Endorsement MS SM 01 modifies the CGL form, the commercial property form, and the causes of loss—special form. The modifications tailor these forms to the needs of the supermarket risk. The endorsement adds property and crime coverages and modifies the premium audit section of the CGL form. An endorsement is also available to add mechanical breakdown coverage. This endorsement is discussed later in this treatment. ISO's promotional material says that this program is “designed for stores that sell mostly grocery products and occupy a total area of 3,000 square feet or more, with $500,000 or more in annual sales.”

The commercial property form (CP 00 10 04 02) covers the building and business personal property of the insured and property of others that the insured has in his care. It also specifies several items as property not covered. One category of property not covered in the CP 00 10 is accounts, bills, deeds, evidences of debt, money, notes, and securities. The MS SM 01 adds an exception to that category by providing some money and securities coverage.

The supermarket form adds a category of property not covered. It removes coverage for certain types of property outside of buildings:

1.     Grain, hay, straw, or other crops; and

2.     Fences, signs. antennas, trees, shrubs, and plants. The form does make an exception for the stock of trees, shrubs, and plants. It also provides some coverage for the other items.

The MS SM 01 modifies the debris removal coverage, as well. While the CP 00 10 provides an added amount of $10,000, an additional amount of $25,000 is available on the supermarket form.

The MS SM 01 adds coverage for loss of money and securities, but emphasizes that the insurer will cover only theft, disappearance, or destruction of such property.

The MS SM 01 provides additional coverage (up to $5,000) under fire extinguisher systems expense. Like the CP 00 10, it pays the cost of recharging such systems if they are discharged on the premises. The MS SM 01 also pays for damage done by such a discharge to covered property – something not covered by the CP 00 10. However, the supermarket endorsement adds the caveat that no coverage applies if the discharge occurs while the system is being installed or tested.

A reward payment of up to $5,000 is insured for information that leads to the conviction of anyone damaging covered property. The supermarket endorsement adds the following additional coverages:

1.     Money orders and counterfeit paper currency in the amount of $5,000.

2.     $5,000 coverage for forgery or alteration of checks, drafts, etc.

3.     $10,000 for damage to outdoor signs.

4.     $25,000 for employee dishonesty.

5.     $25,000 to remove brands and labels from damaged merchandise.

6.     Covered equipment will be repaired or replaced if subject to an ordinance or law.

7.     $5,000 for replacement of locks, due to loss or theft of keys. A $100 deductible applies.

8.     Damage to computers caused by artificially generated electrical current.

9.     $10,000 for business income and $10,000 for extra expense incurred as a result of food contamination.

The MS SM 01 provides the following coverage extensions:

1.     Newly acquired property – adds coverage for newly acquired computers.

2.     $5,000 for personal effects of others ($2,500 in the CP 00 10).

3.     Valuable papers and records – $25,000 on premises and $10,000 off-premises.

4.     Property off premises is extended to cover computers.

5.     $5,000 for outdoor property.

6.     $5,000 for accounts receivable.

The MS SM 01 removes the ordinance or law exclusion to the extent that the coverage is provided in the additional coverages. It also specifies that the mechanical breakdown exclusion does not apply to computers.

However, the endorsement does add the following exclusions for computers only:

1.     Errors and omissions.

2.     Electrical disturbance.

3.     Computer-related losses. These include the failure, malfunction, or inadequacy of hardware and software.

4.     Computer advice or consultation.

The MS SM 01 adds two liability coverage agreements: delivery errors and omissions and merchandise withdrawal expenses. Delivery E&O covers the insured in the event that the insured or any employee fails to deliver an item or misdelivers such item. The policy agrees to pay any damages the insured is obligated to pay as a result of such misdelivery. Also insured for this coverage is any concessionaire who is trading under the insured's name. The agreement allows the insurer to investigate and settle any claim at its discretion. This coverage is subject to a an annual limit of $10,000 and a per occurrence deductible of $250.

Three exclusions apply to the delivery E&O coverage:

1.     Intentional error or misdelivery.

2.     BI, PD, or PI. The only damages the coverage responds to are economic damages.

3.     Discrimination.     

Sometimes a grocer faces a merchandise withdrawal, such as the cyanide-laced Tylenol pills of the early 1980″s. Even though there is no coverage for the actual merchandise that has to be withdrawn, the MS SM 01 does cover the insured's expenses that result from the withdrawal.

The product must be withdrawn because it has a known or suspected defect. Or, it must be withdrawn because it has already caused (or is expected to cause) injury or damage. The withdrawal may be initiated either by the insured or by government order. This coverage has a per occurrence limit of $25,000 and a $250 deductible.

