Summary: Three basic categories of property are insured under the current physicians and surgeons equipment coverage form (CM 00 26 09 00): professional equipment, office equipment, and the tenant-insured's interest in improvements and betterments. As with the rest of the commercial inland marine program of the Insurance Services Office (ISO), the property is insured on an open perils basis, subject to the exclusions listed on the form. Following is a discussion of the form.
Eligibility
The physicians and surgeons equipment coverage form is available for use to insureds in the medical or dental profession with the following exceptions: hospitals, dealers in medical equipment, medical schools, clinics, and similar risks. Doctors who share facilities while maintaining individual practices are not considered clinics or “similar risks” and therefore are eligible for use of the form; however, the eligibility rules state that in such instances all property not jointly owned will be rated separately. If the insureds happen to be residents of the same household, though, this rating rule does not apply.
Insuring Agreement
A. 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:
a. Your medical and dental equipment, materials, supplies and books usual to the medical or dental profession.
At your option this form covers similar property of others used by you in your profession.
b. Your office equipment, including furniture and fixtures, while at your “premises.”
c. Your interest in improvements and betterments meaning fixtures, alterations, installations or additions to the “premises” made at your expense but that you cannot legally remove.
This coverage only applies if you do not own the building in which your “premises” are located.
Analysis
Although the title of this form is “physicians and surgeons equipment coverage,” the definition of covered property includes dental as well as medical equipment. It also covers supplies and books “usual” to the profession, as well as any property of others used in the profession, such as a leased X-ray machine.
Covered property (other than office equipment or improvements and betterments) is insured both while on and off the premises. Through an endorsement (CM 26 01 11 85) discussed later, the covered property definition can be modified to include only property usually carried by the physician (surgeon) or dentist.
The definition of office equipment includes furniture and fixtures located at the insured premises (premises defined as the portion of the building at the stated address that is occupied in the practice of the insured's profession). Limited coverage is available for these items off premises by way of an endorsement for additionally covered property (CM 26 02 09 00), which is described below.
Improvements and betterments mean fixtures, alterations, installations or additions made at a tenant-insured's expense, but that are not legally removable. A modification to a lighting system in an examination room would fall into this category.
Property Not Covered
2. Property Not Covered
Covered Property does not include:
a. Radium; or
b. Contraband, or property in the course of illegal transportation or trade.
Analysis
In common with the other inland marine forms, there is no coverage for contraband—illegal or prohibited goods. “Radium,” according to a standard desktop dictionary, means “an intensely radioactive brilliant white metallic element that resembles barium chemically…and is used to treat cancer” (Webster's Collegiate Dictionary, Tenth Edition). Obviously, the exposure presented by such material is difficult to rate adequately; further, charging for coverage would be charging premium for something needed by only a handful of physicians.
Covered Causes of Loss
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.
Analysis
As noted previously, coverage is on an open perils basis; there is coverage unless excluded.
Additional Coverage
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 for 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 or 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
Direct loss caused by or resulting from collapse is an additional coverage under the form. New to the current form is the addition of coverage for collapse caused by earthquake. Note that this additional coverage does not increase the limit of liability.
Coverage Extension
5. Coverage Extension
Theft Damage to Buildings
We will pay for damage caused directly by theft or attempted theft to:
a. That part of any building containing Covered Property; or
b. Equipment within the building used to maintain or service the building;
only if you own the building or are legally responsible for the damage.
But, we will not pay for damage:
1. Caused by fire; or
2. To glass or to lettering or art work on glass.
This Coverage Extension is included within the Limit of Insurance applicable to the Covered Property at the premises where the damage occurs.
Analysis
If desired, the insured may choose to extend the covered property limit to cover damage from theft or attempted theft to buildings which the insured owns or for which the insured is legally responsible. Not only does this coverage apply to the part of the building where covered property is located, it also extends to any equipment used to service or maintain the building. But, coverage under this provision does not extend to fire damage, nor to glass, lettering or art work on glass, or to structural glass.
Exclusions
B. 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 or 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.
Analysis
As is common with the inland marine forms, the physicians and surgeons equipment makes an exception to the government-ordered acts exclusion for steps taken to stop the spread of fire. However, the fire must itself be such that would be covered by the form. Additionally, loss caused directly or indirectly by war and military action, or by nuclear hazard, is excluded. However, if the nuclear hazard results in a fire that would be covered by the form, then there is coverage for the resulting fire. Note that loss caused by flood or earth movement is not excluded, as it generally is under property forms.
2. We will not pay for loss or damage caused by or resulting from any of the following:
a. Marring, scratching, exposure to light; breakage of tubes, bulbs, lamps or articles made largely of glass (except lenses).
But we will pay for such loss or damage caused directly by fire, lightning, explosion, windstorm, earthquake, flood, vandalism, aircraft, rioters, strikers, theft or attempted theft, or by accidents to the vehicle carrying the property, if these causes of loss would be covered under this Coverage Form.
b. Delay, loss or use, loss of market or any other consequential loss.
c. 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.
d. Processing or work upon the property.
