Summary: Many businesses possessing valuable papers and records—such as blueprints, manuscripts, deeds, maps, historical documents, or everyday business records—avoid the financial consequences of physical loss to such items simply by maintaining duplicates at another location. Insureds who are able to do so may have little or no need for valuable papers and records insurance. Other insureds possess property or have operations of such a nature that they cannot make or maintain duplicates. For example, an original Thomas Jefferson letter is irreplaceable, and the existence of a photocopy at another location would not mitigate the loss. Or, an architect may at any given time have many thousands of dollars' worth of uncompleted drawings and sketches that have not yet been copied and stored elsewhere.
There are two methods of insuring valuable papers and records (other than money, securities, and most electronic data) under the commercial lines program of Insurance Services Office. The first method is to rely upon the limited valuable papers and records coverage provided in the building and personal property coverage form (or, in the case of a condominium unit owner, upon the same coverage provided by the condominium commercial unit owners coverage form). The second method is to arrange coverage under the separate valuable papers and records coverage form, . Although the first method is briefly noted here, the main thrust of this article is an examination of CM 00 67, with its coverage agreement, exclusions, and conditions.
General Information
There are two aspects to valuable papers and records coverage under the building and personal property form (as well as the unit owners form). First, the cost of blanks and the cost of copying over duplicate records to the blanks are covered subject to the full limit of insurance on personal property—and subject also to coinsurance requirements. In addition, there is an extension, not subject to coinsurance, that provides up to $2,500 (unless a higher limit is shown in the declarations) for the costs of reconstructing valuable papers or records of the insured for which there are no duplicates.
Although the above coverage may be deemed adequate for a particular insured's needs insofar as limits are concerned, there is the further consideration that even if the insured purchases the building and personal property form on an open perils basis (causes of loss—special form), valuable papers and records are only covered for certain specified causes of loss: fire; lightning; explosion, windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire extinguishing equipment; sinkhole collapse; volcanic action; falling objects; weight of snow, ice, or sleet; and water damage.
In contrast, the separate valuable papers and records coverage form, CM 00 67, uses the broader open perils approach of other inland marine forms and can be written for whatever limit of insurance is desired. Moreover, the inland marine form covers both property of the insured and property of others in the insured's care, custody, or control. Property may be insured on either a specific, scheduled basis or for a blanket amount, or both. Property that cannot be replaced with other property of like kind and quality—i.e., irreplaceable items like the Jefferson letter mentioned earlier—should either be insured specifically or not insured at all, since the form excludes such property unless insured specifically. The advisory declarations page contains spaces for indicating limits of insurance for scheduled items at the insured's premises, for all other property at the insured's premises (this is the blanket item), and for property away from the insured's premises.
The advisory declarations page includes a schedule for describing receptacles for which the insured has received a rate credit. These rate credits range from 10 to 40%, depending on the Underwriters Laboratories exposure rating for the container. Note that insureds sometimes willingly forgo a rate credit for a qualifying safe or vault. The reason is that if the rate credit is allowed, the coverage form obligates the insured to keep all covered property in the receptacle whenever the insured is not open for business, and while the insured is not actually using the property. This condition should be carefully explained to any insured eligible for the rate credit.
When the valuable papers and records coverage form is used for a library, a libraries endorsement () is attached to the policy. The endorsement excludes property while away from the insured's premises and in the care, custody, or control of a borrower or renter; loss resulting from failure of a borrower or renter to return property; vandalism or mutilation by anyone using the property within the insured's premises; unexplained disappearance; and loss that can be proven only by audit or inventory.
The valuable papers and records coverage form is issued (on a nonreporting basis only) in conjunction with the commercial inland marine conditions form and the common policy conditions form. Complete rules and rating procedures for the coverage form are in the inland marine division of the commercial lines manual.
Coverage
We will pay for direct physical loss of or damage to Covered Property from any of the Covered Causes of Loss.
1. Covered Property, as used in this Coverage Form, means “valuable papers and records” that are your property or property of others in your care, custody or control.
2. Property Not Covered
Covered Property does not include:
a. Property not specifically declared and described in the Declarations if such property can not be replaced with other property of like kind and quality;
b. Property held as samples or for delivery after sale;
c. Property in storage away from the “premises” shown in the Declarations; or
d. Contraband, or property in the course of illegal transportation or trade.