Merchandise withdrawal expense coverage is subject to the following exclusions:

1.     Failure of the product to accomplish its intended purpose. This includes breach of warranty. However, the exclusion does not apply if the product has caused (or may cause) injury or damage.

2.     Infringement of intellectual property rights.

3.     If the product just transforms chemically. But this exclusion does not apply in the event of an error in the manufacture, design, etc. of the product nor if the product has been tampered with.

4.     If the shelf-life of a product has been exceeded.

5.     Withdrawal due to any known defect.

6.     Recall expenses for any product that is otherwise excluded.

7.     Recall expenses for any product that has been banned from the market.

8.     Any suit against the insured for withdrawal expense.

The definition of insured for liability is changed, as well. The supermarket form gives insured status to someone if the liability arises out of that person's control of the insured or premises the insured leases from that person.

The endorsement goes on to detail the insured's duties in the event of loss under either one of the added coverages. Both require the insured to notify the insurer; to record the names of witnesses; and to cooperate with and assist the insurer.

The MS SM 01 adds the following definitions:

1.     Computer: programmable electronic that the insured uses to store, process, or retrieve data. It includes other equipment used with the computer, but does not include data or media.

2.     Counterfeit: an imitation of a valid original.

3.     Defect: includes dangerous condition.

4.     Employee: includes furnished employees, but does not include agents or brokers, or leased employees.

5.     Forgery: signing the name of another person. It does not include signing one's own name with or without authority.

6.     Manager: a director for a limited liability company.

7.     Merchandise withdrawal: recall of items held for sale by the insured. The recall must be due to a known or suspected defect. If the withdrawal is due to product tampering, the definition of “merchandise withdrawal” is limited to just those products which the insured knows (or suspects) have been tampered with.

8.     Merchandise withdrawal expenses: includes the following eight items:

a.     Costs of notification.

b.     Costs of stationery, envelopes, production of announcements and postage or facsimiles.

c.     Costs of overtime paid to the insureds employees.

d.     Costs of computer time.

e.     Costs of hiring independent contractors and other temporary employees.

f.     Costs of transportation, shipping or packaging.

g.     Costs of warehouse or storage space.

h.     Costs of proper disposal of items held by the insured for sale or products that cannot be reused.

9.     Money.

10.     Perishable stock: stock that might suffer a loss if controlled conditions change.

11.     Securities: includes food stamps, redeemed lottery tickets, evidences of debt, etc.

The supermarket program offers the insured the opportunity to purchase four endorsements: mechanical breakdown, hired auto and non-owned auto liability, loss or damage to customers' autos (direct primary coverage), and extortion coverage.

Mechanical Breakdown: Endorsement MS SM 02 11 02 is available for boilers and pressure vessels, as well as for air conditioning/refrigerating units with at least a 60,000 Btu capacity. The endorsement pays for direct damage to covered property caused by accident to an object on the insured's premises and owned by the insured or in the insured's care, custody, or control.

The mechanical breakdown endorsement defines accident as “a sudden and accidental breakdown of the Object or part of the Object. At the time the breakdown occurs, it must manifest itself by physical damage to the Object that necessitates repair or replacement.” The endorsement also lists several situations that are not accidents, such as wear and tear and the breakdown of various apparatuses.

An object includes a variety of boiler and pressure vessels and air conditioning and refrigerating units and piping. The endorsement also lists various apparatuses that are not considered an object under this form.

Coverage is not available for an accident to an object that is being tested, as well as for losses caused directly or indirectly by the failure, inadequacy, or malfunction of computer hardware, software, networks, microprocessors, or any other computerized or electronic equipment, due to the inability to correctly recognize, process, distinguish, interpret, or accept dates or times. Also excluded is loss or damage caused by advice, consultation, design, evaluation, inspection, repair, installation, maintenance, replacement, or supervision conducted by or for the insured to fix any problems with the computer-related equipment and accessories listed earlier in the paragraph. The exclusions apply regardless of any other cause or event that contributes to the loss. However, if excluded damage results in an accident to an object, damage caused by the accident to the object is covered. The cost to repair, replace, or modify the computer-related equipment and accessories listed earlier in the paragraph to correct deficiencies or change features is not covered.

Coverage may be suspended if an object is found to be in or exposed to a dangerous condition.

The exclusions for mechanical breakdown and explosion of steam pipes, steam boilers, steam engines, or steam turbines on the CP 10 30 04 02—Special Causes of Loss form, do not apply to this endorsement.

