Introduction, General Rules, and Conditions
May 7, 2012
Commercial Inland Marine Program
Summary: The current simplified language program for commercial inland marine coverages follows the modular format of the other commercial lines programs contemporaneously introduced by Insurance Services Office (ISO). This format allows an inland marine coverage part to be used independently to insure property on a monoline basis or in conjunction with coverage parts of the other simplified language programs—commercial property, liability, crime, boiler and machinery, or business income—in a multi-line format. When complete, an inland marine coverage part is comprised of a declarations page, an inland marine coverage form (or forms), two sets of conditions pages, and any applicable endorsements.
This article explores the general rules and conditions applying to commercial inland marine coverage under the simplified language program. Any variations in these rules and conditions as they pertain to the separate inland marine classes are noted in the individual coverage form discussions in this section, which discuss the most recent versions of the ISO commercial inland marine forms.
Topics covered:
General Information
Twelve individual classes constitute the current inland marine division of the ISO commercial lines manual: accounts receivable, camera and musical instrument dealers, commercial articles, equipment dealers, film, floor plan, jewelers block, mail, physicians and surgeons, signs, theatrical property, and valuable papers. All the simplified language inland marine coverage forms contemplate open perils coverage and all but three (film, floor plan, and mail) are nonreporting forms. Rating information for inland marine coverage forms contemplates the presence of a deductible for the coverage.
General Rules
The general rules for writing inland marine coverage (found in division eight, section I of the commercial lines manual) include the common general rules (defining such items as policy term, cancellations, and return premium) applicable to all lines of commercial insurance. Other inland marine general rules are excerpted from the old inland marine program; for example, one former rule is modified to state that no inland marine coverage parts may be issued as master policies where certificates of insurance are attached extending coverage to other unrelated entities. Previously, the rules for some individual inland marine classes allowed such a format.
One rule dictates that common policy conditions form IL 00 17 11 98 and commercial inland marine conditions form CM 00 01 09 04 be attached to all inland marine policies. Additionally, the general rules for inland marine coverage stipulate use of resident agent countersignature endorsement IL 09 17 11 85 in states where such an endorsement is mandated. Still another rule permits amendment of the basis of valuation (as found on CM 00 01, inland marine conditions or as modified on the inland marine coverage forms themselves) as long as both the insured and insurer are agreeable; this permits an insured to negotiate replacement cost coverage on a physicians and surgeons form, for instance. Finally, rule 24 dictates that endorsement IL 09 35 07 02, Exclusion Of Certain Computer-Related Losses, be attached to all inland marine policies.
Conditions
Under the previous inland marine program, policy conditions were supplied in one of two ways. On some coverage forms—specifically, accounts receivable, film, floor plan, jewelers block, mail, and valuable papers—conditions were self-contained. All other inland marine forms had to be attached to a scheduled property floater (CM 00 01) that listed the applicable conditions.
In contrast to this approach, inland marine conditions now appear separately on two forms, as mentioned above (note that there may also be applicable additional conditions found on the individual inland marine coverage forms). The common policy conditions are contained on IL 00 17. These are general conditions that apply to all the commercial lines programs and they pertain to cancellation, policy changes, examination of books and records, inspection and surveys, premiums, and transfer of the insured's rights and duties. For more information on IL 00 17—Common Policy Conditions.
The second set of conditions, commercial inland marine conditions (CM 00 01) is divided between ten loss conditions and six general conditions, discussed in the next section.
Loss Conditions
A.Abandonment
There can be no abandonment of any property to us.
Analysis
The insured may not simply abandon damaged property to the insurance company. For whatever reason an insured may want to abandon damaged property, the insurer has agreed only to pay for loss to covered property and does not seek possession of the property itself.
B.Appraisal
If we and you disagree on the value of the property or the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding. Each party will:
1.Pay its chosen appraiser; and
2.Bear the other expenses of the appraisal and umpire equally.
If there is an appraisal, we will still retain our right to deny the claim.
Analysis
The condition regarding appraisal provides that if either the insurance company or the insured submits a written demand for an appraisal after a loss, each will choose and pay for an appraiser. No time constraints are set. In the event the appraisers fail to agree on both the value of the property and the amount of loss, the issue is given to an umpire, and when an agreement is reached by any two of these parties (among the appraisers and umpire), the decision stands.
