Commercial Property Insurance

Transcription

1 9 Commercial Property Insurance 1. COMMERCIAL PROPERTY COVERAGE Many business owners have a need for real property insurance coverage, such as for office buildings, factories and warehouses. In addition, they also need coverage for business personal property such as furniture, fixtures, machinery, and inventory. Commercial property insurance helps businesses pay to repair or replace buildings, other structures, and business personal property damaged by fire, storms, theft, and other perils as provided for in the policy. It is made up of many separate coverage parts that can be combined to provide suitable property coverage for a broad range of commercial insurance needs. Each Commercial Property coverage part must include: 1. Commercial Property Declarations form 2. Commercial Property Conditions form 3. One or more Commercial Property coverage forms 4. Causes of Loss forms 5. Mandatory endorsements (if any) COMMERCIAL PROPERTY DECLARATIONS This section supplies information regarding the insured location, the particular forms that will apply, and the name and addresses of any mortgage holders. COMMERCIAL PROPERTY CONDITIONS FORMS These are conditions that specifically apply to the Commercial Property coverage forms. The Control of Property Condition Any act or neglect of any individual, other than the insured, that is beyond the insured s direction or control will not affect the insurance. 1

2 Secondly, if the insured breaches a condition of the policy with regard to a specific location, the insurance relevant to other locations will not be affected. The Legal Action Against Us Condition Legal action cannot be brought against the insurer unless the insured has complied with all conditions of the policy and the action is brought within two years after the date of the direct physical loss or damage occurred. The Other Insurance Condition When other insurance is written on the same basis, the pro rata method is used in any loss settlement. If a different plan or coverage is the other insurance covering the same loss, the policy is excess over the other insurance. The Policy Period, Coverage Territory Condition The coverage territory is the United States of America, including its territories and possessions, Puerto Rico, and Canada. To be covered, a loss must occur during the policy period and within the coverage territory. The Transfer of Rights of Recovery Against Others to Us Condition The insurance company is given subrogation rights. The Concealment or Fraud Condition The Commercial Property coverage part becomes void if the insured intentionally conceals or misrepresents a material fact concerning the coverage part, the covered property, the insured s interest in covered property, or a claim. The Insurance Under Two or More Coverages Condition Provides that the insurer will not pay more than the actual amount of loss or damage if two or more of the policy s coverages apply to the same loss. The No Benefit to Bailee Condition A bailee is prohibited from being reimbursed by the insured s Commercial Property insurance if the insured s property is damaged or destroyed while in the bailee s care. 2

3 The Liberalization Condition Any revision that broadens coverage, without requiring extra premium, will automatically apply to the coverage part if the revision is adopted by the insurer during the policy period or within 45 days of the policy s effective date. COMMERCIAL PROPERTY COVERAGE FORMS These forms contain descriptions of the specific coverages provided and define what property is covered and not covered, how limits and deductibles apply, and what special conditions apply. Building and Personal Property Coverage The Building and Personal Property coverage form is the most frequently purchased form. It covers the insured s buildings, business personal property, and the personal property of others in the care, custody, or control of the insured at the business location. The insured can choose coverage for one or more of the following categories. Protection is provided only for coverages that have a limit of insurance shown in the Declarations. Building Building coverage includes: The building described in the Declarations Completed additions Fixtures, including outdoor fixtures Permanently installed machinery and equipment Personal property used to maintain or service the premises, i.e., fire extinguishers, outdoor furniture, floor coverings, and certain appliances used for refrigerating, ventilating, cooking, dishwashing, or laundering and If not covered by other insurance, additions under construction and alterations or repairs to the building, including materials, equipment, supplies, and temporary structures within 100 feet of the described premises Business Personal Property Coverage is provided while the property is in the covered building, in the open, or in a vehicle within 100 feet of the covered premises. 3

4 Coverage includes: Fixtures Furniture Equipment If the insured is a tenant, the improvements and betterments added by the insured tenant at the tenant s expense, and made a part of the building. The tenant cannot legally remove the betterment or improvement Leased personal property that the insured has a contractual responsibility to insure, unless it is otherwise covered Machinery All other owned personal property used in the business Stock and The value of labor, parts, or services on the personal property of others For example, one of the insured s trucks is loaded full of stock and is waiting at the insured s warehouse for the driver to arrive. If the truck is within 100 feet of the warehouse, the supplies would be covered as business personal property. Stock The insured s merchandise including things stored or offered for sale, raw materials for manufacturing, materials in the process of being manufactured, manufactured items, and supplies used in packaging and shipping. Improvements and Betterments These are fixtures, alterations, installations, or additions that the insured tenant makes a part of a building that the insured tenant occupies, but does not own. The insured pays for the improvements or betterments; however, the betterments and/or improvements cannot legally be removed by the insured. Personal Property of Others This pays for damage to property of others in the insured s care, custody, or control. It does not matter whether the insured is legally liable for the loss. Payment for the loss is made to the owner of the property. 4

