cost calculated as described in item d. below.

(4) The most paid on a replacement cost basis for covered loss or damage is the least of the following:

· The limit of insurance that applies

· The cost to replace with similar materials that can be used for the same purpose at the same location

· The amount actually spent to repair the property

It is not a requirement that a damaged building or structure be rebuilt at the same location but when it is built at another location, the most paid is the amount it would have cost to rebuild at the same location.

Example: Jerry’s dwelling is destroyed by a fire. He and his family decide that they would prefer to use that land for another farm building and rebuild the dwelling at a more family friendly location. The cost to rebuild the house at the existing location would cost $150,000, but at the new location, the cost is $175,000. Jerry will be paid only $150,000, and he must decide how to make up the difference.

b. Stock sold but not yet delivered is valued at its net selling price. The valuation is then reduced by any discounts and expenses, such as shipping and handling costs that are not incurred because the items were destroyed.

c. Damaged glass includes the cost of any safety glazing material but only as the law requires.

Note: If the glass is already safety glazed, the safety glazing is automatically covered because that is replacement cost with like kind and quality.

d. Tenant’s improvements and betterments valuation is unique. The tenant needs and uses them, but it does not actually own them because they remain with the building when the tenant moves out. Three valuation methods are available.

(1) Replacement cost applies if the lost or damaged property is repaired or replaced by the named insured. The repair or replacement must be made in a reasonable time frame.

(2) Only a portion of the original cost if repairs are not made or not made in a reasonable time frame. The amount paid under this item is determined as follows:

Step 1: Determine the original cost of the improvements and betterments

Step 2: Determine the number of days from the date of loss to the end of the lease. If there is a renewal option, the end of the renewal option is the end of the lease.

Step 3: Determine the number of days from the day the improvements and betterments were installed and the end of the lease.

Step 4: Multiply Step 1 by Step 2

Step 5: Divide Step 4 by Step 3

(3) The insured does not receive anything if someone else pays for the repairs or replacement.

Example: Ed's Equipment Extravaganza transforms a regular strip shopping center into a retail farm equipment outlet. Ed paid $200,000 to make the improvements and betterments required for its occupancy that he cannot remove if and when he decides to move out. Shortly after completing two years in business, a tornado badly damages the building's roof. Ed is killed, hopelessly affecting the business, and Ed's widow decides to discontinue it. Ed had a five-year lease with a five-year renewal option. The value of the improvements and betterments is determined as follows:

Step 1: The cost is $200,000

Step 2: 365 days multiplied by eight years equals 2,920 days.

Step 3: $200,000 multiplied by 2,920 equals $584,000,000.

Step 4: 365 days multiplied by 10 years equals 3,650.

Step 5: $584,000,000 divided by 3,650 equals $160,000.

Related article: Improvements and Betterments

e. Pairs, sets, or parts

(1) The insurance company either repairs any part of a pair or set to restore its value or pays the difference between the value of the set and the value of the remaining items.

Example: Sylvia's diamond earrings are valued at $5,000. Unfortunately, one is destroyed, and the value of the single remaining earring is just the $1,000 value of the metal and the stone. The insurance company pays $4,000 because that amount is the difference between the value of the pair and the value of the single remaining earring.

(2) If an item consists of many parts, the insurance company pays the value of only the damaged parts, not the value of the entire item.

f. Valuable papers and records are valued as follows:

(1) The value of each item listed and described on the declarations is the limit of insurance that applies to it.

(2) Items not listed and described are valued at their actual cash value on the date of loss.

Note: It is very important to establish a value for valuable papers and records that are considered priceless or irreplaceable. These items might be valued at only their blank media cost.

Example: Kevin was given the responsibility of maintaining the family pig breeding records that went back over 100 years. He kept recent records online. However, the records prior to 1990 were all on paper. A windstorm destroys Kevin’s office. All computer records were retrieved, but the paper records were destroyed. Kevin had not described or valued the records on the declarations, so he receives no more than the value of the blank paper for the prior year’s records. The cost to recreate the records is over $15,000 and possible only because of help from family and suppliers.

8. Special Loss Conditions

This condition applies to only Business Income and Extra Expense/Dwelling Loss of Use.

a. Loss Determination

(1) Business income loss amounts are based on the following:

· The net income before the loss

· The net income that would have been earned if there was no loss. However, it does not include any potential windfall profits that could have been earned following a loss that could not be earned because of the loss.

· Operating expenses, including payroll expenses to resume operations

· Other sources of information used to determine the value of the loss, such as records, bills, contracts, and other legal documents.