3. Covered Causes Of Loss
Covered Causes of Loss means RISKS OF DIRECT PHYSICAL LOSS OR DAMAGE to Covered Property except those causes of loss listed in the Exclusions.
4. Additional Coverage—Collapse
We will pay for direct loss or damage caused by or resulting from risks of direct physical loss or damage involving collapse of all or part of a building or structure caused by one or more of the following:
a. Fire; lightning; windstorm; hail; explosion; smoke; aircraft; vehicles; riot; civil commotion; vandalism; leakage from fire extinguishing equipment; sinkhole collapse; volcanic action; breakage of building glass; falling objects; weight of snow, ice, or sleet; water damage; earthquake; all only as insured against in this Coverage Form;
b. Hidden decay;
c. Hidden insect or vermin damage;
d. Weight of people or personal property;
e. Weight of rain that collects on a roof;
f. Use of defective materials or methods in construction, remodeling or renovation if the collapse occurs during the course of the construction, remodeling or renovation.
This Additional Coverage does not increase the Limits of Insurance provided in this Coverage Form.
Analysis
The covered property under CM 00 67 is, of course, valuable papers and records. However, just what this means is not found in the coverage agreement, but in the definitions section of CM 00 67 (that is discussed later in this article). The property of the named insured is covered as well as property of others that is in the care, custody, or control of the named insured.
There is a set of four types of property not considered to be covered property. The inclusion of contraband in this list is not unusual, of course, but the insured should take special notice of the other three items.
CM 00 67 will cover valuable papers of the named insured even if such papers are not specifically described on the declarations page. However, if the valuable papers can not be replaced with other property of like kind and quality, the insured has to specifically describe those papers or CM 00 67 will not consider them as covered property. For example, a personal memo concerning the handling of the Cuban missile crisis written and signed by President Kennedy can not be replaced with like property and so, should be specifically described and valued on the declarations page.
Property held as samples or for delivery after sale is not covered property under CM 00 67. This is not to say that valuable papers held for sale are never considered covered property under CM 00 67. It is only that property held out as a specimen or an illustration of a larger piece of work that is not considered covered property; the whole piece of work or the complete manuscript is considered the covered valuable papers. And, once the valuable papers have been sold, they are no longer covered property while waiting to be delivered to the buyer. Note that CM 00 67 is making a distinction between property of others in the care and custody of the insured and property of others that the insured is holding awaiting after-sale delivery. The distinction may be a fine line but the insured should know that once he or she has sold an item, that item is viewed in a different light by the insurer.
Property in storage away from the premises shown in the declarations is deemed property not covered in this section of CM 00 67. And yet, in the coverage extensions section (discussed below), property away from the named insured's premises is covered for up to $5,000 (if a higher limit of insurance is desired, the insured can get it). This seems to be a contradiction in coverage and a possible source of confusion for the insured. Furthermore, coverage territory is defined in the valuable papers form as including premises of others. The key words in this issue would be “in storage”. Property is covered under CM 00 67 while away from the named insured's premises as long as that property is not in storage; it has to be away from the premises of the named insured for some reason other than storage. Another fine distinction for the insured to understand about this coverage form.
5. Coverage Extensions
a. Removal
If you give us written notice within 10 days of removal of your “valuable papers and records” because of imminent danger of loss or damage, we will pay for loss or damage while it is:
(1) At a safe place away from your “premises”; or
(2) Being taken to and returned from that place.
This Coverage Extension is included within the Limits of Insurance applicable to the “premises” from which the Covered Property is removed.
b. Away From Your Premises
We will pay up to $5,000 for loss or damage to Covered Property while it is away from your “premises”.
But if a higher Limit of Insurance is specified in the Declarations, the higher limit will apply. The limit for this Coverage Extension is additional insurance.
Analysis
Although the advisory declarations form contains a space for showing a separate limit of insurance for property away from the insured's premises, the coverage form itself also imposes a specific sublimit for property away from the premises, that is, up to $5,000. However, to prevent any possible conflicts, the coverage form does state that if a higher limit is specified in the declarations, the higher limit will apply.