5 Exclusions Bills, accounts, currency, food stamps, notes, money, securities, and related property. Lottery tickets for sale are not securities and are covered. Animals, unless they are owned by others and boarded, or owned by the insured and held for sale inside buildings. Autos for sale. Bridges, roadways, walks, patios, and other paved surfaces. Contraband, which is considered property being illegally transported or traded. Cost of excavations, grading, and other ground preparations. Foundations of buildings, structures, machinery, or boilers if their foundation is below the lowest basement level or below the surface of the ground if there is no basement. Land, water, growing crops, and lawns. Personal property while it is airborne or waterborne. Bulkheads, pilings, piers, wharves, and docks. Property covered under another policy in which it is more specifically described, except for the excess of the amount due from the other insurance. Retaining walls that are not a part of a building described in the Declarations. Underground pipes, flues, and drains. Electronic data, except as provided under Additional Coverages: Electronic Data. The cost to replace or restore information contained in valuable papers or records, including those that exist as electronic data, except as provided in the coverage extensions. Vehicles or self-propelled machines, including watercraft and aircraft, which are licensed for use on public roads, or are principally operated away from the premises. This exclusion does not apply to: Vehicles, self-propelled machines or autos that are manufactured, processed, or warehoused by the insured Vehicles or self-propelled machines, other than autos, that the insured holds for sale Rowboats or canoes out of water at the described premises or Trailers, only to the extent provided for in the Coverage Extension for Non-Owned Detached Trailers Excluded while outside of buildings, except as provided in the coverage extensions: Grain, hay, straw, or other crops Fences, radio or television antennas (including satellite dishes) and their lead-in wiring, masts, or towers Signs that are not attached to the building and Trees, shrubs, and plants that are not stock 5

6 Additional Coverages Debris Removal Pays the insured s expenses to remove debris of covered property resulting from a covered cause of loss that occurs during the policy period. The insured must report the loss in writing to the insurer within 180 days of the date of direct physical loss or damage. Extraction of pollutants from land or water is not covered. The maximum amount paid for the total direct physical loss, plus debris removal, is the total limit of liability applicable to the covered property. The debris removal expense is limited to 25% of the amount paid for direct loss to the covered property plus the deductible. However, if the actual debris removal expense exceeds the 25% limitation, or if the sum of the direct loss and the debris removal expense exceeds the limit of insurance, the company may pay an additional $10,000 for debris removal expense. Preservation of Property If the insured removes property from the insured location to protect it from a covered peril, coverage is provided if the loss occurs within 30 days after the property was removed. Fire Department Service Charge If the fire department is called to save or protect an insured s covered property from a covered peril, up to $1,000 for a fire department service charge is paid in addition to the limit of insurance. No deductible applies. Pollutant Cleanup and Removal If pollution was caused by a covered peril, then the costs to extract pollutants from the land or water at the insured s premises will be covered. Coverage is subject to a $10,000 limit per policy period, which applies in addition to the policy limit. Expenses must be reported to the insurer in writing within 180 days of the loss. The Increased Cost of Construction Additional Coverage This coverage insures the additional costs necessary to comply with building codes if a building is damaged by a covered peril. The buildings must be insured on a replacement cost basis and the maximum amount payable is the lesser of 5% of the amount the building coverage limit or $10,000. 6

7 Excluded are costs occurring from the enforcement of any ordinance or law that: Requires demolition, repair, replacement, reconstruction, remodeling, or remediation of property due to the presence of mold Requires the insured to test for, clean up, remove, or otherwise respond to or assess the effects of mold The Electronic Data Additional Coverage Replaces or restores electronic data that has been destroyed or corrupted by a covered peril. Electronic data is defined as information, facts, or computer programs stored, created, used on, or transmitted to or from computer software, CD-ROMs, hard or floppy disks, or any other repositories of computer software that are used with electronically controlled equipment. Excluded are the insured s stocks of prepackaged software. Generally, covered causes of loss consist of those in the applicable Causes of Loss forms, plus collapse. Covered causes of loss include viruses, harmful code, or similar instructions introduced into a computer system or network, designed to damage or destroy any part of its system or disrupt its normal operation. Excluded are losses or damage caused by or resulting from manipulation of a computer system by an employee or an entity retained by the insured to inspect, design, install, maintain, repair, or replace the system. To the extent that electronic data is not replaced or restored, the loss will be valued at the cost of replacement of the media on which the data was stored with blank media that is substantially identical. The most that the insurer will pay is $2,500 for all loss or damage sustained in any one policy year, regardless of the number of losses or the number of premises, locations, or computer systems involved. If payment for loss on the first occurrence does not exhaust this limit, then the balance is available for subsequent losses or damages sustained in, but not after, that policy year. Any occurrence that commences in one policy year and continues or results in additional loss in an en- suing policy year will be treated as if all loss occurred in the year in which the occurrence began. Coverage Extensions If the insured has agreed to meet an 80% or higher coinsurance requirement or has purchased a reporting form, certain coverage extensions may be added to provide additional limits of insurance. The Newly Acquired or Constructed Property Coverage Extension This coverage applies to the building by providing an extension for up to 30 days and up to $250,000 for each new building being constructed at the same location. 7