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Example: Hank's Hardware is located in a small farming community. A huge wildfire damages most of it, including Hank's. In calculating its business income loss, Hank includes amounts he lost because his customers had to go elsewhere to purchase the building materials they needed to rebuild following the wildfire. The insurance company informs Hank that he cannot benefit from that windfall and that he must use his normal receipts to determine the business income he lost.

(2) Extra Expense

Extra expense valuation is based on those expenses that exceed the normal expenses that would not have been incurred if there were no loss. The salvage value of property purchased for temporary use and any extra expense other insurance paid is deducted from the amount. In addition, expenses incurred to reduce the business income loss are paid only if they actually reduce it.

Related Article: Extra Expense Worksheet

Example: A tornado damages the Long Prairie Veterinary Clinic. Vic, the vet, knows his customers' animals still need their medication despite the damage. Vic quickly purchases a trailer to use as an office and obtains replacement medications from an outlet in a large city nearby to replenish his stock. Because all animal health records were backed up on its computer system, Vic purchases a used computer to download them. Using this approach, Vic is back in business within 24 hours, and his customers are pleased. Once his building is repaired, Vic moves back in with all new equipment. His extra expense loss is paid except for any salvage value of the office trailer and the used computer.

Veterinarian

(3) Resumption of Operations

Business Income and Extra Expense coverage is not provided so that the named insured can take time off. It is designed to help a business return to operations as quickly as possible. In order to keep the named insured moving forward, the named insured’s loss amount is reduced if the insurance company does not believe the named insured is moving fast enough.

The insurance company reduces the amounts it pays for the named insured's:

· Business income loss by the amount of loss that will be saved if the operations are resumed either at the covered location or at a separate location

· Extra expense losses by the amount of loss that will be saved if the operations are returned to normal, and the extra expenses are discontinued

· Business income from dependent properties loss by the amount of loss that will be saved by the named insured using other available sources of materials or outlets for its products

If operations are not resumed promptly or at all, the insurance company pays amounts based on only the amount of time it would have taken to resume them on a timely basis.

Example: A smoldering fire sends smoke throughout Kerry’s dairy barn. All of the milking machines are contaminated. The cleaning, decontamination and repair project will take at least 30 days. Kerry’s cows were out to pasture at the time of the loss, so no dairy cattle were lost. Kerry takes the following actions to reduce the loss:

· Contacts farmers with similar dairy certifications to check on using their facilities or about pasturing his cows with theirs until his barn is available.

· Considers setting up used milking equipment in a different barn to produce a lower grade milk until his smoke damaged barn is back to its prior grade standards.

He acts quickly and works with the local Ag regulator to keep the cows milked and healthy and to produce as much of the highest-grade milk that can be produced until the existing circumstances are resolved.

Because of his efforts the business income and extra expense loss is reduced by $25,000. However, if he had not taken these actions when he could have his loss would have been reduced by $25,000 due to his inaction.

b. Loss Payment

The insurance company pays for covered losses within 30 days after receiving the sworn proof of loss. Of course, this payment is made only if the named insured has met all conditions in the policy and that the named insured and the insurance company have agreed on the value of the loss.

I. ADDITIONAL CONDITIONS

1. Mortgageholders

a. Mortgageholder is not specifically defined, but it also includes trustees.

b. The insurance company pays for covered loss or damage to buildings or structures to each mortgageholder that is listed on the declaration. The order is very important. The first listed mortgageholder is satisfied first, and then each additional mortgageholder is satisfied based on its listing. However, no mortgageholder is provided coverage in excess of its interest in the property.

Note: The mortgageholder must prove its interest at the time of loss.

c. The beginning of foreclosure does not impede a mortgageholder’s right to receive loss payments.

d. If the named insured’s claim is denied because of its actions or because it did not comply with coverage terms and conditions, the mortgageholder still has the right to receive payment but only if it takes the following actions:

(1) Pays any premium that is due. This applies only after the insurance company notifies it that the named insured has not paid.

(2) If the named insured did not submit a proof of loss, the mortgageholder submits it within 60 days of learning that the named insured did not.

(3) Kept the insurance company aware of any changes in ownership or occupancy of which it was aware. It must also have told the insurance company if it knew that the risk had substantially changed from the one the insurance company originally accepted.

The mortgageholder becomes directly subject to all of the policy’s terms and conditions when any of the above takes place.

e. When the insurance company denies payment to the named insured because of the named insured actions or the named insured’s not complying with the policy’s terms and condition but the insurance company does pay the mortgageholder, that mortgageholder’s status changes as follows:

(1) The mortgageholder's rights under its mortgage transfer to the insurance company but for no more than what the insurance company paid to the mortgageholder.

