We wanted to address “Rent Insurance” today, but got somewhat distracted when we started out by writing “there really isn’t something called ‘Rent Insurance,’ even if lease writers insist otherwise.” We then were going to describe “Business Interruption and Extra Expense Coverage” because that’s really what lease writers are thinking when they say “Rent Insurance.” That was to take us into “how all of that works” and “where it doesn’t work.” It would have been pages long.
We then realized that “Rent Insurance” is only one of the many insurance terms that we all copy from the last document, which terms were copied from the prior document, which were copied from the one before that – and, so forth. You get the idea. Our scant and inadequate research leads us to believe that the merchants of Rhodes, in about 750 BCE, may have been the first to use “pooled funds” as a means of compensating a contributing merchant for a cargo loss. Some of the terms used by those who write leases and other agreements today may come from the documents first used in Rhodes to create what they called a “general average.”
So, that’s what we’ll write about today – obsolete insurance terms. We’ll try to be short about it. Next week, if our Ruminating doesn’t again lead us astray, we’ll return to the ins and outs of the colloquial term, “Rent Insurance.”
Using an obsolete insurance term is not a capital offense. It isn’t even a misdemeanor. It, however, raises a question as to whether the draftsperson actually understands what he or she is writing. Substantively, it creates unenforceable contract provisions. After all, if a contract, such as a lease or mortgage, requires one party or the other to carry “All-Risk” insurance, and there is no such thing, will “impossibility of performance” be a defense? If not, in a dispute over whether proper insurance is (or was) being carried, will one party or the other be forced to seek reformation? Most of all, if the requiring party expects a particular benefit by calling for “All Risk” insurance, will it be getting the benefit it sought?
We start with “All Risk” insurance coverage because it is probably the number one offender. The “All Risk” policy has been “history” since 1983 (that’s three decades ago!). The reason for its elimination is instructive. When you ask for an “All Risk” policy, you probably think you’ll see insurance that protects against all risks. That’s just the reason the “All Risk” policy form was discontinued in 1983. Court after court had been ruling that an insured was entitled to coverage against “all risks” even if the fine print in the policy said otherwise. After all, what wouldn’t a policy that insures against “All Risks” include?
What is today’s terminology? Here’s a short lesson. We are talking about property insurance, specifically “commercial property insurance.” The most common policy form is promulgated by the Insurance Services Office, Inc., an insurance industry trade group. Its property insurance policy is commonly made up of four parts. The critical part for the purpose of today’s discussion is its “causes of loss” part. It describes the perils for which there will be coverage. There are three such levels of coverage, they are: special, basic, and broad. It isn’t intuitive that the greatest coverage comes with the “special” form. So, if you want a party to carry the greatest level of commercial property insurance protection, ask it to carry “commercial property insurance with a special causes of loss coverage part (or the then insurance industry replacement therefor).” [To get greater coverage, you’ll then want to add one or more endorsements. We’re sure to cover that in a future Ruminations posting.]
When the “All Risk” policy went bye-bye, so did “Fire and Extended Coverage” and the “Extended Coverage Endorsement.” These “forms” had supplemented the “All Risk” policy and are now built into the “Special Causes of Loss Coverage Part.” So, stop asking for them. “Use and Occupancy” insurance is an obsolete term for Boiler and Machinery Business Interruption coverage. No one sells “Mercantile Open Stock” coverage, a now obsolete crime coverage form, as are “Money and Securities Broad Form” policies, “Mercantile Safe Burglary” coverage, and “Mercantile Robbery” coverage.
Property insurance isn’t the only area that harbors the use of obsolete terms. Those who like to ask for “All Risk” commercial property insurance invariably also ask for “Comprehensive Liability” (sometimes “Comprehensive General Liability”) insurance. We don’t know why we keep calling for “Comprehensive Liability” policies when the industry dropped that form in 1968, forty-five years ago. Likewise, if you are calling it “Public Liability” insurance, please stop. Today, the commercial liability insurance policy you are looking for is called “Commercial General Liability,” commonly referred to as “CGL” coverage. Yes, “Commercial,” not “Comprehensive.” Oh yes, as you imagine, the old form wasn’t “comprehensive” and that’s likely why its name was changed.
While we’re at it, don’t look for “Contractual Liability Insurance.” That coverage is actually built into the standard CGL policy and changeable through the use of endorsements to the CGL policy. Don’t use “co-insured” because it doesn’t mean what you think it means. Don’t look for a “cross-liability” endorsement. Manufacturers and Contractors insurance policies went bye-bye in 1968; now the coverage comes with the CGL policy. The same is true for “Owners, Landlords, and Tenants” liability policies. The “Broad Form Comprehensive General Liability” endorsement may be more than hard to find. It doesn’t exist any longer.
When it comes to insuring for “personal injury,” we don’t think drafters, on the one hand, and the insurance industry, on the other hand, use those words in the same way. When you require coverage for “personal Injury” in your contract, you probably meant to ask for “bodily injury” coverage because that’s what the insurance industry calls it.
There are many other insurance terms from our youth that we are still enshrining today. More than Ruminations knows about. That’s why we return to a frequent reprise: when it comes to insurance provisions, get some “real” insurance people on your “Rolodex” and call them often. Show them what you’ve written. Learn from them. Do it right! [Rolodex isn’t a generic term. Ask the Newell Rubbermaid, the people who own the mark. It isn’t an obsolete term, even if you haven’t seen one in a long time.]
Here’s our parting shot for today: the term, “Combined Single Limit” is obsolete. Take that!