Analysis

The final two definitions apply to the perils of “fungus” and “pollutants.” Two of the terms can be further defined: a protist is a single or multicellular organism that can be plant-like-, animal-like, and fungi-like. The plant-like protists include algae; the animal-like protists include spores, and the fungus-like protists include the slime molds, water molds, and mildews. The second term is metabolites, which are simply the by-products of the organism's metabolism.

 

There are other definitions that apply to the property coverages. Because many of the definitions appear in only one or two places (often in an exclusion), we will discuss them at the appropriate place. There are three, however, that merit mention:

 

 

Analysis

 

Contrast the definition of “employee” in the AAIS form with the ISO definition, which states only that an “'employee' includes a 'leased worker',” and does not include a “temporary worker.” However, both “leased worker” and “temporary worker” are further defined in the ISO form. See Businessowners Liability. Note that the AAIS definition states that the “employee” relationship extends for a thirty-day period after the termination of the employee. A short-term worker is not an employee while having care and custody of property (presumably belonging to the insured business or a customer) while away from the premises.

 

“Insured” means the named insured, or any other person or entity that is covered under the Property Coverages.

 

 

Analysis

 

The “specified perils” are similar to the ISO “specified causes of loss,” with the exception that AAIS includes sonic boom. “Sinkhole collapse” means “the sudden settlement or collapse of earth supporting the covered property into subterranean voids created by the action of water on a limestone or similar rock formation,” but does not include the cost of filling the sinkhole nor the lost value of the land. “Volcanic action” means the airborne effects of a volcanic eruption or lava flow; it does not include any earth movement associated with the eruption. Not included as well within the definition is any cost to remove dust or ash that has not caused direct physical damage to the covered property.

 

Property Covered

 

The policy promises to cover direct physical loss to covered property caused by or resulting from a covered cause of loss.

 

Analysis

 

The list of covered items essentially is the same as the ISO businessowners forms, except that the AAIS form specifically refers to building glass as being covered as a part of the building. The ISO form does not, but has eliminated the optional coverage for interior glass, and the limitation on glass, from the current form. For more information on fixtures, see Fixtures.

 

Coverage B—Business Personal Property—is similar to the ISO businessowners form. Coverage applies to: property owned by the named insured and used in the named insured's business; leased personal property, but only to the extent of the named insured's contractual obligation to insure the property; and the named insured's interest in personal property of others in the named insured's care, custody, or control. This interest is limited to the extent of the named insured's legal liability, plus the cost of any labor, material, and services.

 

The property can be in the building or structure described on the declarations, or in the open (or in a vehicle), if within 100 feet of the described premises. A limit for the property must be indicated on the declarations.

 

Coverage B also applies, if the named insured is a tenant, to use interest in improvements to the described building. Improvements are defined as “fixtures, alterations, installations, or additions: (1) to a building or structure that 'you' occupy, but do not own; and (2) that are made or acquired at 'your' expense and which 'you' cannot legally remove…” Thus, items that are attached to the realty, such as built-in shelving or partitions, are included in the coverage. Additionally, exterior building glass that the insured owns or is in his or her care, custody, or control is covered as business personal property, unless a limit for Coverage A – Building is shown on the declarations.

 

Property Not Covered

 

The list of “property not covered” is prefaced by the words “Limited coverage for some of the property described below is included under Additional Coverages or Extensions of Coverage.” Two such items are accounts receivable and valuable papers and records.

 

Some changes in the AAIS BP 0200 result in broadening of coverage. The earlier BP-100 and BP-200 excluded coverage for signs; the current forms exclude coverage for signs that are not attached to buildings (but gives back limited coverage for antennas, fences, and signs not attached to buildings). The earlier businessowners form excluded coverage for bullion; the BP 0200 gives limited coverage. The BP 0100 gives limited coverage, but only if optional Burglary and Robbery Coverage is selected.

 

Some items in the list have been expanded. The exclusion of coverage for money and securities now includes “accounts, bills, or food stamps.” “Money” is defined as “currency, coins, bank notes in current use; and traveler's checks and money orders held for sale.” “Securities” are “negotiable and nonnegotiable instruments representing either 'money' or other property. This includes tokens, tickets, revenue, or other stamps in current use, and any evidence of debt used in connection with credit cards.”

 

The exclusion for vehicles or aircraft includes computers that are permanently installed, or designed to be installed, in vehicles, aircraft, or self-propelled machines required to be licensed for use on public roads. The ISO form adds that this exclusion does not apply to computers that are held as stock, and so coverage is broader in this regard.

 

Contraband is not covered, nor is watercraft while afloat. Thus, watercraft that is in an insured building would be covered. Trees, shrubs, lawns, plants, growing crops, land, and water are not covered. However, the coverage extension (3.) for trees, shrubs, and plants covers this property for loss caused by aircraft, civil commotion, explosion, fire, lightning, or riot. Coverage is limited to $2,500 with a $500 sublimit for any one tree, shrub, or plant.

The AAIS BP 0200 contains a list of property that is limited as to coverage, and, in some instances, excluded. There are no similar provisions in the BP 0100 standard policy.

 

 

Analysis

 

The list of additional property excluded and limitations does not appear in the standard policy BP 0100, although coverage for theft of furs, jewelry, watches, pearls, precious stones or metals, and theft of patterns, dies, molds, models, or forms is available (with the same limits as on the BP 0200) if the insured selects the optional coverage for burglary and robbery.

 

Because glass breakage is now covered either under building coverage A or business personal property coverage B, this limitation from the earlier BP-200 has been removed from the list. However, there is no coverage for glassware or fragile articles unless as a result of a specified peril as defined. The exclusion does not apply to glass if a part of a building or structure; bottles or other containers held for sale (the comparable ISO exclusion is for “containers of property for sale”); or to lenses for photographic or scientific equipment.

A new preclusion of coverage is for loss to the interior of a building unless a covered peril creates an opening in the roof, or unless the loss or damage is caused by thawing of snow, sleet, or ice in the covered building or structure. The addition of “bullion” to item 5. broadens coverage; the earlier BP-200 did not cover bullion.

 

Personal property “in the open” damaged by rain, snow, ice or sleet is not covered. In the ISO businessowners form this is exclusion 2.h.