8 Also, newly acquired buildings at other locations anticipated for use as a warehouse or for a use comparable to that of the building described in the Declarations. Business Personal Property The business personal property may be insured property or newly acquired property. This also includes newly acquired business personal property for any location that is acquired other than fairs, trade shows, or exhibitions. Also included is business personal property the insured acquires that is located at the insured s newly constructed or acquired buildings. The maximum amount payable is $100,000 at each building. The period of coverage is for either 30 days after the insured acquires the property or begins construction of the part of the building that would qualify as covered property, or the insured reports values to the company. Personal Effects and Property of Others Up to $2,500 of coverage is provided for personal effects of the named insured, partners, and employees, excluding loss from theft, and personal property of others. As long as the coinsurance requirement is met, this coverage extension is available even if the insured has not purchased coverage for personal property of others coverage. Valuable Papers and Records, Other Than Electronic Data Provides up to $2,500 to replace or restore information on damaged valuable papers and records. Property Off-Premises This extension provides up to $10,000 in coverage for covered property that is away from the described premises. Coverage is provided while the property is: 1. Temporarily at a location the insured does not own, lease, or operate 2. In storage at a location the insured leases 3. At a fair, trade show, or exhibition If the property is in or on a vehicle, it is not covered. If the property is in the care of a salesperson, except while the salesperson is at a fair, trade show, or exhibition, it is not covered. 8

9 Outdoor Property You may extend the insurance provided by this coverage to fences, antennas, satellite dishes, radios, trees, plants, and shrubs. The maximum payable is $1,000, with a $250 limit applying to any one tree, plant, or shrub that is damaged in any one occurrence, regardless of the types or number of items lost or damaged. Stock consisting of trees, plants, and shrubs is excluded. Covered Causes of Loss are: 1. Fire 2. Lightning 3. Explosion 4. Riot or Civil Commotion 5. Aircraft Non-Owned Detached Trailers This coverage extension applies to trucking companies that make deliveries to businesses, and leave the trailer to be unloaded, picking-up the empty trailer later. Also, from time to time a business may use rented trailers for storage facilities. In either case, the insured is generally responsible for damage to the trailer while it is at the location. To be covered, the trailer must be in the insured s care, custody, or control at a location described in the Declarations. Also, the insured must be contractually required to pay for damage to the trailer. No coverage applies for damage that occurs while the trailer is attached to a vehicle or while it is being hitched or unhitched from a vehicle. The maximum coverage amount is $5,000, unless a higher limit is shown in the Declarations. 9

10 Conditions Duties In the Event of Loss States that, after a loss, the insured must: Give prompt notice of claim to the insurance company or agent. The insured must provide a description of the property involved and describe how, when, and where the loss or damage occurred. Protect the property from further damage and keep a record of expenses incurred to protect the property. Complete a detailed proof of loss form including a complete inventory at the insurer s request. Make property available for inspection by the insurer. Submit to examination under oath if required. Assist the insurer as required during the claim investigation procedure. Send a signed, sworn statement of loss within 60 days of the insurer s request. The Loss Payment Condition The insurer must give the insured notice, within 30 days after it receives the insured s sworn statement of loss, of how the company plans to settle the loss. The company will pay the loss within 30 days after it receives the sworn statement of loss if the insured has met the terms of the coverage part and has reached agreement with the insurer on the amount of the loss. The Valuation Condition This condition explains how losses will be settled. The majority of losses are paid at actual cash value (ACV); however, if the insured meets the coinsurance condition and costs are $2,500 or less; the insurer will pay the cost of building repair or replacement without considering depreciation. Stock already sold is valued at its net selling price. Glass is valued at replacement cost with safety glazing material if required by law. Valuable Papers and Records are valued at the cost of blank materials required to reproduce the lost records and labor to transcribe or copy the records. Tenants Improvements and Betterments are valued at actual cash value if the insured-tenant makes the repairs promptly. If the repairs are not made swiftly, payment will be paid at a proportion of the original cost of the improvements. The company will not pay any amount for the loss if someone besides the insured pays for the repairs, such as the building owner. 10

