Summary: EDP coverage is intended to provide special perils coverage for computer hardware, software and website servers. Software includes data and media. In addition, the form can provide time element coverage that arises from direct losses to data processing equipment. EDP coverage usually includes two causes of loss that commonly damage computer equipment—electrical disturbance and mechanical breakdown. These two causes of loss are excluded from standard property coverage forms and are among the major reasons for purchasing special EDP coverage as opposed to insuring computer systems on a property policy. Therefore, when placing coverage, it is important to look for forms that incorporate coverage for electrical disturbances and mechanical breakdown. This treatment discusses two forms published by the American Association of Insurance Services (AAIS). EDP form IM 7200 is intended to provide broad special perils coverage for risks with total values over $250,000, at scheduled locations with scheduled limits. EDP form 7202 provides the same coverage for risks with total values over $250,000, but with blanket limits applying to all scheduled locations.
Form 7201 provides coverage for risks with values up to $250,000, but also provides business income coverage.
The key differences in the forms, aside from the values, lie in the property covered, additional coverages, and property subject to limitations sections.
Topics covered: Agreement Definitions Property covered – IM 7200 Property covered – IM 7202 Property not covered Coverage extensions Supplemental coverages – IM 7200 Supplemental coverages – IM 7202 Perils covered Perils excluded What must be done in case of loss Valuation How much we pay Loss payments Other conditions Available endorsements
Agreement
In return for “your” payment of the required premium, “we” provide the coverage described herein subject to all the “terms” of the Electronic Data Processing Coverage. This coverage is also subject to the “declarations” and additional policy conditions relating to assignment or transfer of rights or duties, cancellation, changes or modifications, inspections, and examination of books and records.
Endorsements and schedules may also apply. They are identified on the “declarations”.
Refer to Definitions for words and phrases that have special meaning. These words and phrases are shown in quotation marks or bold type.
Analysis
The agreement states that, in exchange for a premium, the insurer will provide EDP coverage as described on the declarations of the policy. Also applying to the coverage are any additional policy conditions, endorsements, and schedules that are indicated as part of the policy.
1.The words “you” and “your” mean the persons or organizations named as the insured on the “declarations”.
2.The words “we”, “us”, and “our” mean the company providing this coverage.
3.”Computer hacking” means an unauthorized intrusion:
a.by an individual or group of individuals, whether employed by “you” or not, into “hardware”, “software”, Web site, or a computer network; and
b.that results in but is not limited to:
1)deletion, destruction, generation, or modification of “software”;
2)alteration, contamination, corruption, degradation, or destruction of the integrity, quality, or performance of “software”;
3)observation, scanning, or copying of “data records”, “programs and applications”, and “proprietary programs”;
4)damage, destruction, inadequacy, malfunction, degradation, or corruption of any “hardware”, “Web site server”, or “media” used with “hardware” or “Web site server”; or
5) denial of access to or denial of services from “your” “hardware”, “Web site server”, or “your” computer network.
4.”Computer virus” means the introduction of any malicious, self-replicating electronic data processing code or other code:
a.into “hardware”, “software”, or “Web site server”; and
b.that is intended to result in, but is not limited to:
1)deletion, destruction, generation, or modification of “software”;
2)alteration, contamination, corruption, degradation, or destruction of the integrity, quality, or performance of “software”;
3)damage, destruction, inadequacy, malfunction, degradation, or corruption of any “hardware”, “Web site server”, or “media” used with “hardware” or “Web site server”; or
4)denial of access to or denial of services from “your” “hardware”, “Web site server”, or “your” computer network.
5.”Data records” means files, documents, and information in an electronic format and that are stored on “media”.
6.”Electrical disturbance” means electrical or magnetic damage, disturbance of electronic recordings, or erasure of electronic recordings.
7.”Flood” means flood, surface water, waves, tidal water, or the overflow of a body of water, all whether driven by wind or not. This includes spray that results from these whether driven by wind or not.
8.”Hardware” means a network of electronic machine components (microprocessors) capable of accepting instructions and information, processing the information according to the instructions, and producing desired results.
a.Hardware Includes—”Hardware” includes but is not limited to:
1) mainframe and mid-range computers and network servers;
2) personal computers and workstations;
3) laptops, palmtops, notebook PCs, other portable computer devices and accessories including, but not limited to, multimedia projectors; and
4) peripheral data processing equipment, including but not limited to, printers, keyboards, monitors, and modems.
b.Hardware Does Not Include—”Hardware” does not include:
1)”software”;
2)”telecommunications equipment”;
3)”reproduction equipment”;
4)”protection and control systems”; and
5)”off-site server” and “on-site server”.
9.”Limit” means the amount of coverage that applies.
10.”Mechanical breakdown” means the malfunction or failure of moving or electronic parts, component failure, faulty installation, or blowout.