 

Loss occurring because of unauthorized instructions is not covered. This is similar to the ISO Limitation 4.a.(4); the ISO form refers to “property transferred to a person or place outside the described premises.”

 

Additional Coverages

 

The AAIS special businessowners form contains fifteen additional coverages. The standard form has twelve, which are: antennas, fences, or signs; counterfeit money or money orders; debris removal; fire department service charges; forgery; glass; increased costs – ordinance or law; inventory and appraisal expenses; limited fungus and related perils; pollutant clean up and removal; recharge of fire extinguishing equipment; and removal. The special form adds coverage for collapse, lock and key replacement, and tearing out and replacing. Some of these are similar to the ISO BP 00 03.

 

Additional coverage 1. applies to antennas, fences (but only if damaged by aircraft, civil commotion, explosion, fire, lightning, and riot), or signs not attached to buildings. Signs attached to a building are not limited. Coverage is limited to $2,500, but no more than $1,000 for each unattached sign. The optional coverage for outdoor signs may be selected if more coverage is desired. The ISO form limits coverage for signs attached to buildings to $1,000. This provision is in C. Limits of Insurance.

 

Additional coverage 2. is collapse. The current form has now incorporated a definition of collapse: “sudden caving in, falling in, falling down, or giving way of the building or structure or the portion thereof so that the building or structure or the portion thereof can not be occupied as intended.” Thus, in jurisdictions adopting the liberal interpretation that collapse may mean “structurally impaired,” this definition will preclude coverage. For more information, see Meaning of Collapse.

 

The collapse must have been caused by one of the “specified perils,” weight of people or personal property, weight of rain collecting on a roof, or hidden decay of a structural component or hidden insect or vermin damage, but only if an insured was not aware of the decay or damage. If a building or structure collapses during the course of construction, remodeling, or renovation, and defective methods or materials is the culprit, there is coverage. Following the completion of construction, a collapse may still be covered if one of the other covered causes contributes to the collapse, even if the use of faulty methods or materials contributes. The standard form BP 0100 does not cover collapse. Unlike the ISO form, the AAIS form covers outdoor radio, television, satellite, dish-type and other antennas, including their masts, towers, and lead-in wiring, canopies and supports, and bridges if this covered property is damaged by collapse of a covered building or structure.

 

Personal property (with some exceptions; see form) inside a building or structure that is damaged by its own collapse is covered, unless the only damage is marring or scratching. The collapse must have been caused by one of the perils enumerated above.

Loss caused by acceptance in good faith of counterfeit money or money orders in exchange for goods or services is covered up to $1,000. This is additional coverage 3.

 

Debris removal (additional coverage 4.) is addressed somewhat differently from ISO. See Businessowners Property Coverages, Part I. When a covered loss occurs, the insurer will not pay more than 25 percent of the amount paid for the direct physical loss or damage, plus 25 percent of the applicable deductible. (The base deductible is $500; other deductibles may be selected.) The amount paid for the loss and debris removal combined cannot exceed the policy limit. But, if the debris removal expense exceeds either of those amounts, an additional $10,000 (increased from $5,000) is available. Like the ISO form, debris removal expenses must be reported in writing to the insurer within 180 days from the date of the loss. Excluded are any costs to extract or remove pollutants from land or water.

 

Up to $1,000 is available for fire department service charges if the insured is liable because of ordinance or contract or agreement entered into prior to the loss. This is additional coverage 5.

 

Additional coverage 6., new in the current edition, responds to direct loss due to forgery or alteration of a check made or drawn by, or alleged to have been made or drawn by, the named insured or someone acting as the insured's agent. The coverage includes a provision for loss arising out of forgery or alteration of any written instrument required in conjunction with a charge or credit card, but only if the insured is legally liable to the issuer of the card. ISO's form (additional coverage k.) does not contain this provision. Coverage is limited to $2,500, although a higher limit may be selected. This coverage also states that a “mechanically reproduced facsimile signature will be treated as a handwritten signature.”

 

In the event of loss or damage to building glass, additional coverage 7. pays for the cost or replacing frames, boarding up openings, or the cost to remove obstructions prohibiting repair or replacement of the glass. The cost to remove or replace window displays is not covered. This coverage is new in the current edition, and is similar to ISO additional coverage n.

 

The coverage for increased costs because of “code, ordinance, law, or decree regulating land use, zoning, or construction and repair of property” is additional coverage 8. The limit is $10,000, but this is only available if the covered building is insured on a replacement cost basis. The coverage is similar to ISO additional coverage l. Note, though, that the AAIS form includes the word “code” along with “ordinance, law, or decree,” thus effectively eliminating the sometimes used argument that a building code is not an ordinance or law.

A coverage unique in the AAIS form is for $2,500 to cover reasonable expenses incurred by the named insured in carrying out inventory or appraisal at the insurer's request in order to determine the amount of a covered loss. This is additional coverage 9.

 

Unlike the ISO form, which uses an endorsement (see, for example, BP 05 76 11 02 limited fungi or bacteria coverage) to restrict coverage, the AAIS form has as additional coverage 10. limited fungus and related perils. The aggregate amount for each consecutive annual period (and any remaining period of less than twelve months) is $15,000, beginning with the policy's inception date. The fungus must result from a specified peril as defined. The limitations do not apply to fungus resulting from fire or lightning; collapse caused by hidden decay, to the extent the loss would be covered; to coverage for accounts receivable, computers, outdoor signs, or spoilage of perishable stock; or to the additional coverage for removal (14.).

 

Lock and key replacement is covered up to $1,000 if replacement is necessary because of a covered theft loss by burglars, and covered property is damaged or keys are stolen. This coverage (11.) is not in the BP 0100, nor in the ISO BP 00 03.

 

Additional coverage 12. provides up to $10,000 for pollutant clean up and removal. This is the coverage that applies to the expense to extract pollutants from land or water, not debris removal, which specifically excludes coverage. The cost of testing or evaluating is included, so long as the expense of extracting would be covered. Loss must be caused by a covered peril that occurs during the policy period, and must be reported to the insurer in writing within 180 days from the date of loss. The ISO form contains a similar provision (h.); however, the tests and evaluation expenses are not specifically mentioned.