11 The Vacancy Condition If a building has been vacant for more than 60 consecutive days before the loss, the company will not pay for loss due to vandalism, water damage, theft or attempted theft, building glass breakage, or sprinkler leakage. The company will pay for the sprinkler system if it has been protected against freezing. Buildings under construction are not considered vacant. Any amount that would normally have been paid for a covered loss will be reduced by 15%. The Mortgage Holders Condition This condition agrees to pay losses to any mortgage holders named in the Declarations as their interest may appear. This condition protects the interest of mortgage holders by promising advance notice of cancellation. The insurer must provide 10 days written notice if it cancels for nonpayment of premium, and 30 days notice if it cancels for any other reason allowed by the policy. If the insurer decides not to renew, they must give the mortgage holder at least 10 days advance written notice of non-renewal. The Coinsurance Condition When the insured s amount of coverage at the time of loss does not meet the required coinsurance percentage, the company reduces the payment it would otherwise make in the same proportion as the insurance carried bears to the total amount of insurance required. The standard deductible is $500. Optional Coverages Three optional coverages are available and must be listed in the Declarations to be valid. An additional premium is required for each optional coverage that is selected. The three coverages are: Agreed Value Coverage The coinsurance requirement for the covered property does not apply. An agreement to cover any loss in the same proportion that the limit of insurance carried bears to the stated values it is substituted. The insured is required to submit a form specifying the value of the property. For example, if the agreed value on an item is declared to be $100,000 and the limit is $100,000, then any loss is covered in full. If the limit carried was only $50,000, then only 50% of any loss would be covered. 11

12 Inflation Guard Coverage This is when the insured and the insurance company agree on one of several percentages that will apply annually to the limits of insurance. Replacement Cost Coverage Replacement cost coverage supersedes actual cash value in the Valuation condition by agreeing to pay for covered losses or damage to property on a replacement cost basis. Exceptions are: Personal property of others Contents of a residence Artwork, antiques, or rare articles Stock Replacement cost coverage is subject to the same coinsurance provisions as the standard ACV valuation. Condominium Associations This coverage form is used to provide coverage for buildings and permanent fixtures for residential or commercial condominium associations. Coverage: Buildings (condos), including outdoor fixtures and permanently installed fixtures and equipment Business personal property owned by the association or owned by all individual unit owners Personal property of others in the care of the association and located on the premises Generally, the definition of building does not include personal property owned, used, or controlled by a unit owner. Business personal property includes only property owned by the association or owned indivisibly by all unit owners. The definition of building is extended to cover items such as permanently installed machinery and equipment and outdoor fixtures that are a part of the building, as well as other specifically named personal property. 12

13 Condominium Commercial Unit-Owners Coverage The Condominium Commercial Unit Owners Coverage form is designed for the owner of a condominium. This form is only for commercial condominium owners. Residential condo owners may purchase property coverage under the HO-6, Homeowners policy. Coverage includes the condominium s contents and is available only for the owner of a commercial condominium. In case both the Association and Unit Owners forms apply to a specific loss, the Association form s coverage is primary. Builder s Risk Coverage Form Property Covered: The Builder s Risk coverage form is an additional form that can be added to the Commercial Property coverage part. It covers commercial, residential, or farm buildings that are under construction. Coverage begins on: The date construction begins if the building does not have a basement or The date construction starts above the lowest basement floor if there is a basement The coverage is written for one year; however, coverage ends whenever any of the following occur: The property is accepted by the purchaser. 90 days have elapsed since construction was completed. The building is occupied or put to its intended use. The insured s interest in the property ceases. The insured abandons the construction with no intention of completing it. Both the building under construction and its foundation are covered, as well as fixtures, machinery, equipment used to service the building, and the insured s building materials and supplies if they will become a permanent part of the building and are located within 100 feet of the building. Building materials and supplies owned by others that are in the insured s care, custody, or control can be covered if they are located within 100 feet of the described building. The maximum that will be paid under this extension is $50,000. For example, the projected value of a building on its date of completion is $500,000. The limit of insurance carried is $250,000, with a $500 deductible. The amount of loss is $100,000. The insurer would pay $49,