(2) The mortgageholder's right to recover the full amount of its claim does not change.

The insurance company has the option to pay the mortgageholder the entire principal on the mortgage and any accrued interest. If it does, the mortgage and note transfer to the insurance company and the named insured is therefore required to pays the remaining mortgage debt to the insurance company.

Note: This means that the insurance company becomes the named insured’s mortgageholder.

Example: Mike Mulch's building is valued at $600,000, the mortgage amount is $300,000, and the covered amount of loss is $600,000. During its investigation, the insurance company discovered that Mike had started creosoting in the building which substantially increased its risk. The mortgageholder and the insurance company were not aware of the increased risk. The insurance company denies Mike’s loss but does pay the mortgageholder’s loss of $300,000. Mike now owes the insurance company $300,000 in addition to needing to rebuild a $600,000 building.

f. The insurance company must give the mortgageholder appropriate notice of its intent to cancel the policy as follows:

(1) Ten days before the cancellation becomes effective if the cancellation is because the premium was not paid

(2) Thirty days before the cancellation becomes effective for any other reason

g. The insurance company also must give the mortgageholder at least a ten-day notice that it will not be renewing the policy.

Note: Most states have their own cancellation notice requirements that the insurance company must follow instead of the ones in this policy.

2. Coinsurance

The only coverage that is subject to coinsurance is Business Income and Extra Expense/Dwelling Loss of Use, and it only applies when a coinsurance percentage is entered on the declarations. In addition, any coinsurance that is in effect applies to only business income losses and not to extra expense.

Note: Substantial credits apply to the rating when the named insured selects the coinsurance option. However, a significant penalty is applied to a loss if the limits of insurance are inadequate.

a. The following coinsurance condition applies in addition to the conditions in IL 01 17–Common Policy Conditions and those in this coverage form.

b. The insurance company does not pay the full amount of any business income loss if its limit of insurance is less than its coinsurance percentage multiplied by the total of its net income and all operating expenses. Net income and operating expenses are those that would have been earned if there were no loss for the 12 months after the coverage inception date. On multiyear policies it is for the 12 months after the most recent anniversary date.

The coinsurance penalty is developed as follows:

Step 1: Multiply the anticipated net income and operating expenses by the coinsurance percentage.

Step 2: Divide the limit of insurance by Step 1. A penalty is not applied if the result is 1.0 or higher. Proceed to Step 3 if the result is less than 1.0.

Step 3: Multiply the loss amount by the percentage developed in Step 2.

c. The insurance company pays the lesser of the amount determined in Step 3 or the limit of insurance. The named insured is responsible for the remainder from its own assets or from other insurance.

d. Operating expenses are an important part of the calculation. It is important to review the list of expenses in the coverage form that can be deducted from the operating expenses and subtract them before the coinsurance calculation takes place.

Example: An explosion badly damages Pristine Peanut Products Producers. No one is injured, but the plant is shut down for repairs. It takes almost four months to resume operations, and the loss of business income amount is $200,000. The limit of insurance is $800,000 with 50% coinsurance. The net income and expenses for the 12 months starting on the inception date is anticipated to be $1,750,000.

Step 1: $1,750,000 multiplied by .50 equals $875,000.

Step 2: $800,000 divided by $875,000 equals .914.

Step 3: $200,000 multiplied by .914 equals $182,800.

Pristine disputes some of the expenses the insurance company included in its settlement. Pristine documents the debt collection and transportation expenses that did not continue. It also shows that net income was down due to trade embargos. These factors forced the company to revisit its decision and revise the anticipated net income and expenses to $1,500,000. As a result, the claim is settled without a coinsurance penalty.

This section of the policy has two examples, one for underinsurance, and the other for adequate insurance.

3. When Builders Risk Coverage Ceases

Builders risk coverage ends on the earliest date that one of the following occurs:

a. The policy expires or is cancelled

b. The purchaser accepts the property

c. The named insured's financial interest in the property ends

d. The named insured abandons the construction project without any apparent intent to complete it

e. Ninety days after construction ends or 60 days after the building under construction is partially or completely occupied, or 60 days after it is put to its intended use.

Note: It is very important to realize that coverage ends on the earliest date. This means that negotiating item e. and getting the days to extend to 180 days or more is useless if the policy expires 10 days after construction ends. Coverage ends when the policy term ends.