But we will pay for direct loss or damage caused by resulting fire or explosion, if these causes of loss would be covered under this Coverage Form.
e. Artificially generated current creating a short circuit or other electric disturbance within an article covered under this Coverage Form
But we will pay for direct loss or damage caused by resulting fire or explosion, if these causes of loss would be covered under this Coverage Form.
This exclusion only applies to loss or damage to that article in which the disturbance occurs.
f. 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.
g. Unauthorized instructions to transfer property to any person or to any place.
h. Neglect of an insured to use all reasonable means to save and preserve property from further damage at and after the time of loss.
Analysis
One of the exclusions on the physicians and surgeons equipment form removes coverage for articles susceptible to damage from marring or scratching; exposure to light; or breakage (listed are tubes, bulbs, lamps and other items of glass, though lenses are excepted). Note that this exclusion does not apply to damage caused by one of a number of specified causes of loss—fire, lightning, explosion, windstorm, earthquake, flood, vandalism, aircraft, rioters, strikers, theft or attempted theft, or by accident to the vehicle carrying the property.
Losses by false pretense and dishonest acts committed by the named insured, partners, members, or employees are not covered. This is not so special in an inland marine form, but the insured should be aware of the fact that if an employee steals a piece of medical equipment, such a loss is not covered by CM 00 26. This is emphasized by the presence in CM 00 26 of the dishonest or criminal act exclusion plus the specific warning that “theft by employees is not covered”.
Another exclusion of the physicians and surgeons equipment form eliminates coverage for loss or damage caused by or resulting from any processing or work upon covered property unless fire or explosion ensues, and if such fire or explosion is covered by the form.
Covered property that is damaged by an artificially generated electrical current is not covered, though any ensuing fire or explosion is insured. However, this exclusion may be deleted through endorsement CM 26 03 09 00, artificially generated current.
As is common with the other inland marine forms, there is no coverage for loss caused by voluntary relinquishing of the covered property to anyone through a trick or fraudulent scheme.
New with the current form is a “neglect” exclusion. This exclusion emphasizes that the insured must use all “reasonable means” to protect covered property from further damage, once a loss occurs.
3. We will not pay for a 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 product the loss or damage.
b. Acts or decisions, including the failure to act or decide, of any person, group, organization or government 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, hidden or latent defect, gradual deterioration; mechanical breakdown; insects, vermin, rodents; corrosion, rust, dampness, cold or heat.
Analysis
The preceding exclusions are common to many property forms. Loss caused by or resulting from weather conditions is excluded, but only if it contributes in any way to a cause or event excluded in paragraph 1—governmental action, nuclear hazard, or war and military action. Since flood and earth movement are not excluded causes of loss, two of the perils normally thought of as being aggravated by weather conditions are removed from the effects of the weather conditions exclusion.
Limits and Deductible
C. 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.
D. 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
According to the commercial lines manual, any of the property covered—medical and dental equipment; office equipment; or improvements and betterments—may be scheduled and a limit of insurance shown for each scheduled item. Otherwise, coverage is on a blanket basis for these classes of property.
The base deductible is $500; optional higher deductibles are available. The deductible is applied to the adjusted loss—that is, the coinsurance clause is first applied to the total loss, then the deductible is applied to the amount remaining. It is important to note that this method of adjustment can result in a less advantageous settlement for the insured.
A separate minimum $1000 deductible applies to endorsement CM 26 03, which deletes the exclusion for loss caused by artificially generated current
Conditions
E. Additional Conditions
1. Valuation
General Condition F. Valuation in the Commercial Inland Marine Conditions is replaced by the following:
a. Improvements and Betterments
(1) The value of property will be determined as of the time of loss or damage using the actual cash value of such property if it is repaired or replaced at your expense within a reasonable time after such “loss.”
Otherwise, the value of property will be determined using the percentage of the original cost of that property that the proportion of time remaining on your current rental agreement bears to the period since the property has been installed until the expiration of such agreement.
(2) We will not pay for property that is repaired or replaced at the expense of others for your benefit.
b. All property other than Improvements and Betterments.The value of property will be the least of the following amounts:
(1) The actual cash value of that property;
(2) The cost of reasonably restoring that property to its condition immediately before loss or damage; or
(3) The cost of replacing that property with substantially identical property.
2. The following conditions apply in addition to the Commercial Inland Marine Conditions and the Common Policy Conditions:
a. COVERAGE TERRITORY
We cover property wherever located within:
(1) The United States of America (including its territories and possessions);
(2) Puerto Rico; and
(3) Canada .
b. Coinsurance
If a Coinsurance percentage is shown in the Declarations, the following condition applies.