14 Here is how to calculate this figure: $250,000/$500,000 =.50 $100,000 x.50 = $50,000 $50,000 -$500 = $49,500 The following property is excluded: Land or water Lawns, trees, shrubs, or plants when outside of buildings Radio and television antennas when outside of buildings, including lead-in wiring, masts, or towers and Signs when outside of buildings and not attached to buildings (attached signs are covered) Amount of Coverage Available The amount is determined in accordance with the projected completed value of the building under construction. The company agrees to pay the actual cash value of the loss; however, it will not pay a greater share of any loss than the proportion that the limit of insurance bears to the value of the building on the date of completion. It is stipulated in the Need for Adequate Insurance Condition. Miscellaneous Conditions There is no Vacancy provision because buildings under construction are not considered vacant. All property is valued at ACV at the time of loss. There is no option for replacement cost, agreed value, or inflationary adjustment. There is no Coinsurance condition because the Need for Adequate Insurance Condition serves basically the same purpose by penalizing insureds who do not have the required amount of insurance when a loss occurs. The Builder s Risk Reporting Form allows the insured to purchase a lesser amount of insurance that progressively increases as the value of the building under construction increases. The builder must file a report of value with the insurer every month. The company will not pay more for any loss than the proportion of the values last reported before the loss occurred; bears to the actual cash value of the covered property on the effective date of the last report. 14

15 Business Income Coverage Form This form pays for loss of income that the insured sustains due to a direct physical loss from a peril insured against that forces the insured to suspend operations during the period of restoration. Suspension is defined as a slowdown or cessation of the insured s business activities. The period of restoration begins on the date of the direct physical loss and ends on the date on which the property can be repaired, rebuilt, or replaced with reasonable speed. The type of coverage provided under the Business Income forms is known as time element coverage, since it provides coverage for the loss of business income over a period of time that result from direct physical loss. Included in business income is: 1. Net income that would have been earned if the loss had not occurred. 2. The costs of continuing normal operations, including payroll. For loss of business income to be covered, the suspension of operations must result from a direct physical loss to property at the described premises caused by a peril insured against in the Causes of Loss form. There are two Business Income forms: 1. Business Income With Extra Expense 2. Business Income Without Extra Expense Extra Expense reimburses the insured for expenses incurred to keep a business going after a loss caused by a covered peril. Business Income With Extra Expense coverage includes an Extra Expense coverage that reimburses the insured for expenses to avoid or minimize a business shutdown. It covers only expenses the insured would not have incurred if the property had not been damaged. The Business Income Without Extra Expense Coverage form replaces the Extra Expense coverage with Expenses to Reduce Loss coverage that covers expenses the insured incurs to reduce loss, up to the amount the loss is reduced. Both of the Business Income forms allow the insured to select: Business Income coverage including Rental Value coverage Business Income coverage other than Rental Value coverage Rental Value coverage only 15

16 Rental Value includes the total anticipated rental income from tenant occupancy, all amounts that are legal obligations of the tenant and would otherwise be the insured s obligations. Also, it includes fair rental value of any part of the premises occupied by the insured. The Business Income coverage forms contain a Coinsurance clause, which applies to Business Income coverage, but not to Extra Expense coverage. Additional Coverages Extended Business Income This coverage pays for loss of business income, even after operations have been resumed, until the business has been fully restored. It will not pay for more than 30 days from the date business is resumed. The Order of Civil Authority This coverage pays business income and extra expense losses incurred when a civil authority prohibits access to the described premises because property other than the described premises was damaged by a covered cause of loss. Payment for business income losses begins 72 hours after the action by the civil authority, and both the business income and extra expense losses are paid for up to three consecutive weeks. The Alterations and New Buildings Coverage This coverage pays business income and extra expense losses incurred when a covered peril causes damage to a new building or to an alteration or addition to a new building. Damage to machinery, equipment, supplies, or building materials located on or within 100 feet of the described premises if these items are being used in construction, alterations, or additions or are incidental to the occupancy of new buildings are covered. If the loss delays the start of the insured s operations, the period of restoration under this coverage begins on the date operations would have begun if the loss had not occurred. 16