J. AGRICULTURAL CAPITAL ASSETS (OUTPUT POLICY) COVERAGE FORM CONDITIONS

There are nine conditions.

1. Concealment, Misrepresentation, or Fraud

Fraud on the part of the named insured immediately voids this coverage form if the fraud is related to this coverage form.

In addition, if a fact that is material to this policy, the covered property, the named insured’s interest in the covered property or to a claim is concealed or misrepresented, the policy is void. However, the policy is void only if the concealment or misrepresentation was intentional by the named insured or any other insured.

Note: Insurance companies provide coverage based on the utmost good faith and trust the customer's word. The coverage provided, premium charged, and the terms and conditions that apply are based on full disclosure and a completely honest relationship. Coverage is void if the named or any other insured betrays that trust through any act of intentional concealment or misrepresentation. Fraud is the most blatant offense and voids coverage the moment it is discovered.

Example: The Feed & Seed Center has had three prior fire losses. Its insurance agent has notified it that the insurance company does not want to renew. A new insurance agent walks in following that conversation and is greeted with open arms. An application is completed without any mention of the prior losses. The new insurance company writes the policy based on the application. A fire loss occurs, and during the investigation, the adjuster learns of the prior losses. The Feed & Seed Center policy is immediately voided, and the loss is not paid due to material misrepresentation.

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2. Control of Property

This condition has two parts, and both benefit the named insured.

When an act or neglect by any party that the named insured does not control or direct, such action or neglect does not affect the named insured’s insurance coverage.

When a condition is breached at one location, that condition only impacts the coverage at the involved location. It does not impact coverage at any other location unless a similar breach occurs at that other location.

3. Insurance Under Two Or More Coverages

The insurance company does not pay more than the actual amount of loss or damage, regardless of the number of coverages that apply to it.

Note: This condition is part of most property coverage forms but is particularly important in this policy because of the many coverages that have potential overlap. An insurance contract is an indemnity contract which means that the named insured is to be only indemnified and not rewarded after a loss. When an item could possibly be covered in multiple coverages the required payout could exceed the actual loss if not for this condition.

4. Legal Action Against Us

This condition lays out how the insurance company can be challenged in court.

First, all terms in the policy must be satisfied. Until full compliance with those has been achieved, no legal action can be brought.

Second, legal action must be brought within two years of the date of loss. This is very important because this is a very short time frame when the loss is highly complex or if there is a significant gap between the date of loss and the date of discovery.

This condition applies to anyone who brings action, not just the named insured.

Note: Different time requirements may apply in certain states. When it does, this condition is amended to comply with those requirements.

5. Liberalization

Insurance companies regularly revise coverage forms. If a revision occurs during the life of this policy or for up to 180 days prior to the renewal date of this policy that broadens coverage, the broadened coverage applies to this policy automatically. However, this applies only if there is no additional charge for the broadening coverage.

6. No Benefit to Bailee

This coverage is for the insured. No entity other than the insured benefits from this coverage even if they have covered property in their possession.

Note: Insurance provided is for the insured’s benefit, not for any bailee. Bailees do not have an advantage simply because this insurance is in force. Bailees should have their own coverage to apply to loss or damage to property that is in their care, custody, or control.

7. Other Insurance

a. If the named insured has any other insurance that is identical to this coverage, the insurance companies share the loss. Each insurance company’s share is based on the relationship of its limits to the total limits of all such insurance.

b. If other insurance is available but not as described in paragraph a. above, this insurance is excess of amounts due from such other insurance. The coverage remains excess even when the underlying coverage cannot be collected.

c. Paragraph b. above does not apply when the loss is to farm equipment the named insured borrows or rents.

d. A service agreement may also cover loss or damage to covered property. In such a case, that service agreement is considered the underlying coverage, and this policy provides coverage as excess to that service agreement.

Examples of service agreements are warranty plans, service plans, and property restoration plans. Some of these agreements might even describe themselves as insurance.

8. Policy Period, Coverage Territory

The insurance coverage provided by this policy is specific as to time and place.

Only loss or damage that occurs within the policy period shown on the declarations is covered.
Only loss or damage that occurs within the coverage territory is covered.

The coverage territory is the United States of America and its territories and its possessions. The coverage territory is also Puerto Rico, and Canada.

Specific coverages may expand or contract this coverage territory within their description. In such a case, the territory description within that coverage applies instead of this coverage territory.

9. Transfer of Rights of Recovery Against Others to Us

The insurance company gains certain rights when it pays for losses. One very important right that is transferred to the insurance company is the insured’s right to act against those who caused the loss or damage.