Any expenses beyond the cost of each party's appraiser are divided equally between the insurance company and the insured.
It is stated within the provision that the insurance company may still deny a claim despite the fact an appraisal has been done. The purpose of the statement may be to avoid a legal argument that the insurer's participation in the appraisal carries an implied agreement on the part of the insurer to pay and prevents denial of coverage regardless of the facts.
C.Duties In The Event Of Loss
You must see that the following are done in the event of loss or damage to Covered Property:
1.Notify the policy if a law may have been broken.
2.Give us prompt notice of the loss or damage. Include a description of the property involved.
3.As soon as possible, give us a description of how, when and where the loss or damage occurred.
4.Take all reasonable steps to protect the Covered Property from further damage and keep a record of your expenses necessary to protect the Covered Property, for consideration in the settlement of the claim. This will not increase the Limit of Insurance. However, we will not pay for any subsequent loss or damage resulting from a cause of loss that is not a Covered Cause of Loss. Also if feasible, set the damaged property aside and in the best possible order for examination.
5.You will not, except at your own cost, voluntarily make a payment, assume any obligation, or incur any expense without our consent.
6.As often as may be reasonably required, permit us to inspect the property proving the loss or damage and examine your books and records. Also permit us to take samples of damaged and undamaged property for inspection, testing and analysis, and permit us to make copies from your books and records.
7.We may examine any insured under oath, while not in the presence of any other insured and at such times as may be reasonably required, about any matter relating to this insurance or the claim, including an insured's books and records. In the event of an examination, an insured's answers must be signed.
8.Send us a signed, sworn proof of loss containing the information we request to settle the claim. You must do this within 60 days after our request. We will supply you with the necessary forms.
9.Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or suit.
10.Cooperate with us in the investigation or settlement of the claim.
Analysis
After a loss or damage, an insured must supply information to the insurance company in the form of a notice of loss that includes a description of the property. (This is not required to be in writing, but it must be given promptly.) The information is to be followed, "as soon as possible," by a description of how, when, and where the damage took place. And, a signed, sworn proof of loss must be sent within sixty days after the insurer's request. All these conditions make the point that the insurer wants to know about a loss as soon as possible so that a settlement (or a denial of coverage) can be made with due consideration for the interests of the insured and the insurer.
In addition, an insured is expected to take all reasonable steps to protect the covered property from any further damage and keep track of costs to do so. For these efforts on the part of the insured, the insurer states that it will consider the expenses of the insured for protecting the property from further damage. There is no promise to reimburse the insured's expenses, only a consideration in the final settlement. Based on the facts that the insurer is requiring action on the part of the insured that may cost money and that protecting the property from further damage may mitigate the ultimate cost of the loss for the insurer, the expenses of the insured in this property protection effort would most probably be covered by the insurer.
Of importance to the insured is the duty not to make a payment, assume any obligation, or incur any expense without the consent of the insurer. Violation of this particular duty could void the insuring agreement and leave the insured with no coverage for the loss.
D.Insurance Under Two or More Coverages
If two or more of this policy's coverages apply to the same loss or damage, we will not pay more than the actual amount of the loss or damage.
Analysis
This condition prevents two or more coverages under a single policy from providing double recovery in the event of loss. It stipulates that in such a case no more than the actual amount of the loss will be paid.
E.Loss Payment
1.We will give notice of our intentions within 30 days after we receive the sworn proof of loss.
2.We will not pay you more than your financial interest in the Covered Property.
3.We may adjust losses with the owners of lost or damaged property if other than you. If we pay the owners, such payments will satisfy your claim against us for the owners" property. We will not pay the owners more than their financial interest in the Covered Property.
4.We may elect to defend you against suits arising from claims of owners of property. We will do this at our expense.
5.We will pay for covered loss or damage within 30 days after we receive the sworn proof of loss if you have complied with all the terms of this Coverage Part and;
a.We have reached agreement with you on the amount of the loss; or
b.An appraisal award has been made.
6.We will not be liable for any part of a loss that has been paid or made good by others.