11.”Media” means processing, recording, or storage media used with “hardware”. This includes but is not limited to films, tapes, cards, discs, drums, cartridges, or cells.
12.”Off-site server” means a server for “your” Web site:
a.that is not at a premises described on the “schedule of coverages”; and
b.that is being maintained and/or operated by an independent contractor acting as “your” Web host or “your” Internet service provider that is acting as “your” Web host.
13.On-site server” means a server for “your” Web site:
a.that is at a premises occupied by “you” and that is described on the “schedule of coverages”; and
b.that is being maintained and/or operated by “you” or an independent contractor acting as “your” Web site consultant.
14.”Pollutant” means:
a.any solid, liquid, gaseous, thermal, or radioactive irritant or contaminant, including but not limited to acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Waste includes materials to be recycled, reclaimed, or reconditioned, as well as disposed of; and
b.electrical or magnetic emissions, whether visible or invisible, and sound emissions.
15.”Power supply disturbance” means interruption of power supply, power surge, blackout, or brownout.
16.”Programs and applications” means operating programs and applications that “you” purchase and that are:
a.stored on “media”; or
b.pre-installed and stored in “hardware”.
17.”Proprietary programs” means proprietary applications or programs that are developed in-house or that “you” had developed specifically for “you” and that are:
a.stored on “media”; or
b.installed and stored in “hardware”.
18.”Protection and control systems” means:
a.air conditioning equipment used exclusively in the operation of the “hardware”;
b.fire protection equipment used for the protection of the “hardware”, including automatic and manual fire suppression equipment, and smoke and heat detectors; and
c.uninterruptible power supply system, line conditioner, and voltage regulator.
19.”Reproduction equipment” means a network of equipment and software designed for the scanning, copying, storage, and retrieval of paper documents.
20.”Schedule of coverages” means:
a.all pages labeled schedule of coverages or schedules which pertain to this coverage; and
b.declarations or supplemental declarations which pertain to this coverage.
21.”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. Sinkhole collapse does not include the value of the land or the cost of filling sinkholes.
22.”Software” means “media”, “data records”, “programs and applications”, and “proprietary programs”.
Software does not mean “Web site software”.
23.”Specified perils” means aircraft; civil commotion; explosion; falling objects; fire; hail; leakage from fire extinguishing equipment; lightning; riot; “sinkhole collapse”; smoke; sonic boom; vandalism; vehicles; “volcanic action”; water damage; weight of ice, snow, or sleet; and windstorm. Falling objects does not include loss to:
a.personal property in the open; or
b.to the interior of buildings or structures or to personal property inside buildings or structures unless the exterior of the roofs or walls are first damaged by a falling object. Water damage means the sudden or accidental discharge or leakage of water or steam as a direct result of breaking or cracking of a part of the system or appliance containing the water or steam.
24.”Telecommunications equipment” means telephone components and equipment used for the transmission of communications.
Telecommunications equipment includes but is not limited to:
a.telephone switchgear (including PBX systems);
b.telephone operating programs and related software;
c.facsimile transmission equipment;
d.video conferencing equipment; and
e.other related telephone hardware (including computers dedicated to voice mail).
25.”Terms” means all provisions, limitations, exclusions, conditions, and definitions that apply.
26.”Volcanic action” means airborne volcanic blast or airborne shock waves; ash, dust, or particulate matter; or lava flow.
Volcanic action does not include the cost to remove ash, dust, or particulate matter that does not cause direct physical loss to the covered property.
27.”Web site server” means “on-site server” and “off-site server”.
28.”Web site software” means the following software that are used in “your” “Web site server”:
a.”media”;
b.”data records”;
c.programs and applications which means operating programs and applications that “you” purchase and that are stored on “media” or pre-installed and stored in “Web site servers”; and
d.proprietary programs which means proprietary applications or programs that are developed in-house or that “you” had developed specifically for “you” and that are stored on “media” or installed and stored in “Web site servers”.
Analysis
Definitions 3 and 4 are new with the October, 2002, version of these forms. They have been added to indicate coverage for two things that happen quite often to computers and the data contained therein. Definition 5 is also new with this edition. It more clearly defines one type of covered property – the information contained on a computer.
Electrical disturbance, definition 6, encompasses three broad categories:
1. Electrical or magnetic damage;
2. Electronic recording disturbances; and
3. Erasure of electronic recordings.
EDP hardware and software is very susceptible to electrical disturbances. In its informational guide on this coverage form, AAIS lists the following common electrical disturbance losses:
1. Damaged circuitry;
2. Erroneous results;
3. Loss of data;
4. System failure; and
5. System shutdown.
Electrical disturbance is normally excluded from property coverage forms, which is one of the main reasons to buy specialized EDP coverage.
This EDP form is broader than most property forms, so it does not exclude loss from flood. However, in order to clarify what a flood is, this definition has been added.