17 Optional Coverages The Extended Period of Indemnity Option This option offers the insured Extended Business Income coverage for the number of days stated in the Declarations, instead of the 30 days allowed by the Extended Business Income additional coverage. The Maximum Period of Indemnity This option limits reimbursement for extra expenses or loss of business income to no more than the amount of loss incurred during the first 120 days following the direct loss. The Monthly Limit of Indemnity This option allows the insured to establish the amount of reimbursement for loss of business income during each 30-day period. The insured selects a fraction that is multiplied by the limit of insurance to determine the maximum that could be paid for each 30 days. The Coinsurance Condition that applies to the Business Income coverage forms is waived when either the Maximum Period of Indemnity or Monthly Limit of Indemnity coverages are selected by the insured. The insured may also select the Agreed Value Optional Coverage. With this coverage, the insured must submit a business income report/worksheet every 12 months that shows financial data for the 12 months prior to the submission, as well as estimated data for the 12 months after the submission. If the new worksheet is submitted every 12 months, the Coinsurance clause is not applicable. Instead, the insured is expected to carry insurance to value, or the agreed value established by the worksheets. If the insured fails to file the required financial data, the Coinsurance clause will be reactivated. 17

18 The Business Income from Dependent Properties-Broad form is a variation of the Business Income form. It provides coverage for the following: Insured s, who depend on another business as their sole supply of merchandise or raw materials, may suffer a loss if their supplier is forced to cut back or eliminate shipments because of a direct physical loss. This coverage protects the insured against loss due to such a loss at a contributing location. Insured s, who depend on a particular business as the primary customer for their products, are covered under this form if direct physical loss at such a customer location causes the insured s earnings to decrease. Insured s may depend on a manufacturer to deliver certain products or components to the insured s customers under a sales contract. If the manufacturing location is unable to fulfill the contract because of direct physical loss, insured s may suffer a loss of revenue that can be covered under this form. Insured s may depend on another business to attract customers to their own business. Loss to such a leader location may cause insured s to suffer a loss of revenue that can be covered under this form. Extra Expense Coverage Forms Businesses such as public utilities, newspapers, dairies, and other businesses, if shut down, would create a tremendous hardship on customers. The lost business may likely never be regained. In this situation, the insured s need to cover the extra expenses needed to continue their business operations at any cost. The Extra Expense coverage form does not provide reimbursement for lost business income, but instead focuses on compensating the insured for extra expenses incurred to remain in operation. This coverage is considered time element coverage. The period of restoration determines the limits applicable. As an example, the limits may be stated in the Declarations as 40%/80%/100%, which means that if the restoration period was: 30 days or less: 40% of the full amount of insurance would be paid 31 to 60 days: 80% of the full amount of insurance would be paid Over 60 days: 100% of the full amount of insurance would be paid 18

19 Legal Liability Coverage Forms This form also covers damage to property of others while in the insured s control, but only if the insured is legally liable for the damage. Since this form covers fewer types of losses, the insured will usually have a lower premium rate. Payments are made on behalf of the insured. Coverage may apply to exposures arising from the insured s occupancy of another s building or from having custody of the property of others, such as customers goods. EARTHQUAKE AND VOLCANIC ERUPTION The Eruption and the Causes of Loss forms DO NOT cover earthquake or volcanic eruption. An insured can obtain coverage for these perils only by adding the Earthquake and Volcanic Eruption endorsement to the policy. This endorsement must be used in conjunction with one of the Causes of Loss forms. Volcanic eruption is defined as the eruption, explosion, or effusion (pouring forth) of a volcano. All earthquake shocks or volcanic eruptions that occur within any 168-hour period constitute a single earthquake or volcanic eruption. The expiration of the policy does not reduce the 168-hour period. An insured may choose to limit coverage to sprinkler leakage caused by an earthquake or volcanic eruption and not cover other losses resulting from these perils. This is indicated by entering earthquake-sprinkler leakage only in the policy Declarations. The 168-hour time period for earthquake shocks and volcanic eruptions also apply to this optional coverage. CAUSES OF LOSS FORMS In addition to one or more coverage forms, the Commercial Property coverage part requires a Causes of Loss form. These forms list the perils that the property is insured against. The three separate Causes of Loss forms are: 1. Basic The Basic form normally covers basic, common risks or perils such as damage caused by fire, lightning, vehicles, aircraft, or civil commotion. Most Basic form policies also cover damage from windstorms, except areas where prohibited. For a prohibited area, a business will usually need to purchase a separate policy for windstorm protection. 19

