Ruminations looked to see how many times it had written that there hasn’t, since 1983, been something called “All Risk” insurance, the year the insurance industry “deep-sixed” that policy form (and name). Well, to put it bluntly, it was a lot. Yet, an overwhelming number of agreements coming across our desk “asking” for insurance still call for this long-dead (33 years dead) policy form. What our searching revealed, however, was that we never ever completely described its replacement. Today, we will do so, though “completely” would be an overstatement.
First, let’s get some background out of the way. As in the past, we are writing based, in large part, on the terminology and forms used and promulgated by Insurance Services Office, Inc. (“ISO”), a company that creates those things for most insurance companies. Its forms probably account for 95% of the ones you’ll ever see. Yes, there are other “forms” and insurers will add or substitute their own, but with ISO dominating the field, time spent on the subject is best spent focusing on the ISO forms.
To begin with, let’s call property insurance policies “Commercial Property Insurance” and not “All Risk” insurance or “Casualty” insurance. The ISO Commercial Property Insurance policy is titled: “Business and Personal Property Coverage,” and is combined with four parts: Policy Declarations, an appropriate “Causes of Loss” form, and two different “Conditions” forms. The policy can be (and almost always is) supplemented with various endorsements. The ones that an insured adds almost always expand coverage. The ones that an insurer adds almost always reduce, condition or limit coverage.
In addition to the basic policy with its four parts and endorsements there are specialized coverages available. Here is a list of some of those: Condominium; Builder’s Risk; Legal liability; Value Reporting; Mortgage Holder’s; E & O; Tobacco Sales Warehouses; Leasehold Interests; and Environmental coverage. This is far from a complete list. Knowledgeable insurance agents, brokers, and consultants are a far better source of this information than are we.
Annual policies are standard, but policies can be written for up to 3 years or can be continuous in coverage.
Property insurance coverage can be issued separately as a “monoline” policy (most common for large businesses) or combined with other insurance coverages to make up a “Commercial Package Policy,” very often industry-specific such as “garageman’s” insurance (and usually only carried by small businesses).
Because it will be easy, we’ll get the two “Conditions Forms” out of the way. They are boilerplate. One covers: Cancellation; Changes; Examination of Insureds books and records; Inspections and Surveys; Premiums; and Transfer of Rights and Duties.
The other covers these possible concerns and issues: Concealment; Misrepresentations or fraud; Control of property; More than one coverage applying to loss; Legal action against insurance company; Liberalization; No benefit to Bailee; Other Insurance; Policy Period; Coverage Territory; and Subrogation.
Take note that one of the “standard” ISO policy parts, a “Conditions” part, is the one that allows for one insured, contracting party (think, “tenant”) to waive claims against the other contracting party (think “landlord”) and not lose its policy coverage because its insurer no longer will have any value to its right of subrogation. If that confuses any reader, click: HERE and HERE to see how Ruminations describes a “waiver of subrogation.”
Now, to the heart of today’s blog posting. [We’ll bet you thought we had already reached its “heart,” but that wouldn’t have been correct.]
An ISO policy of Commercial Property Insurance obligates the insurer to pay for: “Direct physical loss or damage to covered property at the premises described in the Declaration caused by or resulting from any Covered Cause of Loss.”
Direct physical loss means the covered peril was immediately responsible for the damage. For example, a fire causes furniture to turn to ash. That’s covered. Lightning strikes a pole and damages a walk-in box’s compressor, cuts off power to a freezer, and the food thaws. There is coverage for the compressor. There is no coverage for the food because a change in temperature, not the lightening, caused the spoilage.
Importantly, the coverage is for losses to property – not for liability to others.
The coverage includes buildings, the insured’s personal property, and provides limited coverage for personal property of others. It automatically covers completed additions, real property fixtures, permanently installed machinery and equipment (such as a walk-in box), personal property used to maintain the building (such as a fire extinguisher), and additions under construction or alteration and repairs to building or structure if within 100 feet of the insured building.
There are things clearly not covered (unless additional or supplemental coverage is obtained). Some are: Accounts, bills, currency, etc.; Pets; Automobiles held for sale; Bridges, roadways, walks, patios, paved surfaces; Cost of excavations, grading, backfilling or filling; Foundations; Land; Retaining walls not part of the insured building; Underground pipes, flues or drains; Valuable papers; Antennae, fences, unattached signs; and Electronic Data.
There are additional coverages included. Here are seven examples, but each, without an endorsement and a bigger premium, is provided only to a stated dollar limit: Debris removal; Preservation of property; Fire Department Service Charge; Pollutant Cleanup and Removal; Increased cost of construction; Mold (fungus); and Electronic Data. For more than the basic, limited, included coverage, those extra cost endorsements are needed.
There are certain policy extensions within the coverage. Try this list: Newly acquired or constructed property – to a limit; Personal effects and property of others – $2,500; Valuable papers and records (other than electronic data) – $2,500; Property Off-Premises – $10,000; Outdoor property – fences, antennae, signs, landscaping – $1,000; and Non-owned detached trailers.
There are four optional coverages formulas: Agreed Value; Inflation Guard; Replacement Cost; and one that extends Replacement Cost coverage to the property of others. We’ve describe the key ones, “Agreed Value” and “Replacement Coverage” before.
Earlier, we promised to deliver the “heart” of the coverage story, but careful readers will have noted that we didn’t promise to deliver all of it today. So, tune in next week when we describe what is a “Covered Cause of Loss,” the “heart” of the “heart” of a Commercial Property Insurance policy. Ruminations will also describe how we think this policy should be described when requiring someone else to carry it.