Hardware is defined in item 8 as electronic machine components that can accept and process information according to instructions that are given. The current edition of the EDP forms goes on to detail what the term hardware includes and does not include.
The items listed as being outside the definition are interesting. The first is obvious – software. However, the others could certainly be seen as hardware, if not specifically excluded:
1.”telecommunications equipment”;
2. “reproduction equipment”;
3. “protection and control systems”; and
4. “off-site server” and “on-site server”.
Note that all of these items are defined terms (discussed later).
Mechanical breakdown is another cause of loss to which electronic data processing equipment is particularly susceptible. Coverage for mechanical breakdown—which is defined as mechanical breakdown or malfunction, component failure, faulty installation, or blowout—is one of the main reasons for purchasing EDP coverage. This definition does not require that the breakdown be “sudden and accidental”, which could contribute to disagreement over whether a loss is caused by mechanical breakdown, by wear and tear, or by internal fault or weakness. Mechanical breakdown normally is excluded on property coverage forms.
Definition 11, media, is another new one. Since the policy covers media as software, it defines the term to include those media used for processing, recording, or storing of information. Media includes, but is not limited to, things like disks, tapes, and drums.
Now that practically every business has a Worldwide Web Site, it has become important to insure the server that hosts or maintains that Web Site. A company's server may be either on or off the premises. The EDP forms cover both. An off-site server is away from the described location and is operated by someone else for the named insured. An on-site server is at the described location and may be operated by either the insured or someone else for the insured.
The definition of pollutant that is used in this form is the same as AAIS employs in its other programs. It defines more things as pollutants than does ISO, by including visible and invisible electromagnetic or sound emission, as well as the standard solid, liquid, gaseous, and thermal irritants or contaminants.
Another definition that is particularly important for EDP coverage is power supply disturbance, which means an interruption in power supply as well as power surges, blackouts, and brownouts. The AAIS information bulletin describes such disturbances as:
1. brownout—insufficient power line voltage for long periods;
2. blackout—total loss of line power;
3. power surge—excessive power line voltage for long periods;
4. line noise—static interference;
5. spikes—fast voltage fluctuations;
6. any combination of the above.
Definitions 16 and 17 are new with this edition of the forms. They define the two types of applications and programs present on a computer—either those purchased commercially or those that the insured develops (or paid someone else to develop).
Definition 18 pertains to protection and control systems. These are defined as air conditioning equipment, fire protection equipment, and special power supply system equipment. These types of protection systems are what commonly are used in mainframe computer installations, which often require separate temperature and humidity control systems as well as dedicated fire protection systems.
The AAIS information manual elaborates on those items listed as special power supply system equipment:
1. An uninterruptible power source allows an orderly shut down of the system in the event of a sustained power failure. It does so through use of batteries that store power and automatically take over in the event of a brownout or blackout. By maintaining the power with the batteries, the insured may then proceed with an orderly shut-down of computer operations.
2. A line conditioner helps to reduce spikes and power line noise.
3. A voltage regulator maintains a constant voltage output, regardless of the variations in input. It eliminates or reduces damage from power surges, brownouts, and spikes.
Another new definition is that of reproduction equipment. Here the policy recognizes that no matter how automated the business world becomes, there will probably always be paper documents.
The EDP coverage parts 7200 and 7202 require the use of the Schedule of Coverages. The schedule of coverages shows the following:
1. All covered locations;
2. The applicable limits for each location;
3. Any sub-limits that are built into the coverage part; and
4. The applicable deductibles.
Sub-limits in the coverage part can be changed by indicating a different limit in the schedule of coverages. AAIS points out that a company designed declarations page can be used in lieu of the schedule of coverages.
The EDP forms define sinkhole collapse as the sudden settling or collapsing of earth supporting covered property into voids in the earth. By virtue of this definition, sinkhole collapse does not include the value of the ground, itself, nor the cost of filling sinkholes.
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Software is another definition that is peculiar to EDP coverage. It means processing, recording, or storage media for EDP operations. Types of media include tapes, films, cards, discs, drums, cartridges, and cells. Software also includes data, information, and instructions that are stored on media. It is important to pay special attention to the definitions of hardware and software when setting values on EDP equipment.
The form provides for separate limits of coverage for hardware and software, and it is important to reflect the correct types of equipment per category. In the event of a loss, the hardware and software will be evaluated separately, and incorrect division of values between hardware and software prior to the loss could result in there not being sufficient coverage in either one of the categories to cover the loss there. As an example, an insured could have a total of $1,000,000 of EDP equipment, with $600,000 of that being shown as hardware and $400,000, software. However, after the loss, it may be determined that—according to this definition—there actually was only $450,000 of true “hardware” because $150,000 of what the insured considered hardware actually was software. In a total loss under this situation, the insured would recover only $450,000 for hardware and the software limit of $400,000, for a total recovery of $850,000, not the actual $1,000,000 that was lost.