Analysis
This is the insurer's promise to pay for a covered loss within a certain set time and if some stated conditions are met. This provision prevents unreasonably long waits for a settlement check. The condition also states that the insurance company's liability does not extend to any part of a loss paid by another source. This is done to prevent a double recovery for the insured. The insurance company, at its expense, may choose to provide defense for the insured against any lawsuits resulting from claims regarding property of others. The insured should take note of this clause since the CGL form does not provide liability coverage or defense costs for damage to personal property of others in the care, custody, or control of the insured. As regards damaged personal property of others in the insured's custody, payment can be made to the property owner directly, and such payment satisfies any claims of the insured. The adjustment of such losses may be with the owners or through the insured as intermediary, at the discretion of the insurance company.
F.Other Insurance
1.You may have other insurance subject to the same plan, terms, conditions and provisions as the insurance under this Coverage Part. If you do, we will pay our share of the covered loss or damage. Our share is the proportion that the applicable Limit of Insurance under this Coverage Part bears to the Limits of Insurance of all insurance covering on the same basis.
2.If there is other insurance covering the same loss or damage, other than that described in 1. above, we will pay only for the amount of covered loss or damage in excess of the amount due from that other insurance, whether you can collect on it or not. But we will not pay more than the applicable Limit of Insurance.
Analysis
The insurer promises to pay on a pro rata basis for a covered loss if the named insured has other insurance that is written subject to the same plan, terms, conditions, and provisions as the named insured's inland marine coverage part. Other insurance coverage written on a different basis is treated as excess coverage. All the inland marine forms except the mail coverage form respond on an excess basis if certain other insurance exists on the covered property. This applies whether or not the insurance is collectible. (The mail coverage form stipulates a pro rata settlement, though two notable exceptions exist— Mail Coverage Form).
G.Pair, Sets or Parts
1.Pair or Set. In case of loss or damage to any part of a pair or set we may:
a.Repair or replace any part to restore the pair or set to its value before the loss or damage; or
b.Pay the difference between the value of the pair or set before and after the loss or damage.
2.Parts. In case of loss or damage to any part of Covered Property consisting of several parts when complete, we will only pay for the value of the lost or damaged part.
Analysis
This clause provides criteria for fixing recovery in losses of special types of property—articles that are part of a pair or set, and components of property consisting of several parts. Any article that is part of a pair or set may be repaired or replaced so that the pair or set is restored to its preloss value. If this is not possible, the difference between the pre and postloss value of the pair or set applies. Presumably then, if the value of the remaining article is determined to be zero, the preloss value of the pair or set is paid. This is a significant broadening of the pair, set, or parts provision found in the old scheduled property floater, which stated that "in no event shall such loss or damage be construed to mean total loss of the pair or set." Instead, a reasonable and fair proportion of the total value of the pair or set is to be determined.
In case of loss or damage to any part of an insured item consisting of several parts when complete for sale or use, the insurer is liable only for the value of the lost or damaged part. This provision in the condition is sometimes referred to as a "machinery clause" since one of its principal applications is to losses involving parts of mechanical devices.
H.Recovered Property
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. You must then return to us the amount we paid to you for the property. We will pay recovery expenses and the expenses to repair the recovered property, subject to the Limit of Insurance.
Analysis
This condition states that, if the insured chooses, any covered items that are recovered or salvaged after a loss settlement can be returned to the named insured. However, if that course is chosen by the insured, the insurer is entitled to receive its payment of loss back from the insured. If the insurer has paid for the lost or damaged property, the insured should not expect to also get that property back; such a course would give the insured a double recovery. However, the insurer will pay for the recovery expenses even if the insured gets the property back.
I.Reinstatement of Limit After Loss
The Limit of Insurance will not be reduced by the payment of any claim, except for total loss or damage of a scheduled item, in which event we will refund the unearned premium on that item.
Analysis
This clause provides that payment of losses will not reduce the policy's amount of insurance, except for payment of a claim for total loss of a scheduled item. Obviously, if an item is scheduled on the coverage form and then is totally lost, no further coverage is needed; that item no longer exists. In such a case, any unearned premium for the property involved will be refunded to the insured.
J.Transfer of Rights of Recovery Against Others to Us
If any person or organization to or for whom we make payment under this Coverage Part has rights to recover damages from another, those rights are transferred to us to the extent of our payment. That person or organization must do everything necessary to secure our rights and must do nothing after loss to impair them. But you may waive your rights against another party in writing:
1.Prior to a loss to your Covered Property.