 

A new coverage (13.) in the AAIS form is for recharge of fire extinguishing equipment. The limit is $5,000 to recharge fire extinguishing equipment or an installed system when discharged because of a covered peril or to fight a fire, or because of accidental discharge. The coverage will not respond to a loss caused by discharge during installation or testing. If the cost to recharge is greater than the cost to install new equipment, the insurer has that option. The similar ISO additional coverage o. adds that the discharge must occur on or within 100 feet of the described premises.

 

Loss or damage to covered property—from any cause—is covered for a thirty-day period when the property must be moved to prevent a loss caused by a covered peril. This is additional coverage 14.; it is similar to ISO additional coverage b.

 

Additional coverage 15. is not included in form BP 0100. The cost of tearing out and replacing part of a building or system because of loss or damage caused by water, other liquids, powder, or molten material is covered. The escape of the water or other material must have resulted from a covered cause of loss. Damage to the system itself is not covered. However, if fire extinguishing equipment is damaged, resulting in a loss, the cost to repair or replace the equipment is covered. Damage is also covered if the loss results from freezing. The additional coverage does not increase the limit applying to the damaged property; the comparable ISO additional coverage e. does not have this limitation.

 

Extensions of Coverage

 

The eight coverage extensions in the AAIS form are additional amounts of insurance, unless otherwise stated.

 

If the policy includes coverage A – Buildings, then the first additional coverage responds to loss or damage to covered property while temporarily at locations that the named insured does not own, control, rent or lease. This includes property in transit. The most that will be paid is $5,000, unless a higher limit is selected. The loss must occur within the coverage territory, and, if a theft loss, cannot be from an unattended vehicle unless there is visible evidence of forcible entry into a securely locked compartment. Although this may sound strange, remember that coverage A includes personal property used to maintain or service the building. For example, the insured could have ordered new washing machines; before they can be installed they are stolen from a delivery truck. This coverage would respond provided all conditions were met. The ISO businessowners form does not contain a similar coverage. Indeed, the ISO form states that the coverage extensions apply to property located in or on the described building or within 100 feet of the described premises, unless otherwise noted.

 

Coverage extension 2. is for newly acquired buildings. It applies to a building or structure being built on the described premises, or to a building or structure (located within the coverage territory) acquired at other premises during the policy period. Coverage ceases the earlier of: thirty days following acquisition or the start of construction; the date the insured reports the acquisition; or the policy's expiration date. The maximum available is $250,000, but no more than the total limit shown on the declarations for building property. The insured is responsible for any additional premium. The comparable ISO extension declares that the newly acquired building or premises must be intended either for similar use as the described premises, or for use as a warehouse.

 

Trees, shrubs, and plants are the subject of extension 3. The ISO BP 0300 extension is c. outdoor property, which applies to trees, shrubs, plants, fences, signs, and radio and TV antennas, including their masts and wiring. The AAIS form covered these latter items of property in additional coverage 1. The limit is $2,500, but no more than $500 for any one tree, plant, or shrub, including debris removal. Covered causes of loss are: aircraft, civil commotion, explosion, fire, lightning, or riot.

 

The second group of coverage extensions pertains to coverage B – Business Personal Property. The first is for accounts receivable. (“Accounts receivable” were in the list of Property Not Covered, but remember that many of the supposedly not covered items are actually afforded limited coverage.) The limit is $10,000 for loss at the described premises, and $5,000 away, unless the insured selects higher limits. Loss must be caused by a covered peril. Exclusions include: electronic data erasure due to erroneous programming or faulty equipment or instructions; faulty or inadequate maintenance of computer equipment; bookkeeping or accounting errors; business interruption or loss of markets; or a discrepancy discovered in books or records if this is the only way to prove a loss occurred. Additionally, loss caused by civil authority, nuclear hazard, war and military action, voluntary parting, and criminal or fraudulent acts is not covered. This is coverage extension f. in the ISO businessowners form.

 

Extension 2. applies to business personal property at acquired locations, but only if a loss to this property occurs within the coverage territory. Similarly to the coverage for an acquired building or structure, coverage applies for the lesser of: 30 days from the date the location is acquired; the date the location is reported to the insurer, or the end of the policy period. The insured is responsible for any additional premium. The limit for this coverage is $100,000. In the ISO form, this is extension a.(2).

 

Business personal property is covered off premises while at locations within the coverage territory the named insured does not own, rent, control, or lease. Property in transit is covered. The limit is $5,000. Accounts receivable or valuable papers and records are not covered. A theft loss from an unattended vehicle must be documented by visible evidence of forcible entry into a securely locked compartment. This extension 3. is similar to ISO extension b., which also excludes money and securities.

 

Personal effects owned by the named insured, partners, employees, directors, trustees, members, managers, or joint venturers are covered at each described premises. The limit is $2,500. Business equipment and tools are not included within this coverage 4. The ISO extension d. adds that loss or damage by theft is not covered.

 

Extension 5. covers loss or damage to “valuable papers and records.” This term means:

 

 

The property must be owned by the named insured, or in his or her care, custody, or control, and damaged by a covered peril. Coverage is broad; exclusions are war and military action, civil authority, nuclear hazard, computer virus or hacking, criminal or fraudulent acts, and voluntary parting. The basic limits for this coverage are $10,000 at the described premises, and $5,000 away from the described premises. Higher amounts may be selected. The comparable ISO coverage is extension e.

 

Loss of Income

 

In the AAIS businessowners forms, coverage C applies to loss of income. Within this broad category there are several other coverages. Loss of income includes loss of earnings, extra expense, fungus and related perils, alterations and new buildings, interruption by civil authority, earnings from dependent locations, newly acquired locations, and period of loss extension. The basic limit for loss of income coverage is the sum of 20 percent of coverage A plus 100 percent of coverage B, unless a different amount is selected. Optional “unlimited” business income coverage, that is, for actual loss sustained, is available.

 

 

Analysis

 

The restoration period incorporates a time deductible of 72 hours, but only with respect to earnings. But with respect to extra expense coverage, the restoration period begins immediately after the time of direct physical loss or damage caused by a covered cause of loss. The restoration period ends on the earlier of (1) the date the property should be repaired, replaced, or rebuilt with “reasonable speed and quality; or (2) the date the business is resumed at a new permanent location. The expiration date of the policy does not limit the period of restoration. The period of restoration does not include any increase in time due to: ordinance or law regulating construction, use, repair, or demolition; requirement to test for, clean up, or monitor pollutants; or repair, replace, rehabilitate, or raze property because of the existence of pollutants or fungus (both as defined).