Note also that the EDP forms specifically exempt Web site software from this definition. The policy provides a separate definition for such software and separate coverage.
Specified perils is the next defined term. It is comparable to the broad form causes of loss supported by ISO and includes aircraft; civil commotion; explosion; falling objects; fire; hail; leakage from fire extinguishing equipment; lightning; riot; sinkhole collapse as defined in the policy; smoke; sonic boom; vandalism; vehicles; volcanic action as defined in the policy; water damage; weight of ice, snow, or sleet; and windstorm.
The definitions of volcanic action and volcanic eruption are comparable to the terms as used in standard ISO property policies. It includes airborne shock waves, ash, dust, and lava flow. However, it does not include clean-up costs of ash or dust if there hasn't been any direct physical loss to covered property. Therefore, by definition, simple dirt from a volcanic eruption is not included in this peril unless the dirt causes direct physical loss to covered property.
Four other terms are newly defined with this edition of the EDP forms: telecommunications equipment; terms; Web Site server; and Web Site software. The definition of telecommunications equipment – telephone equipment and such that are used to transmit communications – is important because the policy specifies that such equipment is not hardware and would not be covered as hardware in the event of a loss.
Terms refers to the conditions and other terms of the policy. Web site servers may be either on or off-premises and include media, data records, and software (whether commercially developed or proprietary).
“We” cover the following property unless the property is excluded or subject to limitations.
1.Hardware—
a.Coverage — “We” cover direct physical loss caused by a covered peril to “hardware” and similar property of others that is in “your” care, custody, or control.
b.Coverage Limitations — “We” only cover “hardware” and similar property of others:
1)when a “limit” for “hardware” is indicated on the “schedule of coverages”; and
2)while at a premises described on the “schedule of coverages.”
2. Software —
a.Media, Programs, and Applications—
1)Coverage — “We” cover direct physical loss caused by a covered peril to “media”, “programs and applications”, and similar property of others that is in “your” care, custody, or control.
2)Coverage Limitations — “We” only cover “media”, “programs and applications”, and similar property of others:
a)when a “limit” for “media” and “programs and applications” is indicated on the “schedule of coverages”; and
b)while at a premises described on the “schedule of coverages”.
b.Data Records and Proprietary Programs—
1)Coverage — “We” cover the cost of research or other expenses necessary to reproduce, replace, or restore lost files or codes on lost or damaged “data records”, “proprietary programs”, and similar property of others that is in “your” care, custody, or control.
2)Coverage Limitations — “We” only cover “data records”, “proprietary programs”, and similar property of others:
a)when a “limit” for “data records” and “proprietary programs” is indicated on the “schedule of coverages”;
b)while at a premises described on the “schedule of coverages”; and
c)if the cost of research or other expenses necessary to reproduce, replace, or restore lost files or codes are incurred due to a direct physical loss caused by a covered peril to “data records” and “proprietary programs”.
3. Web Site Server—
a.On-Site Server —
1)Server Coverage — “We” cover direct physical loss caused by a covered peril to an “on-site server”.
2)Software Coverage — “We” also cover direct physical loss caused by a covered peril to the “Web site software” housed on an “on-site server”.
3)Coverage Limitations — “We” only cover “on-site server” and “Web site software”:
a)when a “limit” for “on-site server” and “Web site software” is indicated on the “schedule of coverages”; and
b)while at a premises described on the “schedule of coverages”.
b.On-Site Server Coverage Under Hardware and Software—
1)Coverage—If indicated on the “schedule of coverages”, coverage for:
a)an “on-site server” is provided as part of the coverage described under 1. Hardware; and
b)the “Web site software” housed on an “on-site server” is provided as part of the coverage described under 2. Software.
2)Coverage Limitations —
a)The “limits” applicable to Hardware and Software are not increased when coverage for “on-site server” and “Web site software” are included under the Hardware and Software coverage sections; and
b)”we” only cover “on-site server” and “Web site software” while at a premises described on the “schedule of coverages”.
c.Off-Site Server—
1)Server Coverage — “We” cover direct physical loss caused by a covered peril to an “off-site server” that “you”:
a)own; or
b)lease and are contractually obligated to insure for loss or damage.
2)Software Coverage — “We” also cover direct physical loss caused by a covered peril to the “Web site software” housed on an “off-site server”.
3)Coverage Limitation—“We” only cover “off-site server” and “Web site software” when a “limit” for “off-site server” and “Web site software” is indicated on the “schedule of coverages”.
d.Software Coverage Condition — “We” only cover “Web site software” if a duplicate or back-up of the “Web site software” is stored at a building that is at least 100 feet away from the premises where the “on-site server” or “off-site server” is being hosted.