20 The Causes of Loss-Basic form is a named perils form that lists 11 covered perils: 1. Fire 2. Smoke 3. Lightning 4. Explosion 5. Aircraft or vehicles 6. Riot or civil commotion 7. Windstorm or hail 8. Vandalism 9. Sprinkler leakage (accidental leakage or discharge from an automatic sprinkler system) 10. Sinkhole collapse 11. Volcanic action Smoke from agricultural smudging or industrial operations are not covered. The windstorm or hail peril does not include damage caused by frost, cold weather, snow, sleet, or ice other than hail. Damage to the interior of a building or its contents is covered only when the wind or hail first creates an opening in the walls or roof. The explosion peril includes explosion of gasses or fuel within the furnace or flues of any fired vessel. Vehicle damage caused by vehicles the named insured owns or operates in the course of the insured s business is not covered. Exclusions Fungus, wet rot, dry rot, and bacteria (except as provided as an additional coverage); does not apply when they result from fire or lightning Ordinance or law Earth movement (does not include a fire or explosion resulting from earth movement) Government action Nuclear hazard Failure of power or other utility services occurring away from the insured s premises War and military action Water, including flood, sewer backup, mudslides, or seepage of ground water Artificially generated current Rupture or bursting of water pipes (other than automatic sprinklers) 20

21 Leakage or discharge of water or steam resulting from breaking of water or steam system or appliance (does not apply to automatic sprinklers), including continuous or repeated seepage or leakage or the presence or condensation of humidity, moisture, or vapor that occurs over a 14-day period or more Explosions of steam boilers, pipes, engines, or turbines Mechanical breakdown Additional Coverage There is limited coverage for Fungus, Wet Rot, Dry Rot, and Bacteria. The Basic form also includes the Limited Coverage for Fungus, Wet Rot, Dry Rot, and Bacteria additional coverage. Fungus is defined as any type or form of fungus, including mold or mildew, and any mycotoxins (poisonous substance), spores, scents, or by-products produced or released by fungi. This additional coverage provides limited coverage for mold that results from a covered cause of loss other than fire or lightning. The loss must occur during the policy period, and all reasonable means must have been used to save and preserve the property from further damage at the time of and after that occurrence. The insurer will pay for: Direct physical loss or damage to covered property caused by mold, including the cost to remove it. Costs to tear out and replace any part of the building or other property if needed to gain access to the mold. Cost of testing performed after removal, repair, replacement, or restoration of the damaged property is completed, provided there is a reason to believe that mold is still present. The limit of coverage is $15,000 for losses or damage arising out of all occurrences of covered causes of loss that take place in a 12-month period, no matter how many claims are filed. The 12-month period starts with the beginning of the present annual policy period. If a particular loss results in mold, the insurer will not pay more than a total of $15,000 even if it continues to be present or active or recurs in a later policy period. This additional coverage does not increase the applicable limit of insurance on covered property. 21

22 2. Broad The Broad form normally provides the same coverage as the Basic form coverage, plus coverage for additional perils such as water damage, structural collapse, sprinkler leakage, and losses resulting from ice, sleet, or weight of snow. The Causes of Loss-Broad Form covers all of the perils listed in the Basic form and: Falling objects (does not cover damage to interior property unless the exterior of the building is damaged first) Weight of snow, ice, or sleet Water damage (accidental discharge or leakage of water or steam as a result of the cracking or breaking of a water or steam system or appliance) Coverage also includes the cost of tearing out or replacing any part of a building to repair damage to the system from which the water or steam escaped, and costs to repair the system itself. Excluded from coverage are the costs to repair any defect that caused the loss, loss from continuous seepage over 14 days or more, or loss caused by freezing unless proper precautions were taken to prevent freezing. Collapse Additional Coverage The Broad form contains the Limited Mold Coverage additional coverage and additional coverage for collapse. Collapse is defined as an abrupt falling down or caving in of the building or part of the building that results in the building being unusable. This definition does not include a building that is in danger of collapsing or a building or part of a building that is still standing but has separated from another part of the structure or shows signs of instability such as bulging, cracking, leaning, or settling. Collapse of a building, part of a building, or a building that contains covered property is covered only when it is caused by one of the specified Broad form perils or any of the following additional perils: Breakage of glass Hidden decay Hidden insect or vermin damage Weight of people or personal property Weight of rain that collects on a roof Use of defective material or methods in construction, remodeling, or renovation if the collapse occurs while the construction, remodeling, or renovation is in progress 22