 

The coverage trigger is loss or damage, caused by a peril insured against, to covered property at the described premises (or in the open, or in vehicles) within 100 feet of the described premises. If the insured business occupies only a portion of the building, then the premises means any portion of the building the insured occupies and any area providing services or access to the premises.

 

The coverage does not respond if a loss occurs that involves a peril that applies only to computers. For example, the excluded peril of “electrical currents” states that the insurer will not cover loss or damage caused by arcing or by electrical currents other than lightning, unless a fire results, and then the fire loss is covered. But the exclusion goes on to state that it does not apply to computers. So if the insured sustains damage to computers caused by arcing, the property loss is covered, but not any resulting business income loss.

 

Unlike the ISO form, the AAIS form applies one limit of insurance to both loss of earnings and extra expense. The ISO form declares that “this additional coverage” (extra expense) is not subject to the limits of insurance.

 

 

Analysis

 

The insurer promises to pay for loss of earnings and extra expense. Coverage is limited to twelve consecutive months after the date of direct physical loss to the covered property. As is typical, net income means net profit or loss before income taxes, payroll expense, interest, and other continuing operating expenses that the business would normally incur. The insured is advised that prior income history will be considered in evaluating a loss. This is not to say that no business income loss is payable if the business is not generating a profit; however, if it is seen that a business has continually lost income to the point that no assets remain and bankruptcy is imminent, then in all possibility a covered loss to property will not trigger a business income loss.

 

Note that, unlike the ISO businessowners form, which ceases coverage after sixty days, there is no limit on ordinary payroll expense other than the fact that these expenses will be considered (by the insurer) to the extent they are necessary in reducing the business income loss.

 

Extra expense coverage may be called upon, if the property insurance is inadequate, to “repair, replace, or restore” any property, but only to the extent this reduces the loss otherwise payable. For example, if the insured's office desks are destroyed and the business personal property amount has been depleted, then the extra expense coverage pays to purchase desks. Obviously, this expenditure will help reduce the business income loss by getting the business's office up and running. Note, though, that if the desks are only purchased for temporary use, perhaps because the businessowner intends to dispose of them, their salvage value is subtracted from the amount of the extra expense payment.

 

The restrictions in the AAIS businessowners form are common for business income coverage. The businessowner cannot simply do nothing and collect payment. If the named insured does not resume “normal” business activities in a timely manner, or decides to abandon the business, then payment is limited to the time the business would have been back to a normal operating level.

 

There are exclusions and limitations applying to the business income coverage. Any expenses incurred to suppress a fire are not covered (remember, this applies only to business income coverage), nor are any unnecessary expenses incurred during the restoration period. Other limitations include loss of earnings, caused by direct physical loss or damage to software, beyond sixty days or the time from the date of loss until the date the property reasonably could have been repaired or replaced, whichever is greater. This is similar to ISO Loss Condition E.5. Loss arising from cancellation, lapse, or suspension of a lease, license, contract, or order is not covered unless resulting directly from the interruption of the insured business. Loss caused by interference by strikers or others at the described premises while the premises is being rebuilt or repaired is not covered.

 

 

Analysis

 

Note that these are coverage extensions, not additional coverages. They do not increase the limit for coverage C shown in the declarations. In the comparable ISO form, there is no mention of coverage at alterations at the described premises, but the coverage agreement states that the trigger is covered loss to covered property at the described premises, which would include alterations or new buildings on the premises. The unendorsed ISO form does not exclude coverage for fungus, but presumably insurers will limit their exposure through use of the limited coverage endorsements now available. The AAIS form declares that business income coverage is available for thirty days if a loss caused by fungus occurs. Although it may seem odd to except fungus caused by fire or lightning, fungus caused by either of these perils falls outside the additional limited coverage and so there is no need to limit business income coverage. Say, however, a covered loss occurs that takes two days to repair. But, following this, a mold loss develops. The extension gives thirty days if the insured must shut down for remediation to take place.

 

Loss resulting from action by civil authority and the period of loss extension are similar to additional coverages i. and f.(2) in the ISO form.

 

There are two additional coverages for the loss of income coverage. These are: (1) earnings and extra expenses from dependent locations; and (2) newly acquired locations. A “dependent location” may be a supplier (other than of utilities), a recipient of the insured's products, a leader location, or a manufacturing location making products for the named insured business under contract. Coverage is limited to $5,000 although a higher amount may be selected. The coverage trigger is direct physical damage to real or personal property at the location caused by a covered peril. Loss solely to software at that location will not trigger coverage. The limit for the ISO additional coverage m. business income from dependent properties is the same.

 

If a newly acquired location is within the coverage territory, then the insured has loss of earning and extra expenses at that location for thirty days after the acquisition or the insured reports the location to the insurer, whichever occurs first. The coverage does not extend beyond the policy's expiration date. The limit for this coverage is $100,000.

 

Other restrictions apply; please consult the form.

 

Perils Covered

 

The businessowners special policy (form BP 0200 01 04) covers risk of direct physical loss unless limited or caused by an excluded cause of loss. Form BP 0100 01 04 is a named perils form which lists twelve causes of loss.

 

The first is explosion, which includes explosion of gas or fuel in a firebox or flue, but not loss caused by rupturing or bursting of pressure relief devices or due to expansion of contents in a building or structure caused by water.

 

Fire or lightning is named peril 2. Loss caused by riot or commotion, including loss caused by striking employees of the owner or tenants while occupying the described premises, is covered peril 3.

 

Loss caused by sinkhole collapse is covered, but not the cost of filling the sinkhole or the value of the lost land (4.).

 

Sudden and accidentally caused smoke damage is covered. Ongoing damage, such as that caused by repeated and constant use of open-flame equipment, is thus excluded. This is peril 5. Loss caused by sonic boom is peril 6. Although many forms do not distinguish this cause of loss from the “aircraft” peril, the AAIS form, as will be seen, refers to direct physical contact with aircraft, so this additional cause of loss is necessary.

 

Sprinkler leakage, including loss or damage from collapse or fall of a tank that is a part of the sprinkler system, is peril 7. Damage caused by freezing or breakage is covered, as well as reasonable costs to remove and replace parts of a covered building necessary to gain access to the system. The leaking substance can be water or other substance used in fire suppression.