The coverage form also contains an extension providing coverage for valuable papers and records removed from described premises because of imminent danger of loss. The property is covered while at “a safe place” away from the described premises or while in transit to or from such place. This extension is included within the limits of insurance applicable to the described premises from which the property is removed; the extension does not represent a separate amount of insurance, nor is it subject to the limit applying away from the insured premises. The insured is required to give the insurance company written notice within 10 days after the property is removed.
These coverage extensions, in combination with the property not covered clause of CM 00 67, offer seemingly contradictory information to the insured, as discussed above. Property in storage away from the premises shown in the declarations is not covered property; and yet, the named insured's valuable papers and records are covered while at a safe place away from the named insured's premises to prevent a loss, and are covered for up to $5,000 while otherwise away from the named insured's premises. As noted above, the key to this issue is the “in storage” phrase. CM 00 67 is not meant to cover the insured's valuable papers and records while such items are stored away from the premises shown on the declarations. Such a situation presents the insurer with trying to insure property located at a premises unknown to the insurer, unknown as to risk and loss exposure—clearly, an unacceptable risk management situation.
The coverage extension of paying for loss while the covered property is at a safe place away from the named insured's premises is only meant for a temporary removal of the covered property, a removal dictated by the imminent danger of a loss to the covered property. In other words, if the property is at a place away from the declared premises in order to prevent an imminent loss to that property, CM 00 67 offers coverage; if the property is away just for storage purposes because the insured has no room at his or her declared premises, then CM 00 67 will not provide coverage. If a loss occurred to the insured's valuable papers and records while at this “safe place”, it would be up to the insured to show that the place is not a storage facility, and that the removal of the papers and records to the place was necessary to save the covered property from imminent loss. Given such proof, the insurer would then have the duty to pay for the loss and not use the property not covered clause as a reason to deny coverage.
Exclusions
1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
a. Governmental Action
Seizure or destruction of property by order of governmental authority. But we will pay for loss or damage caused by or resulting from acts of destruction ordered by governmental authority and taken at the time of a fire to prevent its spread if the fire would be covered under this Coverage Form.
b. Nuclear Hazard
(1) Any weapon employing atomic fission or fusion; or
(2) Nuclear reaction or radiation, or radioactive contamination from any other cause. But if nuclear reaction or radiation, or radioactive contamination results in fire, we will pay for the direct loss or damage caused by that fire if the fire would be covered under this Coverage Form.
c. War and Military Action
(1) War, including undeclared or civil war;
(2) Warlike action by a military force, including action in hindering or defending against an actual or expected attack, by any government, sovereign or other authority using military personnel or other agents; or
(3) Insurrection, rebellion, revolution, usurped power or action taken by governmental authority in hindering or defending against any of these.
Exclusions B.1.a. through B.1.c. apply whether or not the loss event results in widespread damage or affects a substantial area.
2. We will not pay for loss or damage caused by or resulting from any of the following:
a. Delay, loss of use, loss of market or any other consequential loss.
b. Dishonest or criminal act committed by:
(1) You, any of your partners, employees, directors, trustees, or authorized representatives;
(2) A manager or a member if you are a limited liability company;
(3) Anyone else with an interest in the property, or their employees or authorized representatives; or
(4) Anyone else to whom the property is entrusted for any purpose.
This exclusion applies whether or not such persons are acting alone or in collusion with other persons or such acts occur during the hours of employment. This exclusion does not apply to Covered Property that is entrusted to others who are carriers for hire or to acts of destruction by your employees. But theft by employees is not covered.
c. Errors or omissions in processing or copying.
But we will pay for direct loss or damage caused by resulting fire or explosion if these causes of loss would be covered by this Coverage Form.
d. Electrical or magnetic injury, disturbance or erasure of electronic recordings. But we will pay for direct loss or damage caused by lightning.
e. Voluntary parting with any property by you or anyone entrusted with the property if induced to do so by any fraudulent scheme, trick, device or false pretense.
f. Unauthorized instructions to transfer property to any person or to any place.
g. Neglect of an insured to use all reasonable means to save and preserve property from further damage at and after the time of loss.