Analysis
The IM 7200 defines three different classes of covered property:
1. Hardware;
2.. Software; and
3. Web Site servers.
Each of these is a defined term in the policy as discussed previously in the definitions section. In addition, property is covered only if it is at a location that is scheduled on the policy. The property can be owned or leased by the insured, but its location must be scheduled. In order for a loss to be covered, the covered property must be damaged by direct physical loss to it caused by a covered peril. In addition, the fact that covered property includes property of others that is in the insured's care, custody, or control provides coverage for borrowed or leased equipment as long as it is located at a location described in the policy.
The only exception to the requirement for a premises description is the coverage for off-site Web Servers. In order for this coverage to apply, a limit of liability must be shown in the schedule of coverages.
Previous editions of the IM 7200 included coverage for protection and control systems within the limit of liability for hardware. The current edition of the form provides $10,000 of coverage for these items as a supplemental coverage (to be discussed later).
“We” cover the following property unless the property is excluded or subject to limitations.
1. Equipment —
a.Coverage — “We” cover direct physical loss caused by a covered peril to the following property:
1)”hardware”;
2)”protection and control systems”;
3)”telecommunications equipment”;
4)”reproduction equipment”; and
similar property of others that is in “your” care, custody, or control.
b.Coverage Limitations — “We” only cover the equipment listed above and similar property of others:
1)when a “limit” for the equipment is indicated on the “schedule of coverages”; and
2)while at a premises described on the “schedule of coverages”.
Analysis
Here is the first difference between the IM 7200 and the IM 7202. The 7200 covers only hardware, as defined. The 7202 expands coverage to “equipment.” The equipment covered includes hardware, as does the 7200. However, the 7202 adds these items as covered property that are specifically excluded from coverage under the 7200: protection and control systems; telecommunications equipment; and reproduction equipment.
1.Accounts, Bills or Documents – “We” do not cover accounts, bills, evidences of debt, records, abstracts, deeds, manuscripts, program documentation, or other documents except those that are in “software” form and then only in that form.
2.Checked Luggage—”We” do not cover loss resulting from theft or disappearance of a laptop, palmtop, notebook PC, or any portable computer while in transit as checked luggage.
3.Contraband – “We” do not cover contraband or property in the course of illegal transportation or trade.
4.Loaned, Leased, or Rented To Others – “We” do not cover property that “you” loan, lease, or rent to others.
5.Money and Securities – “We” do not cover currency, food stamps, lottery tickets not held for sale, money, notes, or securities.
6.Stock in Trade – “We” do not cover “your” stock in trade.
7.Loss of Internet Service Provider or Web Host—”We” do not cover loss to “your” “Web site server” or “Web site software” that results from the bankruptcy, liquidation, or otherwise going out of business by “your” Internet service provider or Web host.
Analysis
Both forms have the same list of items that are not covered. Coverage for accounts and other documents is included only if it is in the form of software. Contraband; property that is loaned, leased, or rented to others; and money and securities are not insured on the form. Contraband is not insurable, and the other two categories of property are better insured elsewhere. In addition, EDP equipment that is being held for sale is not insured. This means that an EDP dealer would have coverage under this form only for the equipment used to operate the business. Equipment that is considered stock would have to be insured elsewhere.
The current editions of the forms add two classes of property not covered: checked luggage and loss of Internet service provider or Web host. The first limitation requires the insured to keep any portable computer with him while in transit. If he checks it into the cargo hold of an airplane (or other means of transportation) and it is damaged, the policy will not cover the damage.
The other addition to this category recognizes the use of third parties as Web hosts or Internet service providers. If the insured is using a third party for one or both of these and that third party goes out of business, the policy does not pay for any resulting loss to the insured's Web site server or Web site software.
Provisions That Apply To Coverage Extensions — The following Coverage Extensions indicate an applicable “limit”. This “limit” may also be shown on the “schedule of coverages”.
If a different “limit” is indicated on the “schedule of coverages”, that “limit” will apply instead of the “limit” shown below.
However, if no “limit” is indicated for a Coverage Extension, coverage is provided up to the full “limit” for the applicable covered property unless a different “limit” is indicated on the “schedule of coverages”.
Unless otherwise indicated, the coverages provided below are part of and not in addition to the applicable “limit” for coverage described under Property Covered.
The “limit” provided under a Coverage Extension cannot be combined or added to the “limit” for any other Coverage Extension or Supplemental Coverage including a Coverage Extension or Supplemental Coverage that is added to this policy by endorsement.
The following coverage extensions are not subject to and not considered in applying coinsurance conditions.
1.Debris Removal
a.Coverage – “We” pay the cost to remove the debris of covered property that is caused by a covered peril.
b.We Do Not Cover – This coverage does not include costs to:
1)extract “pollutants” from land or water; or
2)remove, restore, or replace polluted land or water.
c.”We” will not pay any more under this coverage than 25% of the amount “we” pay for the direct physical loss. “We” will not pay more for loss to property and debris removal combined than the “limit” for the damaged property.
d.Additional Limit – “We” pay up to an additional $10,000 [$25,000 in form 7202] for debris removal expense when the debris removal expense exceeds 25% of the amount “we” pay for direct physical loss or when the loss to property and debris removal combined exceeds the “limit” for the damaged property.
e.You Must Report Your Expenses – “We” do not pay any expenses unless they are reported to “us” in writing within 180 days from the date of direct physical loss to covered property.