 

Covered property damaged by collision, derailment, or overturn of a vehicle, stranding or sinking of a vessel, or collapse of a bridge, culvert, pier, wharf, or dock while in the course of transportation is covered. This is peril 8.

 

Peril 9. is vandalism, meaning willful and malicious damage to or destruction of described property. Loss caused by actual physical contact of aircraft or other vehicles is peril 10. Included is loss caused by objects falling from the vehicles or aircraft, or thrown by vehicles. Aircraft includes spacecraft and self-propelled missiles. The vehicle causing the damage cannot be owned by the named insured, or operated in the course of the insured business.

Peril 11. is volcanic action (as defined; see earlier under Definitions). The peril does not include cost to remove ash or particulate matter that does not cause direct physical loss to the described premises.

 

Windstorm or hail is peril 12. But loss caused directly or indirectly by frost or cold weather or ice other than hail is excluded. Loss to the interior of a building or property contained therein is not covered unless the force of the wind or hail creates an opening. Awnings or canopies of fabric or slat construction are excluded from coverage.

Exclusions

 

The following perils are excluded and are prefaced by concurrent causation language—that is, no matter what other causes or events contribute to or aggravate the loss, even if that cause or event is covered, these causes of loss are still excluded. Many of these losses, however, have exceptions that give back coverage. For more information on the concurrent causation doctrine, see Concurrent Causation and Efficient Proximate Cause.

 

The first is order of civil authority that results in destruction or seizure of covered property. But if covered property is destroyed to prevent spread of a fire, that loss is covered so long as the fire would have been covered by the policy. This exclusion is the same in both BP 0100 and BP 0200.

 

The second exclusion is for earth movement or volcanic action. But, loss resulting from sinkhole collapse or “volcanic action” (see Definitions, above) is covered. Volcanic eruptions occurring within a 168 hour period are considered one event. “Computers” fall outside the exclusion in the BP 0200. “Computers” are, in fact, given broad coverage throughout this form.

 

Exclusion 3. of the BP 0200 eliminates coverage for loss caused by fungus, except as provided in the additional coverages (see earlier discussion). Again, the exclusion does not apply to “computers.” In form BP 0100, there is no exception for computers.

 

As is common with property forms, there is no coverage for loss cause by nuclear reaction or contamination. Direct physical loss resulting from a fire caused by the nuclear hazard is covered.

 

Exclusion 5. precludes coverage for loss or increased costs caused by enforcement of any code, law, or ordinance regulating construction, repair, use, or demolition of any building or structure, except as provided by the additional coverage for Increased Costs – Ordinance or Law.

 

There is no coverage for loss or damage caused by interruption of power or any other utility service to the described premises, unless a covered peril results. The interruption must occur away from the described premises. This exclusion 6. does not apply to “computers” in form BP 0200.

 

Exclusion 7. for war and military action is commonly found in property forms. The concurrent causation language is included within this exclusion, thus reinforcing its effect. Any action coming within the terms of this exclusion and involving nuclear reaction or contamination falls under this exclusion, rather than the Nuclear Hazard exclusion. Presumably, therefore, a fire resulting from a nuclear reaction that is part of a war would not be covered.

 

The water damage exclusion (8.) does not apply to “computers” in form BP 0200. Other property is not covered for loss by flood, surface water, backup of sewer or drain, water below the surface of the ground, etc. The exclusion adds that water below the surface that exerts pressure on or leaks into swimming pools or septic tanks is not covered, unlike the ISO form. If fire, explosion, or sprinkler leakage results, damage from those perils is covered.

 

Finally, exclusion 9. precludes coverage for loss caused by weather, if the weather contributes to a cause or event listed in exclusions 1. through 8. Otherwise, unless the loss is itself excluded, an ensuing loss is covered.

 

All of these exclusions, except for 9., appear in the standard form. Because the standard form is a named peril form, there is no need to include the weather damage exclusion.

 

The next group of exclusions in form BP 0200 is not prefaced by concurrent causation language. As was the case with the above exclusions, many of these nineteen exclusions have exceptions. The differences from those in BP 0100 are noted.

 

Loss caused by animals, birds, or insects is excluded, unless a loss caused by breakage of building glass or specified peril results. For example, loss to a store window caused by a deer's jumping through it is covered. A fire loss caused by mice chewing off insulation on electrical wires is covered. This exclusion does not apply to “hardware,” such as mainframe computers. This exclusion is not in BP 0100, since that form is named peril coverage.

 

The first exclusion in BP 0100 is for loss caused by explosion of steam boilers, including pipes, turbines, or engines that the insured owns or that are operated under the named insured's control. But resulting fire or explosion is covered. This is exclusion 8. in form BP 0200. But in BP 0200, if a fire or combustion explosion results, the resulting loss is covered, as well as loss caused by explosion of gas or fuel in a firebox, combustion chamber, or flue.

Exclusion 2. precludes coverage for collapse except as provided by the additional coverage for collapse. There is no collapse coverage in the BP 0100, so there is no exclusion. The exclusion does not apply to computers. If collapse results in a covered peril, loss or damage caused by that peril is covered.

 

Exclusion 3. in BP 0200 (2. in BP 0100) is for loss caused by computer virus or hacking. These two terms are extensively defined in the form, but their commonly understood meanings are adequate for purposes of understanding the exclusion. This includes direct or indirect loss, or loss of access or use. The peril includes loss or damage to computer “hardware,” “software,” “data records,” network, or Web site.

 

Loss caused by contamination or deterioration is excluded (.3 in BP 0100, .4 in BP 0200), except in BP 0200 the exclusion excepts deterioration of “hardware” resulting from direct physical damage by a covered peril to the air conditioning system that services the “hardware.” In both forms any resulting breakage of building glass, or loss caused by a named (BP 0100) or specified peril (BP 0200) is covered.

 

Criminal, fraudulent, dishonest, or illegal acts is exclusion 4. in BP 0100, and 5. in BP 0200. Excluded is loss or damage caused by the named insured, others having an interest in the property, partners, officers, directors, others to whom the named insured entrusts the property, and employees or agents of any of these. There is an exception for acts of destruction by the named insured's employees, or to covered property in the custody of a carrier for hire.