If the insured accepts payment for loss or damage, it must relinquish not only its right to pursue such entities but also its right to NOT pursue such entities.

Even though it may not want to take legal action against the entity, the insured must maintain its recovery rights and, as requested, help the insurance company exercise them.

One way the named insured can protect those it would not want to sue is to waive its rights of recovery against such parties in writing before a loss occurs.

If provided in writing, the named insured is also permitted to waive rights of recovery after a loss it may have against any of the following:

A party insured under this insurance

A business that the named insured owns or controls
A business that controls or owns the named insured
The named insured’s tenant

K. OPTIONAL COVERAGES

These optional coverages apply separately to each item when marked on the declarations.

1. Actual Cash Value

Valuation is on a replacement cost basis unless actual cash value is the valuation method selected on the declarations. When ACV is entered on the declarations, the valuation terms become actual cash value for the particular coverage or item beside which it is entered.

2. Business Income and Extra Expense/Dwelling Loss of Use

Business income coverage is subject to coinsurance unless one of the following options is selected and the appropriate entry made on the declarations. Each option eliminates the coinsurance condition and provides alternatives that have a premium surcharge.

a. Maximum Period of Indemnity

If there is direct physical loss or damage by a covered cause of loss to covered property, the insurance company pays the lesser of either the actual loss of business income sustained plus the extra expenses for up to 120 days after the date of loss or the limit of insurance on the declarations.

Example: Sarah’s Seeds & Fertilizer is uncomfortable with the coinsurance penalty and not happy with the other available options. She knows that within 90 days she will be back in operation and wants the business income incurred and extra expenses sustained paid. She estimates the amount she will need and selects that as her limit of insurance.

b. Monthly Limit of Indemnity

If there is direct physical loss or damage by a covered cause of loss to covered property, the most the insurance company pays in any 30-day period is the factor on the declarations multiplied by the limit of insurance on the declarations.

Example: Ralph's Replacement Parts knows he can replace his entire inventory in less than 90 days, but he is concerned because available space may be difficult to find. He believes he could resume full operations within four to six months after a total loss. He also knows the amount of income he needs each month to remain in business, although the insurance company thinks he needs more. Ralph selects the 1/6 Monthly Limit of Indemnity option because there are no penalties, the limitation method works with his need, and he can select the limits he believes are appropriate for him to continue in business.

This section of the coverage form has an example of adjusting a loss that involves the monthly limit of indemnity.

Note: Coverage is not limited by time. It continues as long as operations are suspended, and limits are available. Each month’s payment is limited to the lesser of the percentage of the limit of insurance, the actual amount of the loss, or the limit of insurance that remains.

c. Agreed Value

This is the most complicated, difficult, and time-consuming of the optional coverages. The named insured must first prepare a business income worksheet and submit it to the insurance company. The worksheet must include the actual financial data for the previous 12 months as well as estimated amounts of the same data for the next 12 months. The words "Agreed Value" and the appropriate coinsurance percentage must be on the declarations or the scheduled locations endorsement. A limit of insurance equal to or greater than the estimated 12 months expenses and net income multiplied by the coinsurance percentage must be on the declarations or the scheduled locations endorsement.

When these conditions are met, coinsurance is suspended for 12 months or until coverage expires, whichever occurs first. A new worksheet must be prepared and submitted every 12 months in order for the agreed value arrangement to continue.

If the business income limit selected is less than the agreed value, any loss is reduced by multiplying the amount of loss by the product of the business income limit divided by the agreed value.

Example: Tony's Tractor Sales and Services estimates it will take at least eight months to resume operations if it sustains a total loss. Tony is well aware of his market and has an excellent track record in making its projections. He can easily complete the 12-month prior business income worksheet because of his meticulous records. He uses his market knowledge and trade information to predict the next 12 months. The insurance company agrees to the 12-month value of $1,200,000. He knows that he will be back in operations within eight months, so he reduces the insurance carried to $1,000,000 and the coinsurance to 80%. Tony is assured that he will have the coverage he needs at the time of loss without a coinsurance penalty, even if the estimates are wrong. It also provides coverage at an attractive price because the rating is based on the 80% coinsurance rate.

This section of the coverage form has an example of adjusting a loss that involves agreed value.

L. DEFINITIONS

This coverage form contains 36 definitions. This is considerably more than the ISO Building and Personal Property Coverage Form, which has only three definitions.