2.Electrical and Power Supply Disturbance — “We” cover direct physical loss to covered property caused by:
a.”electrical disturbance”; or
b.”power supply disturbance”.
3.Emergency Removal—
a.Coverage—”We” pay for any direct physical loss to covered property while it is being moved or being stored to prevent a loss caused by a covered peril.
b.Time Limitation—This coverage applies for up to 365 days after the property is first moved. Also, this coverage does not extend past the date on which this policy expires.
4.Emergency Removal Expenses —
a.Coverage — “We” pay for “your” expenses to move or store covered property to prevent a loss caused by a covered peril.
b.Time Limitation — This coverage applies for up to 365 days after the property is first moved. Also, this coverage does not extend past the date on which this policy expires.
c.Limit—The most “we” pay in any one occurrence for expenses to move or store covered property to prevent a loss is $2,500 [$5,000 in form 7202].
d.This Is A Separate Limit — The “limit” for Emergency Removal Expenses is separate from, and not part of, the applicable “limit” for coverage described under Property Covered.
5.Fraud and Deceit—
a.Coverage — “We” cover theft of covered property when “you”, “your” agents, customers, or consignees are fraudulently induced to part with the covered property:
1)to persons who falsely represent themselves as the proper persons to receive the property; or
2)by the acceptance of fraudulent bills of lading or shipping receipts.
b.Limit—The most “we” pay in any one occurrence for theft of covered property under this Coverage Extension is $2,500 [$5,000 in form 7202].
6.Mechanical Breakdown Coverage — “We” pay for loss to covered property caused by “mechanical breakdown”.
Analysis
Both forms provide the above six coverage extensions. The limit for each coverage extension may either be chosen by the insured or it may be up to the limit of liability for the covered property. These extensions are not subject to the coinsurance condition.
The first coverage extension provides for payment of up to 25 percent of the direct property loss for removal of debris generated by damage to covered property by a covered peril. There also is an additional $10,000 ($25,000 in form 7202)—above the scheduled limit of coverage for the damaged property—available for debris removal expense when the debris removal expense exceeds 25 percent of the direct loss payable by the insurer. The additional $10,000 (or $25,000) also is available when the total of debris removal expense and direct property damage exceeds the limit insured for the damaged property. Other than the $10,000 (or $25,000), the insurer will not pay more for debris removal and the direct loss combined than the limit insured for the damaged property. The expenses must be reported within 180 days of the loss. This additional coverage is not available to remove pollutants or to restore polluted land or water.
Coverage extension number two provides coverage for loss to covered property by electrical and power supply disturbance, again as defined in the policy. Previous editions of the forms limited coverage to only when the disturbance takes place within 500 feet of the location where the loss occurred. However, that limitation does not appear in the current edition of the forms. This represents a considerable broadening of coverage under these forms.
There is coverage under emergency removal for loss to covered property that has been or is being moved to prevent a covered loss. This coverage applies for up to 365 days after the property has been moved, not to run past expiration of the policy. This is another broader coverage than previous editions of the forms that provided coverage for only ten days.
In addition to covering the property for direct loss while being removed, the forms also cover the expenses incurred by the insured to move or store his covered property. Form IM 7200 provides $2,500 for this coverage, while the 7202 provides $5,000. The policy specifies that this amount of coverage is in addition to the limits for covered property.
Coverage extension five is new to these forms. It provides up to $2,500 ($5,000 in the 7202) if the insured is “fraudulently induced” to part with covered property.
As stated in coverage extension six, mechanical breakdown, as defined in the policy, is covered.
Supplemental Coverages—IM 7200
Provisions That Apply To Supplemental Coverages—The following Supplemental Coverages indicate an applicable “limit”. This “limit” may also be shown on the “schedule of coverages”.
If a different “limit” is indicated on the “schedule of coverages”, that “limit” will apply instead of the “limit” shown below. However, if no “limit” is indicated for a Supplemental Coverage, coverage is provided up to the full “limit” for the applicable covered property unless a different “limit” is indicated on the “schedule of coverages”.
Unless otherwise indicated, a “limit” for a Supplemental Coverage provided below is separate from, and not part of, the applicable “limit” for coverage described under Property Covered.
The “limit” available for coverage described under a Supplemental Coverage:
a.is the only “limit” available for the described coverage; and
b.is not the sum of the “limit” indicated for a Supplemental Coverage and the “limit” for coverage described under Property Covered.