 

Defects, errors, or omissions is BP 0100 exclusion 5. and BP 0200 exclusion 6. This is similar to ISO's exclusion for “acts or decisions” and “negligent work.” The exclusion relates to land use, design, defects in construction or repair materials, among others. But if any of these results in a covered cause of loss, that loss is covered.

 

Electrical currents—arcing or currents other than lightning—are excluded (6. in BP 0100; 7. in BP 0200). If a fire results, though, the fire loss is covered. Computers are excepted in the special form, but not in the named perils form.

 

Exclusion 8. in BP 0100 (10. in BP 0200) is for mechanical breakdown, including loss or damage caused by rupturing or bursting of moving parts of machinery caused by centrifugal force. In BP 0200, “hardware” falls outside the exclusion, and building glass breakage or loss caused by a specified peril is covered. In BP 0100, building glass breakage or loss caused by a named peril is covered.

 

Exclusion 8. in BP 0200 eliminates coverage for loss or damage caused by explosion of steam boilers and the like that the named insured owns or leases or that are operated under the named insured's control. But if a fire or explosion occurs, the resulting loss is covered. The exclusion does not reach loss caused by the explosion of gas or fuel in a firebox, combustion chamber, or flue.

 

Exclusion 9. in BP 0100 precludes coverage for missing property where the only proof is unexplained or mysterious disappearance or shortage discovered while taking inventory. It does not apply to the extent coverage is provided under the optional coverage for employee dishonesty. The similar exclusion is in form BP 0200, but it is under “Additional Property Excluded and Limitations.” In form BP 0200, however, it does not apply to the optional coverage for employee dishonesty or to money and securities. This latter coverage is not available in form BP 0100.

 

Exclusion 9. in BP 0200 eliminates coverage for loss caused by freezing of a plumbing, heating, air-conditioning system or appliance, unless the insured uses reasonable care to maintain heat or drain the equipment. The exclusion does not apply to “computers.” Exclusions relating to “freezing” frequently no longer include “fire protective systems” within the exclusion. Of course, these freeze, but insurers certainly do not wish to insure property where fire extinguishing systems are regularly drained. It is often much more costly to pay a total fire loss than a covered water loss. See, however, the “vacancy” provisions under the heading General Conditions.

 

Exclusion 10. in BP 0100, and 11 in BP 0200, is for neglect, meaning neglect of the insured to use all reasonable means to save and preserve covered property at the time of and after a loss, or when a covered peril endangers the property.

 

Form BP 0100 excludes loss caused by rupturing or bursting of water pipes, other than sprinkler systems, unless caused by a covered peril (exclusion 11.).

 

Loss caused by escape or release of pollutants (as defined) is excluded in BP 0200, unless caused by a covered cause of loss. And, any ensuing loss caused by a specified peril is covered. There is no coverage at all for this type of loss in BP 0100; because there is no “pollutant” named peril, there is no need to further exclude coverage. This is exclusion 12.

Exclusion 12. in the BP 0100 is for loss caused by smog. In form BP 0200 this is exclusion 15. But here again, the exclusion does not apply to “computers.”

 

Exclusion 13. (16. in BP 0200) eliminates coverage for loss caused by smoke, vapor, or gas from agricultural smudging or industrial operations; however, form BP 0200 allows coverage for computers.

 

Exclusion 13. in BP 0200 states that the insurer will not pay for loss or damage caused by or resulting from continuous or repeated seepage or leakage from within a plumbing, heating, or air-conditioning system, or domestic appliance.

 

Exclusion 14. in BP 0100 excludes coverage for loss or damage caused by accidental discharge or leakage of water or steam as a direct result of breaking or cracking of a part of a system or appliance containing water or steam. (Sprinkler systems are exempt.) But if a covered cause of loss first damages the system or appliance, there is coverage.

 

Exclusion 14. in BP 0200 precludes coverage for loss or damage caused by settling, cracking, bulging, etc., of pavements, footings, foundations, walls, ceilings, or roofs. But any resulting breakage of building glass, or loss caused by a specified peril is covered. This exclusion does not apply to “hardware.”

 

Forms BP 0100 and BP 0200 exclude loss caused by wear and tear (exclusions 15. and 19. respectively). Both forms give back coverage for any resulting breakage of building glass or loss caused by a covered peril (BP 0100) or specified peril (BP 0200). The exclusion does not apply, in form BP 0200, to loss to “hardware” resulting from mechanical breakdown. (See BP 0200 exclusion 10.)

 

Exclusion 17. in BP 0200 is for loss caused by temperature or humidity. It applies only to personal property, but not to “hardware” if the result of direct physical damage by a covered peril to the air conditioning system that services the hardware. Also, any resulting breakage of building glass or loss caused by a specified peril is covered.

 

Exclusion 18. precludes coverage for loss caused by voluntary parting, with title to or possession of, any property because of fraudulent scheme, trick, or false pretense.

 

Loss Conditions

 

Both of the businessowners forms contain nine duties for the named insured to carry out at the time of loss. These are common to most property forms.

The insured must give prompt notice to the insurer or the insurer's agent; the notice need not be written, but the insurer has the right to request a written notice. If the loss indicates the possibility of a crime having been committed, the police must be notified.

 

The named insured must use all reasonable steps to protect covered property at and following a covered loss to prevent further damage. Unfortunately, this may leave the insured in the position of having to make a quick determination on what is or what is not a covered loss. The safest course is always to act to prevent further damage. Incurred reasonable costs for necessary repairs or emergency measures will be paid, but do not increase the limit applying to the covered property.

 

Within sixty days after the insurer's request, the insured must send a signed, sworn proof of loss giving complete details of the loss, estimate of repair costs, an inventory of the damaged property (unless the total claim is less than $10,000 and less than 5 percent of the total limit applying to the covered property), the named insured's or another's interest in the property, and any changes in occupancy of or title to the covered property during the policy period.

If the insurer requests, the named insured must submit to examination under oath, and produce records (including tax returns and bank statements) relating to the value or loss. The insured is admonished not to voluntarily make any payments, offer rewards, or incur expenses other than with respect to protecting the property from further loss.

 

The insurer need not accept abandoned property. Finally, if the insured intends to continue the insured business, he or she must resume all or part as soon as possible.