3. We will not pay for loss or damage caused by or resulting from any of the following. But if loss or damage by a Covered Cause of Loss results, we will pay for the loss or damage caused by that Covered Cause of Loss.
a. Weather conditions. But this exclusion only applies if weather conditions contribute in any way with a cause or event excluded in paragraph 1. above to produce the loss or damage.
b. Acts or decisions, including the failure to act or decide, of any person, group, organization or governmental body.
c. Faulty, inadequate or defective:
(1) Planning, zoning, development, surveying, siting;
(2) Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;
(3) Materials used in repair, construction, renovation or remodeling; or
(4) Maintenance;
of part or all of any property wherever located.
d. Collapse except as provided in the Additional Coverage—Collapse section of this Coverage Form.
e. Wear and tear, any quality in the property that causes it to damage or destroy itself, gradual deterioration; insects, vermin or rodents.
Analysis
Most of these exclusions are not unique to CM 00 67, such as, the governmental action, nuclear hazard, and war exclusions. Others require some discussion.
The delay or loss of use exclusion emphasizes the fact that this policy applies to direct, physical losses; consequential losses are not covered.
Errors or omissions in processing or copying are not covered losses. Actions such as processing or copying are the insured's or some other person's work and CM 00 67 is not meant to apply to a loss due to this type of faulty work upon covered property. Faulty work by a person other than the insured is a liability loss to which that other person's liability policy should apply. Faulty work by the insured upon his or her own property is a business risk that insurers do not cover. The exception to this exclusion is for a direct loss caused by resulting fire or explosion. For example, if the insured were copying a valuable document and spilled some fluid that somehow caught fire, damaging that document, CM 00 67 would cover the damage caused by the fire.
An insured could have documents or manuscripts in an electronic version, such as on a computer disk. If that disk is lost or damaged through an electrical disturbance or if the information is somehow erased, CM 00 67 is not going to respond to the loss. Only a loss caused directly by lightning will be covered.
The false pretense and unauthorized transfer of property exclusions are two sides of the same coin. The idea is that, while theft is a covered loss, loss due to the insured or his representative voluntarily giving up the property is not covered by CM 00 67. False pretense losses or losses through unauthorized transfers—voluntary transfers of property—can not be proved or shown to have happened without some collusion on the part of the insured or his representatives; such losses can not be properly underwritten or guarded against, and so, are not insurable under CM 00 67.
Limits of Insurance
The most we will pay for loss or damage in any one occurrence is the applicable Limit of Insurance shown in the Declarations.
Deductible
We will not pay for loss or damage in any one occurrence until the amount of the adjusted loss or damage before applying the applicable Limits of Insurance exceeds the Deductible shown in the Declarations. We will then pay the amount of the adjusted loss or damage in excess of the Deductible, up to the applicable Limit of Insurance.
Analysis
The coverage form states that the most the insurer will pay for loss in any one occurrence is “the applicable Limit of Insurance shown in the Declarations.” Actually, the advisory declarations page does not contain a space for showing a single “per occurrence” limit. There are separate limits for each item of specifically described property, for “all other covered property” (i.e., all property covered on a blanket basis), and for property away from the insured's premises. These listed limits are the applicable limits shown in the declarations and will be paid when the property is lost or damaged by a covered cause of loss.
The insurer has no obligation to pay for loss unless the adjusted loss—before application of limits—is greater than the deductible. If the adjusted loss is greater than the deductible, the insurer will pay the amount of the loss—again, before application of limits—that is in excess of the deductible. The amount will be paid up to the limit of liability. In other words, the deductible is not taken off the applicable limit. The deductible applies only once in each occurrence; it is not to be applied separately, for example, to each of two separately scheduled items damaged in the same occurrence.
Additional Conditions
1. Valuation—Specifically Declared Items
The following is added to General Condition F. Valuation in the Commercial Inland Marine Conditions:
The value of each item of property that is specifically declared and described in the Declarations is the applicable Limit of Insurance shown in the Declarations for that item.
2. Recoveries
The following is added to Loss Condition H. Recovered Property in the Commercial Inland Marine Conditions:
If either you or we recover any property after loss settlement, that party must give the other prompt notice. At your option, the property will be returned to you. If so, your loss or damage will be readjusted based on the amount you received for the property recovered, with allowance for recovery expenses incurred.