1. Accounts receivable

Accounts receivable is four separate items. The first is the amounts customers owe but that the named insured cannot collect. The next item is the interest the named insured incurs because he must borrow money to keep operating as he waits for the account receivables to be collected or the loss paid. The last two items are expenses incurred to reduce items 1 and 2. The collection expense the named insured incurs that is in excess of the standard expenses but only when necessary to help with the loss. Other expenses the named insured incurs so that the lost account receivable can be re-established and thereby can be collected.

2. Builders risk

This is buildings and structures that are at covered locations and are in the course of construction, alteration, or repair. The property must be intended for permanent installation, such as fixtures and machinery, building materials and supplies used for construction, and building service equipment. Foundations of buildings or structures under construction, temporary structures on the site, cribbing, scaffolding, and construction forms are also builders risk. Building materials and supplies of others or that are in the named insured's care, custody, and control, are also builder’s risk, but only if they are located on or in a covered building or within 1,000 feet of one.

3. Computer

This is programmable electronic devices used to work with data. Peripheral equipment and related air conditioning and fire suppression systems are also computer. Data or media are not computer.

4. Counterfeit money

This is an imitation of real money. Such imitation is considered counterfeit only if it is intended to deceive and to be accepted as genuine.

5. Covered location

Covered locations are not listed unless the policy is endorsed to do so. This makes this definition crucial to coverage. A covered location is any premises, site, or location the named insured owns, operates, or leases.

6. Dependent property

Dependent property locations are not listed. This means when business income and extra expense are selected, the named insured has coverage for business income that is due to a loss from any dependent property that meets this definition.

A dependent property is property that is operated by others and upon which the named insured depends and would sustain a loss of income if that property was not operating. There are four different types of dependent properties:

A contributing property is one that provides materials or services to the named insured. Although water supply services, power supply services or communication services meet this definition, they are specifically not included within this definition. Coverage for them is provided under the utility services endorsements.
A recipient property is one that accepts products and services from the named insured. Another term for this type of dependent property could be customer.
A manufacturing property is one that manufactures items on behalf of the named insured for the named insured’s customers.
The leader property is one that attracts customers to a business. This could be a major tourist attraction, a major department store, or similar type properties.

7. Dwelling

Any building that is a family residence. The building is open-ended to include any type of buildings, including a mobile, modular, or prefabricated home.

Buildings that are used to store farm produce as a part of operations or that house livestock or poultry operations are not dwellings.

Note: Some barns may include some sleeping cots, but that does not make them a dwelling. Some family residences may include stored canned food or pet animals, but that doesn’t disqualify them as dwellings.

8. Electronic data

This is information, instructions, facts, or computer programs used to operate computers or similar and related devices. Information the insured develops regardless of where it is stored unless it is stored in paper form is also electronic data.

9. Employee

a. This term is broadened beyond the business’s full-time employees. Seven different groups of actual persons qualify as employees:

(1) Persons the named insured pays and who are under its control as to how they perform their duties. Such persons remain employees for 30 days after termination but only if termination was not related to that person’s dishonest actions.

(2) Persons who substitute for regular employees or are hired for short temporary work, but they are only employees while under the named insured’s control. These persons are not employees when away from the covered location while caring for property.

(3) Persons who are leased to the named insured who are not described in a. or b. above. An employment contract and a labor leasing firm must be involved.

(4) A consultant for the named insured but only if he or she was formerly an employee, director, partner, member, trustee, or manager of the named insured.

(5) Guest students or interns who are engaged in studies or performing duties. These persons are not employees when away from the covered location while caring for property.

(6) Any employee of an entity that merged or consolidated with the named insured prior to this policy’s effective date

(7) Managers, directors, or trustees of the named insured when they are acting as employees or while on the named insured’s board performing specific tasks

b. Agents, brokers, factors, commission merchants, consignees, independent contractors, or similar persons that are not described above are not employees.

10. Family member

A family member must reside in the named insured's household. A family member is a relative and any minors in that relative's care. Full-time students are family members even when they are away from home attending school if they are a relative and under the age of 24 or if they are under the care of a relative and under the age of 21.

11. Fine arts

These are different forms of artwork. The only requirement is that they be “bona fide items of artistic merit.” Paintings, drawings, rugs, antique furniture, rare books, tapestries, lithographs, bronzes, statuary, porcelains, marbles, and rare books are examples of fine arts, and other items if they meet the requirement of being “bona fide items of artistic merit.”

Note: The term “bona fide items of artistic merit” is not defined. This only other current usage of this phrase is in OP 00 01–Capital Assets Program Coverage Form. The term is not used in Commercial or Personal Lines Inland Marine coverages or in the Homeowners policy.