2.After a loss to your Covered Property only if, at time of loss, that party is one of the following:
a.Someone insured by this insurance; or
b.A business firm:
(1)Owned or controlled by you; or
(2)That owns or controls you.
This will not restrict your insurance.
Analysis
This condition defines the insurer's subrogation rights under the policy that arise when the insurer makes a payment to or for "any person or organization" that has rights to recover damages from another. The person or organization with the right to recover has to do everything necessary to secure the rights of the insurer, including filing a lawsuit. That person or organization cannot do anything after a loss to impair the right to recovery, but the named insured may waive the right either before or after a loss to covered property. The waiver by the named insured must be in writing, and, if given after a loss, can be given only under certain circumstances.
General Conditions
A.Concealment, Misrepresentation or Fraud
This Coverage Part is void in any case of fraud, intentional concealment or misrepresentation of a material fact, by you or any other insured, at any time, concerning:
1.This Coverage Part;
2.The Covered Property;
3.Your interest in the Covered Property; or
4.A claim under this Coverage Part.
Analysis
All inland marine coverage is voided in the event of fraudulent act or intentional concealment or misrepresentation of a material fact by the named insured or any other insured concerning the coverage, covered property, the named insured's interest in the covered property or a claim under the inland marine form. For more information on this subject—Effect of Insured's Declarations or Statements.
B.Control of Property
Any act or neglect of any person other than you beyond your direction or control will not affect this insurance. The breach of any condition of this Coverage Part at any one or more locations will not affect coverage at any location where, at the time of loss or damage, the breach of condition does not exist.
Analysis
This clause protects the insured from falling victim to another's acts that cause damage to the covered property. Through this condition, the insurer is telling the insured that it will not hold the named insured responsible for the acts of another party. For example, if another party has custody of covered property and damages it, and the insured has no control over that situation, the named insured's inland marine policy will respond to the loss.
C.Legal Action Against Us
No one may bring a legal action against us under this Coverage Part unless:
1.There has been full compliance with all the terms of this Coverage Part; and
2.The action is brought within 2 years after you first have knowledge of the direct loss or damage.
Analysis
Suit against the insurer is predicated upon the insured's full compliance with the terms of the policy. Furthermore, legal action by the insured must be brought within two years (previously one) after the named insured first has knowledge of the loss.
D.No Benefit to Bailee
No person or organization, other than you, having custody of Covered Property, will benefit from this insurance
Analysis
Insurance provided under a commercial inland marine policy will not operate to the benefit of any person or organization other than the named insured. (In other words, the policy will not cover the liability of a bailee for property in the bailee's possession.)
E.Policy Period, Coverage Territory
We cover loss or damage commencing:
1.During the policy period shown in the Declarations; and
2.Within the coverage territory.
Analysis
This condition is rather simple. To be covered under the commercial inland marine policy, loss or damage must commence during the policy period shown in the declarations and within the coverage territory. (Coverage territories are defined on the individual inland marine coverage forms.)
F.Valuation
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.
In the event of loss or damage, the value of property will be determined as of the time of loss or damage.
Analysis
The previous inland marine valuation clause (actual cash value not to exceed repair or replacement with material of like kind and quality) is replaced by a clause stipulating valuation as the least of: 1) the property's actual cash value; 2) the cost of reasonably restoring the property to its condition immediately before loss; or 3) replacement with "substantially identical property," a phrase that is similar to a functional replacement cost settlement clause.
Note that modifications to this standard basis of valuation appear on several of the separate inland marine coverage forms. Additionally, as mentioned earlier in this discussion, the general rules for inland marine coverage state that as long as the insured and insurance company are in agreement, it is permissible to amend the valuation clauses still further.
As is true of most forms of property insurance, the value of the damaged property is expressly applicable as of the time of loss—not the time when the policy was written.
Declarations Page
The advisory commercial inland marine declarations, form CM DS 02 09 00, provides places for the name of the insurer, producer, and insured. It asks for a description of the business being conducted and shows the premium and how it is payable (e.g., annually or quarterly). The declarations page also supplies a place for countersignature by an authorized representative of the insurer.
Includes copyrighted material of Insurance Services Office, Inc., with its permission.