The “limit” provided under a Supplemental Coverage cannot be combined or added to the “limit” for any other Supplemental Coverage or Coverage Extension including a Supplemental Coverage or Coverage Extension that is added to this policy by endorsement.
The following coverage extensions are not subject to and not considered in applying coinsurance conditions.
1.Acquired Locations—
a.Coverage—“We” cover direct physical loss caused by a covered peril to covered property at locations that “you” acquire during the policy period.
b.Limit—“We” pay up to $500,000 for covered property at locations that “you” acquire.
c.Time Limitation—This coverage applies for up to 60 days from the date “you” acquire the location or until “you” report the acquired location to “us”, whichever occurs first.
However, this coverage does not go beyond the end of the policy period.
d.Additional Premium—“You” must pay any additional premium due from the date “you” acquire the location.
2.Earthquake Coverage—If coverage is indicated on the “schedule of coverages”, “we” cover direct physical loss caused by earthquake and volcanic eruption to covered property while at a premises described on the “schedule of coverages”.
3.Flood Coverage—If coverage is indicated on the “schedule of coverages”, “we” cover direct physical loss caused by “flood” to covered property while at a premises described on the “schedule of coverages”.
4.Newly Purchased or Leased Hardware—
a.Coverage—“We” cover direct physical loss caused by a covered peril to additional “hardware” including pre-installed “programs and applications” that “you” purchase or lease during the policy period.
b.Limit—The most that “we” pay for any loss under this additional coverage is the least of:
1)the actual cash value of the covered property; or
2)$500,000.
c.Time Limitation—“We” extend coverage to the additional “hardware” that “you” purchase or lease for up to 60 days.
This supplemental coverage will end when any of the following first occur:
1)this policy expires;
2)60 days after “you” obtain the additional “hardware”; or
3)”you” report the additional “hardware” to “us”.
d.Additional Premium—“You” must pay any additional premium due from the date “you” purchase or lease the additional “hardware”.
5.Off-Site Computers—
a.Coverage—“We” cover direct physical loss caused by a covered peril to covered property in the custody of “you”, “your” officers, “your” partners, or “your” employees, while:
1)at “your” residence or the residence of “your” officers, partners, or employees;
2)temporarily at a premises that is not described on the “schedule of coverages”; or
3)in transit between a:
a)residence or temporary premises; and
b)premises described on the “schedule of coverages”.
b.Limit — The most “we” pay in any one occurrence for loss to off-site covered property is $5,000.
6.Pollutant Cleanup and Removal—
a.Coverage—“We” pay “your” expense to extract “pollutants” from land or water if the discharge, dispersal, seepage, migration, release, or escape of the “pollutants” is caused by a covered peril that occurs during the policy period.
b.Time Limitation—The expenses to extract “pollutants” are paid only if they are reported to “us” in writing within 180 days from the date the covered peril occurs.
c.We Do Not Cover—“We” do not pay the cost of testing, evaluating, observing, or recording the existence, level, or effects of “pollutants”.
However, “we” pay the cost of testing which is necessary for the extraction of “pollutants” from land or water.
d.Limit—The most “we” pay for each location is $10,000 for the sum of all such expenses arising out of a covered peril occurring during each separate 12-month period of this policy.
7.Property In Transit—
a.Coverage—“We” cover direct physical loss to covered property caused by a covered peril while in transit.
b.Limit—The most “we” pay in any one occurrence for loss to covered property in transit is $10,000.
8.Protection and Control Systems—
a.Coverage—“We” cover direct physical loss caused by a covered peril to “protection and control systems” while at a premises described on the “schedule of coverages”.
b.Limit—The most “we” pay in any one occurrence for loss to “protection and control systems” is $10,000.
9.Recharge of Fire Extinguishing Equipment—
a.Coverage—“We” pay the expenses “you” incur to recharge “your” automatic fire extinguishing equipment or hand held fire extinguishing equipment when the equipment is discharged:
1)to fight a fire;
2)as a result of a covered peril; or
3)as a result of an accidental discharge.
b.We Do Not Cover—“We” do not pay for “your” expenses to recharge equipment as a result of a discharge during testing or installation.
c.Limit—The most “we” pay in any one occurrence for “your” expenses to recharge “your” fire extinguishing equipment is $15,000.
d.Conditions For Replacing Rather Than Recharging—If it is less expensive to do so, “we” will pay “your” costs to replace “your” automatic fire extinguishing equipment or hand held fire extinguishing equipment rather than recharge the equipment.
10.Reproduction Equipment—
a.Coverage—“We” cover direct physical loss caused by a covered peril to “reproduction equipment” while at a premises described on the “schedule of coverages”.
b.Limit—The most “we” pay in any one occurrence for loss to “reproduction equipment” is $10,000.
11.Rewards—
a.Coverage—“We” pay for reward information that leads to a conviction for:
1)arson,
2)theft, or
3)vandalism including, but not limited to, “computer hacking” and “computer virus”.