12. Finished stock

This term is used only in Business Income and Extra Expense coverage. It is stock that is manufactured by the named insured. Whiskey and other alcoholic beverages that are in the aging process are considered finished stock except when coinsurance applies to business income. Stock the named insured manufactured but that is being held for sale at a covered retail location is not considered finished stock.

13. Fungi

This is any type or form of fungus, mold, or mildew. Mycotoxins, spores, scents, and by-products that fungi produce, or release are all considered fungi.

14. Leased property

This is not property the named insured leases for its own use as used in other coverage forms. Instead, it is property the named insured leases to others, rents to others, or sends out to others for approval.

Note: This definition needs to be improved. This definition does not clearly state who must be the lessor and who must be the lessee. The explanation above is inferred based on the coverage provided.

15. Livestock

This is any animal except poultry. Cattle, hogs, goats, sheep, donkeys, horses, mules, insects, fish, worms, and birds other than poultry are listed as an example, but other animals could be included.

16. Manager

This is a person who serves as a director of a limited liability company.

17. Market value

Editorial Note: This definition is more of a valuation term than a definition. It should be within the Valuation Condition.

It is the least of the following:

The reasonable price a property should sell for in a fair and open market on the date of loss or damage
The cost to reasonably restore the property
The property’s replacement value

18. Member

This is any owner of a limited liability company represented by its membership interest. A member can also be a manager.

19. Messenger

This is the named insured, one of its relatives, any partner or member, or any employee, but only when they have custody and care of property while it is outside covered buildings.

Note: It is important to recognize that students, interns, and temporary workers are not considered employees when caring for property that is not on the covered location. Students, interns, and temporary workers cannot, therefore, be messengers.

Example: Jewell is very busy but needs to get the deposit to the bank. Maggie has been working for Jewell all summer as an intern, so Jewell asks Maggie to drop it off on her way home:

Scenario 1: Maggie decides to take the deposit and leave. Jewell has no coverage because, at the time of the loss, Maggie was off premises and therefore not an employee. The loss cannot be considered a money and securities loss because the money was not in the possession of a messenger at the time it was taken.

Scenario 2: Maggie is racing to get to the bank before it closes and flips her car. The deposit flies out of the car window, into the river and is lost. The loss is not covered because at the time of the loss Maggie is not a messenger because she is not an employee while off the covered location.

20. Mobile equipment

There are three categories of mobile equipment:

Agricultural equipment but only if it is mobile. Items that are similar to agricultural equipment are also mobile equipment if it is mobile.
Vehicles that are built to be used on public roads but that are not licensed and are not used on such roads
Self-propelled vehicles that are built to carry equipment that is attached to them provided that they are used for that purpose

21. Money

Money is currency, coins, and bank notes only if they have a face value and are in current circulation. Money orders, travelers’ checks, and register checks are money only when they are held for sale to the public.

Note: There is no specification that the money be United States currency, coins, or bank notes.

22. Occurrence

This term is defined for only certain coverages and has a slightly different meaning for each coverage.

Under Employee Theft Additional Coverage, an occurrence centers on an employee. Individual acts, the combined total of multiple individual separate acts, or a series of similar acts of a single employee, is a single occurrence. It is a single occurrence even if that employee is working in collusion with others. The number of policy years during which the employee committed these acts is irrelevant because it remains a single occurrence.
Under Forgery or Alteration Additional Coverage, the occurrence definition is the same as for employee theft, except instead of referring to employees, the reference is to one or more instruments.
Under Additional Crime Coverage–Money and Securities, the definition of occurrence is the same as for employee theft, except for three important differences:

The term “act or event” is used in place of “act.”
The term “employee” is removed.
The act or event may be committed by a person who acts alone or in collusion with others or it may not have been committed by a person.

23. Operations

These are the named insured's business activities that take place at covered locations. It is also the tenability of a given location if Business Income including Rental Value or Rental Value applies to that location.

24. Other property

This is tangible property with an intrinsic value other than money and securities. It does not include computer programs, electronic data, or any property that the policy excludes.

25. Payroll

This is money paid out to employees and employee benefits directly tied to payroll, workers compensation premiums, and the named insured’s portions of FICA and union dues.

26. Period of restoration

This is the time period that begins immediately after the date of direct physical loss or damage to covered property from a covered cause of loss at a covered or dependent property location. It ends on the date when the damaged property should have been repaired, replaced, or rebuilt with similar quality on a timely basis. It does not include any increased period of time added to the repair because of enforcing an ordinance or law or that the named insured is required to comply with it by responding to pollutants in any way. The period of restoration is not affected by the expiration date.