 

Loss Valuation and Payment

 

The businessowners forms contain twelve valuation provisions. Because many of these are commonly found in other property forms, they will not be described in detail here.

 

The value of covered property is based on replacement cost (with exceptions as noted) unless the insured selects “actual cash value” and indicates this in the declarations. “Actual cash value” includes a deduction for depreciation. The insured must carry at least 80 percent of the property's full replacement cost. In event of a covered loss, the insurer will pay the cost to repair or replace, but not more than the least of: (1) the applicable limit; (2) the cost to replace the property on the same premises with comparable property; or (3) the amount actually spent to repair or replace the property. If the amount of insurance is less than 80 percent, the insurer pays the greater of: (1) the limit of insurance; (2) the actual cash value of the property; or (3) the proportion the applicable limit bears to 80 percent of the full replacement cost. The replacement cost does not apply until the property is actually repaired or replaced. The insured may claim an actual cash value settlement, and then make a follow-up claim later. If the insured intends to make a claim for replacement, he or she must notify the insurer within 180 days after the loss of this intent.

 

Certain property is not eligible for replacement cost coverage, so valuation at the time of a loss is on an actual cash value basis. The property includes: household contents, except for personal property the named insured as a landlord has in apartments or rooms; manuscripts, objects of art, rarity, or antiquity; used or second-hand merchandise held for sale or in storage; and personal property of others. But if that property, in the insured's care, custody or control, is subject to a written agreement specifying the extent of the insured's liability, then the valuation is based on the lesser of: (1) the extent of the insured's liability; (2) replacement cost as outlined earlier; or (3) the applicable limit. If the insured has selected actual cash value on the declarations, then this property is valued at the lesser of the extent of the insured's liability for the property or actual cash value.

Glass is valued at the cost of safety glazing material where required by ordinance, code, law, or decree.

 

Hardware—that is, the business's mainframe, personal computers, laptops, handheld computers, notebook PCs, multimedia projectors—is valued at the cost of replacing with new functionally equivalent hardware, but only if the property is replaced. If not replaced, the hardware reverts to an actual cash value settlement. If there is a partial loss, then not more than the reasonable cost to restore the partially damaged hardware will be paid.

 

Any covered loss to money is based on the face value. Covered securities are valued at their actual cash value on the close of business on the day the loss was discovered.

 

The policies contain both “pair and set” and “loss to parts” clauses. The “pair and set” clause states “the value of a lost or damaged article which is part of a pair or set is based on a reasonable proportion of the value of the entire pair or set. The loss is not considered a total loss of the pair or set.” If an item consists of several parts, then the valuation is based on the value of only the lost or damaged part or the cost to repair or replace the part.

 

The value of software (media, data records, programs and applications, and proprietary programs—see Definitions, earlier in this article) is based on:

 

 

It is interesting to note the settlement provisions that have made their way into current businessowners forms. Even ten years ago, it would not have been deemed necessary to describe settlement procedures for computer equipment; now, it is hard to imagine settlement provisions that do not touch on this equipment. This is particularly important for today's businessowner, when so much accounting and so many records are stored on a computer.

 

Tenant's improvements are the subject of valuation provision 11. The value is based on replacement cost, if the repairs or replacement is made within a reasonable time (undefined) and at the named insured's expense. If not repaired or replaced within a reasonable time, then the value is based on a portion of the original cost, determined by dividing the number of days from the date of loss to the expiration of the lease by the number of days from the date of installation to the expiration date of the lease. This figure is then multiplied by the original cost. If the lease contains a renewal option period, such as two weeks following expiration of the lease, then this time replaces the expiration of the lease.

 

Valuable papers and records, other than software, is based on the cost of blank material and the labor to transcribe or copy the records if duplicates exist, or the expense to research, reproduce, or restore lost information if there are no duplicates.

 

The loss payment provisions in many instances are similar to those in other property coverage forms. For example, no more than the named insured's insurable interest in any property will be paid, and, if more than one coverage under the policy applies to a loss, no more than the actual claim will be paid.

 

But some of the provisions clear up questions that might arise from reading the rest of the policy. The deductible provision states that no deductible applies to the fire service charge, lock and key replacement inventory and appraisal expenses, recharge of fire extinguishing equipment, or coverage C – loss of income coverages. If a loss is limited to glass, or to an optional property coverage the insured has selected, the most deducted is the deductible for those coverages shown in the declarations. If there is one occurrence that results in loss to property subject to different deductible amounts, the largest applicable deductible will be the one applied. If there is more than one policy in force covering the same loss, the insurer will pay proportionately, but only if that policy has the same “plan, terms, conditions, and provisions” as this businessowners policy. Otherwise, the insurer pays only the amount of covered loss in excess of the amount due from the other insurer, whether or not the insured can collect. In no event will more than the applicable limit be paid.

 

The insurer pays the lesser of three options in event of a loss to accounts receivable. The first option is the sum of the accounts receivable due, which includes deductions for amounts due from accounts receivable records that are not lost, amounts that can be discovered by other means, any amounts collected from the lost records, unearned interest and service charges, and an amount to allow for bad debts. The second option is the reasonable cost to reconstruct the records; the third is the applicable limit.

 

If the declarations indicates an annual percentage increase for buildings or business personal property, the increase applies proportionately from the date of the most recent limit. Coverage B business personal property is automatically increased by 25 percent to provide for seasonal increase, but this condition applies only if the limit for that property is at least 100 percent of the average monthly values for the twelve months immediately preceding the date of the loss or damage.

 

The insurer's payment for any loss or damage is subject to the aforementioned terms. Then, the insurer pays the lesser of: (1) the amount determined under the valuation provisions; (2) the cost to repair or replace with materials of like kind and quality to the extent practicable; or (3) the limit that applies to the covered property.

 

The insurer promises to adjust all losses with the named insured, and will make payment to the named insured unless another loss payee is named. A covered loss is payable thirty days after a satisfactory proof of loss is received, and the amount of loss agreed to in writing, an appraisal award has been filed with the insurer, or a final judgment entered.

 

The insurer has the option of paying the value of the lost or damaged property, paying the cost to repair or replace, rebuild or replace the property with property “of equivalent kind and quality, to the extent practicable,” or taking all or part of the property at the agreed or appraised value.

