Summary: The Spoilage Coverage form, CP 04 40 06 07, can be used to modify the Building and Personal Property Coverage form and the Condominium Commercial Unit-owners Coverage form. It provides coverage for perishable stock due to breakdown or contamination or power outage, as indicated on the declarations.
Topics covered:
Introduction
This endorsement extends the covered causes of loss to cover against direct physical loss or damage to perishable property. The covered causes of loss are identified in the endorsement. The endorsement allows for covered property and covered causes of loss to be identified by schedule. This article discusses the sections of the endorsements, except sections E. and I are not addressed as they merely state that the underlying policy's coverage extensions and optional coverages do not apply to the spoliation coverage.
Covered Property
The Coverage Form to which this endorsement applies is extended to insure against direct physical loss or damage by the Covered Causes of Loss, but only with respect to coverage provided by this endorsement.
A. Paragraph A.1., Covered Property, is replaced by the following:
1 Covered Property
Covered Property means "perishable stock" at the described premises owned by you or by others that is in your care, custody or control.
B. With respect to the coverage provided by this endorsement, property located on buildings or in the open or in vehicles is considered to be Property Not Covered.
Analysis
The definition of "covered property" in the policy to which this endorsement is attached is modified to mean perishable stock at specified locations owned by or in the care, custody, or control of the named insured. The locations are those listed on the endorsement schedule or in the declarations. Coverage is not provided for property in the open, in vehicles, or on buildings.
Causes of Loss
C. Paragraph A.3., Covered Causes Of Loss, is replaced by the following:
3. Covered Causes Of Loss
Covered Causes of Loss means the following only if indicated by an "X" in the Schedule:
a. Breakdown or Contamination, meaning:
(1) Change in temperature or humidity resulting from mechanical breakdown or mechanical failure of refrigerating, cooling or humidity control apparatus or equipment, only while such equipment or apparatus is at the described premises; and
(2) Contamination by the refrigerant.
b. Power Outage, meaning change in temperature or humidity resulting from complete or partial interruption of electrical power, either on or off the described premises, due to conditions beyond your control.
Analysis
The covered causes of loss must be indicated in the schedule; if the cause of loss is not indicated, it is not covered. If equipment that provides refrigerating, cooling, or humidity control breaks down and results in change in temperature or humidity to the perishable goods, coverage is provided as long as the equipment is at the described premises. The 2007 form added the word "mechanical" before "failure of refrigerating, cooling, or humidity control apparatus or equipment," presumably to prevent coverage for other failures of such apparatus or equipment.
Coverage is provided if the perishable goods are contaminated by the refrigerant. Change in temperature or humidity that results from partial or complete interruption of power is also covered provided that power interruption is beyond the insured's control. The power outage can occur on or off the described premises; coverage is provided as long as it is identified as a cause of loss on the schedule.
Selling Price
D. Selling Price
If Selling price is indicated by an "X" in the Schedule, the following is added to the Valuation Loss Condition:
We will determine the value of finished "perishable stock" in the event of loss or damage at:
1. The selling price, as if no loss or damage had occurred;
2. Less discounts and expenses you otherwise would have had.
Analysis
The selling price is an aspect of loss valuation; if the schedule indicates selling price, then the damaged product will be valued at the selling price less any discounts and expenses the insured would have had. For example, the insured had refrigerated cases of shrimp that he planned to sell on the weekend for 10 percent off. Due to a power failure, the shrimp spoiled. The cases of shrimp would be valued at their original selling price less the 10 percent discount the insured had planned to offer at the sale.
Exclusions
F. Paragraph B., Exclusions, is replaced by the following:
B. Exclusions
1. Only the following Exclusions contained in Paragraph B.1. of the Causes of Loss Form applicable to this Coverage Part apply to Spoilage Coverage:
a. Earth Movement;
b. Governmental Action;
c. Nuclear Hazard;
d. War And Military Action; and
e. Water.
2. The following Exclusions are added:
We will not pay for loss or damage caused by or resulting from:
a. The disconnection of any refrigerating, cooling or humidity control system from the source of power.
b. The deactivation of electrical power caused by the manipulation of any switch or other device used to control the flow of electrical power or current.
c. The inability of an Electrical Utility Company or other power source to provide sufficient power due to:
(1) Lack of fuel; or
(2) Governmental order.
d. The inability of a power source at the described premises to provide sufficient power due to lack of generating capacity to meet demand.
e. Breaking of any glass that is a permanent part of any refrigerating, cooling or humidity control unit.
Analysis
The standard exclusions of earth movement, governmental action, nuclear hazard, war and military action, and water apply to this endorsement. Additional exclusions were added that are specific to the spoilage coverage. The disconnection of any refrigerating, cooling, or humidity control system from the source of power, or by the deactivation of power by a switch, is excluded. This is to prevent coverage if the equipment becomes unplugged, or inadvertently is turned off at the switch. The policy is designed to cover mechanical failure, not human error.
The inability of a utility company or other power source to provide power due to lack of fuel or governmental action is excluded, as is the inability of a power source to meet demand due to lack of generating capacity. The policy is designed to handle fortuitous incidents, and not lack of capacity, fuel, or direction of a governing body.
Also excluded is the breaking of any glass that is a permanent part of refrigerating, cooling, or humidity control equipment. The breaking of glass as part of the equipment does not constitute mechanical breakdown.
Deductible
G. Paragraph D. Deductible is replaced by the following:
We will not pay for loss or damage in any one occurrence until the amount of loss or damage exceeds the Deductible shown in the Schedule of this endorsement. We will then pay the amount of loss or damage in excess of that Deductible, up to the applicable Limit of Insurance. No other deductible in this policy applies to the coverage provided by this endorsement.
Analysis
The deductible clause in the policy is replaced by the endorsement. Settlement of loss is straightforward, and losses are not paid unless the loss amount exceeds the deductible. The most that can be paid is the limit of insurance. No other deductibles apply to this coverage.
Additional Condition
H. Paragraph F., Additional Conditions, is replaced by the following:
ADDITIONAL CONDITION
The following condition applies in addition to the Common Policy Conditions and the Commercial Property Conditions.
REFRIGERATION MAINTENANCE AGREEMENTS
If Breakdown or Contamination is designated as a Covered Cause of Loss and a refrigeration maintenance agreement is shown as applicable by an "X" in the Schedule, the following condition applies:
You must maintain a refrigeration maintenance or service agreement. If you voluntarily terminate this agreement and do not notify us, the insurance provided by this endorsement will be automatically suspended at the involved location.
Analysis
One additional condition is added by this endorsement. If breakdown or contamination is listed as covered causes of loss, the insured must maintain a refrigeration maintenance or service agreement. If the maintenance agreement is terminated by the insured, coverage provided by this endorsement is suspended at the involved location.
Definitions
J. The following is added to the Definitions:
"Perishable Stock" means personal property:
a. Maintained under controlled conditions for its preservation; and
b. Susceptible to loss or damage if the controlled conditions change.
Analysis
Perishable stock is defined as property that is susceptible to loss or damage if the property is normally kept under certain climate conditions and those conditions change. This is not restricted to food items. Textiles, paintings, stamps, and many other items are susceptible to damage from changes in humidity or temperature.
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