Note: There is no waiting period, so business income coverage starts at the same time as the direct damage loss. The ISO Commercial Property Program Time Element definition of period of restoration contains a 72-hour waiting period.

27. Pollutants

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

28. Poultry

This is any bird or fowl that the named insured keeps to be used or is held for sale.

29. Rental value

Rental value has three parts. The sum of the three parts equals rental value:

The rental income expected from tenants that occupy the covered location. It is based on the named insured furnishing that location and properly equipping it for the expected occupancy.
Charges that are the named insured’s tenant’s obligation, but that become the named insured’s obligation if there is no tenant or if the tenant does not pay them
The fair rental value of any building or structure the named insured occupies

30. Securities

These are negotiable and non-negotiable instruments or contracts that represent either money or other property. Tokens and tickets are securities whether they are in current use or not. Current or not current revenue or other types of stamps are also considered securities. Evidence used to collect money from a credit card company is securities provided the named insured did not issue the credit cards.

However, money and lottery tickets are not securities.

31. Specified causes of loss (04 13 changes)

Throughout the policy, the term “specified causes of loss” is used to limit the causes of loss that can cause loss or damage to a particular type of property. When that term is used, it means that only loss or damage caused by the one or more of the following causes of loss is covered:

Fire
Lightning
Explosion
Windstorm
Hail
Smoke
Aircraft
Vehicles
Riot
Civil commotion
Vandalism
Leakage from fire extinguishing equipment
Sinkhole collapse
Volcanic action
Falling objects
Weight of snow, ice or sleet
Water damage

The term smoke includes the emission or puff back of smoke, soot, fumes, or vapors from boilers, furnaces, or related equipment.

The cause of loss sinkhole collapse applies when land suddenly collapses into underground voids and spaces created by underground water acting against limestone or dolomite. It does not include any sinking into a manmade structure, such as a mine. When a loss caused by sinkhole collapse is covered, the expense of filling the sinkhole is not part of the covered loss.

The cause of loss falling objects does not include loss or damage to personal property that is in the open. Loss or damage to the interior of a building or structure or to any property in that building by a falling object applies only if that falling object first damages the roof or an outside wall.

The cause of loss water damage is accidental discharge or leakage of either of the following:

Water or steam but only it is the result of a crack or break in the system or appliance that is on the covered location. The system may be the plumbing or heating, ventilating, or air conditioning system or appliance. The system must contain water or steam. Sump systems are not covered in this cause of loss.
Water or waterborne material but only when caused by a water or sewer pipe that is located off the covered location that cracks or breaks apart. The water or sewer pipe must be part of a municipal water supply system or municipal sanitary sewer system, and the crack or break must be the result of wear and tear.

Note: The definition in the prior edition was only the first bullet in this definition. The 04 13 edition adds the second bullet and the following examples.

This definition is limited by conditions in the Water Exclusion. Anything the Water Exclusion excludes is not considered water damage. The following are two examples of when situations that seem to be water damage are not water damage because they are excluded by the Water Exclusion.

ISO Example 1: Weather induced flooding causes a pipe to break apart, causing water damage. There is no coverage even if wear and tear contributed to the pipe breaking because flooding caused the pipe to break.
ISO Example 2: A pipe breaks because of wear and tear. Damage that occurs following that break because of weather-induced flooding or that becomes worse because of it is excluded.

32. Stock

Raw materials are stock. Merchandise that is being held for sale is stock. Goods that are in the midst of being processed and those that are finished are stock. Supplies that will be used to pack and ship the merchandise are also stock.

33. Suspension

This term is used in Business Income and Extra Expense coverage. It has two different meanings.

For business income and extra expense that does not include rental value, suspension is when business operations either stop or slow down.

For business income and extra expense that includes or is exclusively rental value it is when the covered location cannot be occupied by a tenant.

34. Tank

Any permanent structure designed for the specific purpose of containing liquid contents. Pipes, pumps, and their associated apparatus and equipment are also considered tank but only if they meet one or more of the following criteria:

An actual part of the covered tank
Are used to connect covered tanks with one another
Are located within 100 feet of a covered tank.

35. Theft

This definition has two important features.

There must be unlawful taking.
That taking must deprive the insured.

Money, securities, or other property are the items that can be taken.

Note: This term is a very broad and open and does not establish any conditions as to how the items must be taken or any evidence of how they were taken.

36. Valuable papers and records

These are documents, manuscripts, and other written, printed, or inscribed records. This includes mortgages, maps, films, drawings, books, deeds, and abstracts. It does not include money or securities.