Hired Auto and Non-Owned Auto Liability: A basic limit of $300,000 is available under endorsement MS SM 03 05 01 for either or both non-owned or hired auto liability coverage. Hired auto liability applies to bodily injury or property damage arising out of the maintenance or use of a hired auto by the insured or its employees in the course of business. Non-owned auto liability applies to bodily injury or property damage arising out of the use of a non-owned auto by any person in the course of the insured's business.

Bodily injury or property damage for which the insured is obligated to pay damages due to assumption of liability in a contract or agreement is excluded, but not liability the insured would have assumed without the contract or agreement or if the liability was assumed in an insured contract. Bodily injury to an employee, arising out of and in the course of his employment or while performing business-related duties, and to the spouse, child, parent, or sibling of an employee as a consequence of the employee's employment or business-related duties, is not covered. The exclusion does not apply to liability the insured assumes under an insured contract or to bodily injury to domestic employees not entitled to workers compensation benefits.

Property damage to property owned or being transported by or rented or loaned to the insured or property in the insured's care, custody, and control is also excluded.

The following are insureds under the endorsement: the insured; any other person using a hired auto with the insured's permission; for non-owned autos, any partner or executive officer of the insured's only while the auto is being used in the insured's business; any other person or organization with respect to their liability because of the insured's acts or omissions under the endorsement's exclusions.

The following are not insureds under the endorsement: any person engaged in the employer's business with respect to bodily injury of a co-employee injured in the course of employment; any partner or executive officer with respect to his own auto or the auto of anyone in his household; any person employed in or engaged in performing duties related to an auto business other than an auto business operated by the insured; the owner or lessee of a hired auto, the owner of a non-owned auto or any agent or employee of such owner or lessee; or any person or organization with respect to the conduct of a past partnership, joint venture, or limited liability company that is not shown as a named insured in the declarations.

The most the endorsement pays for all damages resulting from one occurrence is the applicable limit of insurance, regardless of the number of hired or nonowned autos, insureds, premiums paid, claims made, or vehicles involved.

The insurance is excess over primary insurance for hired or non-owned autos.

Three definitions are added by this endorsement:

1. Auto business is “the business or occupation of selling, repairing, servicing, storing or parking 'autos.'”

2. Hired auto is “”any 'auto' you lease, hire, rent or borrow. This does not include any 'auto' you lease, hire, rent or borrow from any of your 'employees', your partners or your 'executive officers', or members of their households.”

3. Non-owned auto is “any 'auto' you do not own, lease, hire, rent or borrow which is used in connection with your business. This includes 'autos' owned by your 'employees', your partners or your 'executive officers', or members of their households, but only while used in your business or your personal affairs.”

Loss or Damage to Customers' Autos (Direct Primary Coverage): Coverage is available under endorsement MS SM 04 05 01 for loss or damage to customers' autos parked at the described premises. The form promises to pay for direct physical loss or damage to autos or auto equipment in the insured's care, custody, or control while attending to the autos on premises or temporarily away from the premises. Payment for loss or damage is for the account of the auto owner only.

The loss must be caused by a covered cause of loss, which is defined on the form as any cause of loss not excluded. The endorsement lists two exclusions: loss or damage due to theft or conversion caused by any insured or its partners, executive officers, or employees; and loss or damage otherwise paid under the commercial property policy's coverage for personal property of others.

The most the form pays for autos left in the insured's care, custody, or control is the limit of insurance, minus the deductible for loss or damage by collision, theft, or mischief or vandalism, regardless of the number of autos. The maximum deductible stated in the declarations is the most that will be deducted for any one event caused by theft or mischief or vandalism.

Coverage under the endorsement is primary.

Under the endorsement, auto is “a land motor vehicle, trailer or semitrailer.”

Extortion Coverage: The MS SM 05 05 01 endorsement pays for threats of harm to supermarket employees and others. The form pays up to $25,000 for loss resulting from a threat to do damage to the insured's property or premises and communicated to the insured during the policy period. Up to $50,000 is available for loss resulting from a threat to do bodily harm to the insured or the insured's directors, officers, trustees, employees, partners, or invitees who are or are allegedly being held captive if the threat is communicated during the policy period and the captivity takes place within the coverage territory.

The insurance applies to the surrender of money, securities, or other property away from the premises if the person receiving the threat has taken reasonable steps to report the threat to the authorities. The surrender must take place in the coverage territory. Securities are valued at their market value on the day they are surrendered; other property is valued at the lesser of the state limit or the value of the property, without deduction or depreciation, at the time of surrender.