We will not pay the full amount of any loss if the value of Covered Property, except property in transit, at the time of loss times the Coinsurance percentage shown for it in the Declarations is greater than the Limit of Insurance for the property.
Instead, we will determine the most we will pay using the following steps:
(1) Multiply the value of Covered Property, except property in transit, at the time of loss by the Coinsurance percentage;
(2) Divide the Limit of Insurance of the property by the figure determined in Step (1);
(3) Multiply the total amount of loss, before the application of any deductible, by the figure determined in Step (2); and
(4) Subtract the deductible from the figure determined in Step (3).
We will pay the amount determined in Step (4) or the Limit of Insurance, whichever is less. For the remainder, you will either have to rely on other insurance or absorb the loss yourself.
c. Protective Safeguards
You must maintain the protective safeguards stated by you to be in effect at a location when this coverage began.
If you fail to keep the protective safeguards:
(1) In working condition at a location; and
(2) In operation when you are closed to business;
coverage for which the protective safeguards apply is automatically suspended at that location. This suspension will last until equipment or services are back in operation.
Analysis
Besides the general conditions found on CM 00 01 09 00 (commercial inland marine) and IL 00 17 (common policy conditions) that are attached to every inland marine form, other conditions apply to the physicians and surgeons equipment form.
The valuation condition divides property covered under the physicians and surgeons form between improvements and betterments and all other property and provides separate methods of valuation for each category. Improvements and betterments are valued in the same manner as they are under the ISO commercial property program. That is, if the property is repaired or replaced, an actual cash value settlement (as of the time of loss) is calculated. Otherwise, property is valued based on a percentage of its original cost. This percentage is calculated by dividing the unexpired term of the rental agreement by the period computed from the date the property was installed until the rental agreement expiration.
Though no specific mention of renewal option periods is made, if the “rental agreement” includes such an option, an insured can expect that length of time to be taken into consideration during the settlement. Of course, no settlement will be made if someone else repairs or replaces the property for the benefit of the insured.
For property other than improvements and betterments, the valuation provision is identical to that found on the commercial inland conditions (CM 00 01). This is the least of: the actual cash value, the cost of reasonably restoring the property to its original condition immediately before loss, or replacement with “substantially identical property.”
Under the previous form, at the time of loss, the limit of insurance for all covered property had to be at least 80% of the total value of the property or a coinsurance penalty is imposed. The current form removes mention of “80%” and replaces it with the amount shown in the declarations. Only property in transit, the extensions of coverage as provided by the endorsement for additionally covered property (CM 26 02), and property insured under an endorsement entitled “property usually carried by you” (CM 26 01)—described below—are not subject to coinsurance calculations.
Any protective safeguards must be kept in operation both during and after business hours. If not, coverage is suspended for those causes of loss against which protection is assumed. For example, theft coverage is suspended until the broken burglar alarm is repaired.
Definitions
F. Definitions
”Premises” means that portion of the building at the address stated in the Declarations that you occupy in the practice of your profession.
Analysis
The insured's “premises” are limited to the portion of the building occupied in the practice of the insured's profession. Office equipment and furniture is covered only while at the premises; similarly, improvements and betterments made to the premises are covered.
Endorsements
Three endorsements may be attached to the physicians and surgeons equipment coverage form. These are CM 26 01, property usually carried by the insured, CM 26 02 additionally covered property, and CM 26 03, artificially generated current.
Endorsement CM 26 01 modifies the definition of covered property to include only the medical and dental equipment, material, supplies and books usual to the profession and usually carried by the insured. When this endorsement is used, the coverage extension for theft damage to buildings does not apply, nor does the coinsurance provision. All other terms and conditions of the physicians and surgeons form do apply.
Endorsement CM 26 02 provides four coverage extensions in addition to theft damage for buildings. They are:
1. 30 days of coverage for office equipment temporarily off premises ($2,500 per occurrence);
2. extra expense coverage to continue “normal office operations” after a covered loss ($2,500 per occurrence);
3. personal effects of the insured and employees, partners, etc. and property of others in the insureds care ($2,500);
4. the insured's books, drawings, manuscripts, etc. (up to $2,500).
Personal effects of the insured (or of others) while on the premises (up to $2,500)are covered. The coverage is for losses from any cause of loss other than theft. The insurer will adjust such losses with the owner of the property.
Finally, CM 26 02 covers books of account, manuscripts, drawings, card index systems and other records of the insured (up to $2,500). The expense of reproducing records is included in this amount.
Endorsement CM 26 03, artificially generated current, deletes the exclusion of loss to equipment caused by an artificially generated current and adds a coverage extension for this peril. It is important to note that the source of such artificially generated current must be within 100 feet of the insured's premises—virtually the office next door—for coverage to apply. Similarly, there is coverage for power surge, brownout, or blackout, but only if the occurrence causing the interruption is within 100 feet of the insured's premises. A $1000 deductible applies.