3. The following conditions apply in addition to the Commercial Inland Marine Conditions and the Common Policy Conditions:
a. Coverage Territory
We cover property:
(1) Within your “premises”; and
(2) Away from your “premises” while in transit or within premises of others if those premises are located or the transit is within:
(a) The United States of America (including its territories and possessions);
(b) Puerto Rico; and
(c) Canada .
b. Protection of Records
Whenever you are not open for business, and except while you are actually using the property, you must keep all “valuable papers and records” in receptacles that are described in the Declarations.
Analysis
The coverage form contains a valuation clause pertaining only to specifically declared items. The value of each item of property that is specifically insured is the limit shown for that item in the declarations. In other words, the scheduled items are covered on an agreed value basis. Property insured under blanket coverage is subject to actual cash value settlement, as stipulated in the commercial inland marine conditions form; see [IDL: Comml IM Progm - Intro, Rules.xml^"Introduction, General Rules and Conditions," Fire & Marine, Inland Marine section^Introduction, General Rules and Conditions.
A recoveries clause sets forth the options and duties in the event property is recovered after loss settlement by either the insured or the insurance company. Whichever party recovers the property must give prompt notice to the other. The insured can choose to have the property returned to him if the insurer has recovered the property. In that case, the loss will be readjusted based on the amount the insured received for the recovered property, with allowance for recovery expenses incurred. In other words, the insured will give back to the insurer the amount he or she has been paid for the loss, minus any expenses incurred by the insured in efforts to recover the lost property.
The coverage territory provisions include the named insured's premises and the premises of others as long as such premises are in the U.S., Puerto Rico, or Canada . Note that Mexico and the rest of the world's countries are not in the coverage territory.
A protection of records clause states that whenever the named insured is not open for business, and except while the named insured is actually using covered property, all valuable papers and records must be kept in the receptacles that are described in the declarations. Insureds who do not feel able to comply with this condition should forgo any rating credits that flow from the use of the receptacles and that require listing of the receptacles in the declarations.
Definitions
1. ”Valuable papers and records” means inscribed, printed or written documents, manuscripts or records, including abstracts, books, deeds, drawings, films, maps or mortgages. But “valuable papers and records” does not mean “money” or “securities”, converted data, programs or instructions used in your data processing operations, including the materials on which the data is recorded.
2. ”Premises” means that interior portion of the building at the address shown in the Declarations that you occupy for your business.
3. ”Money” means:
a. Currency, coins and bank notes whether or not in current use; and
b. Travelers checks, register checks and money orders held for sale to the public.
4. ”Securities” means negotiable and non-negotiable instruments or contracts representing either “money” or other property and includes:
a. Tokens, tickets, revenue and other stamps whether or not in current use; and
b. Evidences of debt issued in connection with credit or charge cards, which cards are not of your own issue;
but does not include “money”.
Analysis
Property covered by this form is “valuable papers and records” that are the named insured's property or property of others in the named insured's care, custody, or control. The form defines valuable papers and records as “inscribed, printed or written documents, manuscripts or records, including abstracts, books, deeds, drawings, films, maps or mortgages.” Note that the word “including” does not limit the meaning to the items that follow that word; they are only examples of “inscribed, printed or written documents, manuscripts or records.”
The definition specifically excludes “converted data, programs or instructions used in your data processing operations, including the materials on which the data is recorded.” While the reference to programs or instructions is quite clear, indicating the need for covering such property under an electronic data processing insurance policy, the reference to converted data is not. If there is a distinction between converted data and other data (i.e., data that has not been converted), the implication is that other data is covered property. For example, data on computer tape that the insured converted from written files would be excluded. However, data that the insured developed independently of written records or acquired in its electronic format would not seem to be reached by the exclusion of converted data. Still, the overall exclusion demonstrates an intent on the part of the drafters to provide little, if any, coverage for electronic data and programs. The need for separate EDP coverage is apparent, and the insured should probably not rely on the valuable papers and records form to insure any data or media connected with its electronic data processing operations. And, exclusion 2. d., dealing with electrical or magnetic injury and erasure of electronic recordings, only reinforces this proposition.
As in previous editions of valuable papers and records insurance, money and securities do not qualify as covered property. The valuable papers policy definitions of money and securities are virtually identical to those used in the commercial crime coverage form that insures money and securities against roughly the same perils covered by the valuable papers and records form, and the crime form is the proper venue for coverage of money and securities.