 

Property of others may be adjusted with the named insured and paid to that entity on behalf of the owner, or paid to the owner, subject to the owner's interest. If the owner of the property brings suit for some reason, the insurer may elect to defend at its own expense.

 

General Conditions

The general conditions are often standard in property policies, such as the provisions for appraisal, death of the named insured, payment to mortgagee (including a trustee) in event of a covered loss, and subrogation and recovered property. Two in particular merit close attention. These are the subrogation and the vacancy and unoccupancy provisions. The subrogation provision states:

 

 

Analysis

 

The insured has the right to waive his or her right of recovery if this is done prior to a loss and in writing. The insured does not, though, have the right to impair the insurer's right to recover, and if this occurs, the insurer has the right to deny the claim. Note, though, that the insured does have the right to waive subrogation against certain persons or organizations after a loss. Obviously, if the insurer sought payment against these further problems would result. For example, a tenant accidentally causing a covered loss and finding him or herself the target of a subrogation action might not be inclined to treat the leased or rented premises with due care.

 

The vacancy and unoccupancy provision states:

 

 

Analysis

 

“Vacancy” is distinguished from “unoccupancy,” although either may result in certain losses not being covered. A building housing a restaurant is vacant if the business moves, taking its property; it is unoccupied if the restaurant (located on Nantucket, perhaps) closes for three months during every winter. Obviously, the excluded causes of loss are those most likely to occur when no one regularly inhabits the premises, such as vandalism. Note that even hiring someone to regularly patrol the insured premises does not mitigate the force of this condition.

 

Optional Coverages

 

Each businessowners form contains three optional coverages, but they are not the same in each form. The named peril BP 0100 offers coverage for burglary and robbery (covered in BP 0200 and therefore there is no need to offer an optional coverage), employee dishonesty, and signs. In form BP 0200, the optional coverages are for employee dishonesty, money and securities, and signs. The ISO BP 00 03 optional coverages are for outdoor signs, money and securities, employee dishonesty, and mechanical breakdown. The AAIS program allows coverage for equipment breakdown to be added by endorsement.

 

Burglary and robbery coverage applies to loss to business personal property arising from the illegal taking of property from the care and custody of a person by force or the use of force, or illegal taking of property from within a locked safe or vault in the described premises. There must be visible signs of forcible entry on the exterior of the safe or vault. The coverage includes lock and key replacement (limited to $1,000) and coverage while the personal property is outside the described premises in the custody of an armored motor vehicle company.

 

Certain limitations apply. Theft of furs is limited to $2,500 in any one occurrence. Jewelry, metals, precious stones or metals is limited to $2,500 in any one occurrence; however this does not apply to jewelry or watches work $100 or less. Lottery tickets, “money”, or “securities” are not covered while in the described building. Patterns, dies, and molds are limited to $2,500. Loss from an unattended vehicle is not covered, unless there are visible signs of forcible entry into a securely locked compartment.

 

In the BP 0200, coverage for money and securities replaces burglary and robbery (which is covered in the body of the form). The insurer will pay for loss to “money”, “securities”, and lottery tickets not held for sale that the named insured owns or for which he or she is legally liable. Covered causes of loss are theft, including burglary and robbery, disappearance, or destruction. The applicable exclusions are: civil authority, earth movement or volcanic eruption, nuclear hazard, and war and military action. Additionally, loss caused by criminal, fraudulent, dishonest, or illegal acts, or voluntary parting is not covered. This may appear a contradiction in terms when viewed against the coverage grant, but the intent is to preclude loss caused by criminal or fraudulent acts on the part of an insured. See the specific exclusion, discussed earlier. Loss arising from an accounting error is not covered, nor from a coin-operated device unless money is recorded by a continuous recording instrument, nor from an unattended vehicle unless there is visible evidence of forced entry into a securely locked compartment. The automatic increase provision does not apply.

 

The insured selects two limits of coverage, one applicable to inside premises (including inside a bank or savings institution), and one outside premises for loss at any other location.

Employee dishonesty coverage is available as an option for both forms. Covered property includes business personal property, “money”, and “securities” that the named insured owns or is legally liable for. The loss must occur within the policy period and be the result of action by an “employee” acting alone or in collusion with another (but not the named insured, partner, trustee, manager, etc.).

 

The dishonest act must be committed with the apparent intent to cause the named insured loss or damage, and to obtain financial benefit other than earned salary or other employee benefit.

 

These exclusions apply: civil authority, nuclear hazard, and war and military hazard. Additionally, there is no coverage when the only proof of loss is dependent upon an inventory or profit and loss calculation, caused by an employee for whom similar prior insurance has been cancelled and not reinstated, that is not discovered within one year of the end of this policy period, or that occurs outside the coverage territory (except as provided in the supplemental coverages).

 

The insured is admonished to keep records of covered property so the insurer can verify the amount of the loss. Coverage is cancelled for any employee once a dishonest act by that employee is discovered, even if committed prior to employment.

 

There are three supplemental coverages. They are part of, and not in addition to, the applicable limit for this coverage.

 

First, the insurer pays for dishonest or fraudulent acts committed by an employee while temporarily outside the coverage territory for no more than ninety days. The second coverage responds to loss prior to the policy period of this insurance that would have been covered, except the time to discover the loss expired. However, the effective date of this insurance must correspond with the cancellation or termination of the prior policy, and the prior policy would have covered the loss had it been in force when the dishonest act occurred. The amount paid under this coverage is the lesser of the current applicable limit, or the limit of the prior insurance.

 

The third supplemental coverage is for loss or damage to business personal property, money, or securities when a loss is covered in part by this coverage and in part by prior insurance that the insurer, or an affiliate, issued. The most paid, then, is the greater of the amount recoverable under this coverage, or any prior coverage that the insurer or affiliate issued and cancelled or terminated.

 

The final optional coverage is for outdoor signs, whether or not attached to buildings. The signs must be owned by or in the care, custody, or control of the named insured at the described premises. The applicable exclusions are for civil authority, nuclear hazard, and war and military action. Additionally, loss caused by electrical currents, mechanical breakdown, and wear and tear is excluded. Loss caused by contamination, deterioration, rust, fungus, or inherent vice is not covered, but any resulting breakage of building glass, or loss caused by a specified peril is covered.