23 Collapse that results from hidden decay or hidden insect or vermin damage is not covered if the insured knew about the damage before the collapse occurred. If collapse occurs after construction, remodeling, or renovation is completed and is caused by a covered peril, the loss or damage is covered even if the use of defective materials or methods contributed to the collapse. The following types of outdoor properties, even if they are otherwise covered under the policy, are covered for collapse only when they are damaged directly by a collapsed building: Outdoor radio or television antennas, including satellite dishes and their lead-in wiring, masts, or towers Awnings, gutters, and downspouts Yard fixtures Outdoor swimming pools Fences piers, wharves, and docks Beach or diving platforms or appurtenances Retaining walls Walks, roadways, and other paved surfaces Loss or damage that occurs when personal property falls down or caves in is covered, under certain conditions, even when there is no building collapse. In order to be covered: The property must be inside a building. The collapse must result from one of the specified causes of loss. The property that collapses must not be one of the items of outdoor property described above. Also, coverage does not apply if marring or scratching is the only damage that results from the collapse. Settling, shrinkage, expansion, cracking, bulging, leaning, sagging, and bending are not considered to be collapse. The Collapse additional coverage does not increase the limits of insurance provided by the coverage part. 3. Special Form The Special form normally covers against all types of losses, except for those specifically excluded in the policy. In other words, it provides open perils coverage. Typical special form exclusions include losses resulting from flood, earth movement, war, terrorism, nuclear disaster, wear and tear, and insects and vermin. 23

24 Additionally, a wide variety of endorsements can be added to the policy to modify the coverage. In some cases, endorsements are mandatory by law or mandatory when certain coverages are written. In addition to some of the exclusions contained in the other forms, such as earth movement, war, and nuclear hazard, the Special form excludes: Wear and tear Rust, corrosion, fungus, decay, deterioration, and hidden or latent defects Smog Pollutants (unless the release, discharge, or dispersal is caused by a specified cause of loss) Settling, cracking, shrinking, or expansion Damage caused by insects, birds, rodents, or other animals Mechanical breakdown Explosion of steam boilers, pipes, and engines Dishonest or criminal acts of the insured or the insured s employees Voluntary parting with property if induced to do so by fraud or a trick Rain, snow, ice, or sleet damage to personal property that is not in a building Loss resulting from acts or decisions, or the failure to act or decide Collapse, other than that specifically included under the Collapse additional coverage Faulty planning, development, design, specifications, workmanship, or repair Both the Limited Mold coverage and the Collapse additional coverages are included in the Special form. Limitations The Special Causes of Loss form imposes limitations on coverage for certain types of losses. The Special form covers theft; however, coverage for various classes of property is limited to the following amounts: $2,500 for furs, fur garments, and garments trimmed with fur $2,500 for jewelry, watches, jewels, pearls, precious and semi-precious stones, gold, silver, and platinum (does not apply to jewelry and watches worth less than $100 per item) $2,500 for patterns, dies, molds, and forms $250 for stamps, tickets, lottery tickets held for sale, and letters of credit 24

25 The following property is covered only if the loss is caused by a specified cause of loss, which is the same as the Broad form perils, or breakage of building glass: Valuable papers and records, abstracts, drawings, and data processing, recording, or storage media Animals, and then only if killed or if it is necessary to destroy them Breakage of fragile articles, such as statuary, marble, chinaware, and porcelain Building machinery, tools, and equipment that the insured owns or is entrusted with while away from the premises SELECTED ENDORSEMENTS Ordinance or Law Coverage Endorsement The ordinance or law policy exclusion prohibits payment for increased costs due to building regulations or demolition laws. The Ordinance or Law Coverage endorsement offsets this exclusion by providing coverage when an insured s loss is increased because of such laws. Both demolition costs and increased construction costs are covered if they are required or regulated by law or ordinance. Loss in value of the undamaged portion of the building as a consequence of enforcement of such an ordinance or law is also covered. However, the endorsement does not cover costs resulting from the enforcement of laws regarding pollutants, such as laws concerning pollution cleanup or removal. Spoilage Endorsement The Spoilage endorsement may be added to the Building and Personal Property and Condominium Commercial Unit-Owners coverage forms to cover personal property such as perishable stock that must be maintained under controlled conditions to protect it from loss or damage. Peak Season This endorsement adjusts the amount insurance on business personal property which allows the insured to carry increased coverage during certain seasons of the year when inventory or other covered property is higher than normal. As an example, many retailers have larger stock inventories around certain holidays. This endorsement is a variation of the reporting form below. Value Reporting Endorsements Certain businesses may have a need to insure property for which values fluctuate regularly, or property that is moved among locations. For these insured s, the Value Reporting form is used to provide coverage based on actual values at certain locations at specific times. 25

26 The way this coverage works is that the policyowner purchases a higher amount of insurance than he or she thinks will be needed, then reports actual values at each location on a periodic basis, paying premiums determined on the basis of these reports at the end of the policy period based on average exposures. This method typically results in lower premiums, since coverage does not need to be purchased for the maximum exposure during the year. Coverage amounts are adjusted on the basis of these reports, thereby reducing the risk that the insured will be underinsured or over insured at any one location. Property that can be covered by the Value Reporting form includes business personal property, stock, and the personal property of others. Policies written on this basis often have a penalty provision for late reporting. 26