The conviction must involve a covered loss caused by arson, theft, or vandalism.
b.Limit—The most “we” pay in any one occurrence for reward information is $2,500.
c.Limit Is Not Increased By The Number of Persons Providing Information—The amount “we” pay is not increased by the number of persons involved in providing the information.
12.Sewer Backup and Water Below the Surface—If coverage is indicated on the “schedule of coverages”, “we” cover direct physical loss caused by:
a.water that backs up through a sewer or drain; or
b.water below the surface of the ground, including but not limited to water that exerts pressure on or flows, seeps, or leaks through or into a described premises.
13.Software Storage—
a.Coverage—“We” cover direct physical loss caused by a covered peril to duplicate and back-up “software” stored at a “software” storage location.
b.Coverage Condition—Each “software” storage location must be in a separate building which is at least 100 feet away from a premises described on the “schedule of coverages”.
c.Limit—The most “we” pay in any one occurrence for loss to duplicate and back-up “software” is $50,000.
14.Telecommunications Equipment—
a.Coverage — “We” cover direct physical loss caused by a covered peril to “telecommunications equipment” while at a premises described on the “schedule of coverages”.
b.Limit—The most “we” pay in any one occurrence for loss to “telecommunications equipment” is $10,000.
15.Virus and Hacking Coverage—
a.Coverage—“We” cover direct physical loss to covered “hardware”, “software”, “Web site server”, and “Web site software” caused by a “computer virus” or by “computer hacking”.
b.We Do Not Cover—“We” do not cover:
1)loss of exclusive use of any “data records” or “proprietary programs” that have been copied, scanned, or altered;
2)loss of or reduction in economic or market value of any “data records” or “proprietary programs” that have been copied, scanned, or altered;
3)theft from “your” “data records” or “proprietary programs” of confidential information through the observation of the “data records” or “proprietary programs” by accessing covered “hardware”, or “your” computer network without any alteration or other physical loss or damage to the records or programs. Confidential information includes, but is not limited to, customer information, processing methods, or trade secrets; and
4)except as provided under the Supplemental Income Coverages section of the Electronic Data Processing – Income Coverage Part (if attached to this policy), denial of access to or services from “your” “hardware”, “your” computer network, or “your” Web site.
c.Limits—The most “we” pay in any one occurrence under this Supplemental Coverage is $25,000.
The most “we” pay for all covered losses under this Supplemental Coverage during each separate 12-month period of this policy is $75,000.
Analysis
Form IM 7200 provides 15 supplemental coverages. Each coverage has its own limit, contained within the limits for covered property indicated on the declarations. These extensions are not subject to the coinsurance condition.
The first provides up to $500,000 for covered property located at premises the insured acquires during the policy period. The coverage is available for up to 60 days from the date the location is acquired or until the location is reported to the insurer. Additional premium on the newly acquired location is payable from the date that the location is acquired.
Two perils that are often excluded on property policies are added to the IM 7200, earthquake (including volcanic eruption) and flood. In order for these coverages to apply, the appropriate indication must be made on the declarations page.
Form IM 7200 provides a maximum of $500,000 coverage for newly purchased or leased hardware for up to 60 days after it is acquired. The amount of coverage will be the least of the actual cash value of the property or $500,000. The coverage period ends on the earliest of the policy expiration, 60 days after the property is acquired, or the date the new hardware is reported to the carrier. Thus, if an insured buys $150,000 of EDP hardware twenty-five days prior to policy expiration, there will be automatic coverage for $150,000 of new hardware until the policy expires. The new equipment must be added to the policy upon renewal, or there will not be any coverage for it after the renewal.
Supplemental coverage five provides $5,000 for loss to covered property in the insured's care, custody, or control. The property may be at a residence (either the insured's, an officer's, partner's, or employee's). It may also be at a premises that is not described on the declarations page. Finally, this supplemental coverage also applies while the property is in transit between such locations.
The sixth additional coverage provides up to $10,000 for pollutant cleanup and removal for each insured location in each 12-month period of the policy. This coverage may not be applied to the cost of testing for pollutants; it is available only for the removal of pollutants from land or water plus testing that is required in the removal process.
Up to $10,000 additional coverage is available for covered property that is damaged by a covered peril while the property is in transit or away from the insured premises. The $10,000 is an additional amount to any transit/off-premises coverage that is indicated on the declarations of the policy.
The policy pays up to $10,000 for damage to protection and control systems. Recall that such systems are specifically excluded from the definition of covered property. Here, some coverage is given back for them.
The insurer will pay up to $15,000 to recharge fire suppression equipment after it has been discharged while fighting a fire, as the result of a covered peril, or even if the discharge happens accidentally. The coverage is not triggered in the event the equipment is discharged while being tested or installed.
Another new supplemental coverage is $10,000 for reproduction equipment. Recall that this is a defined term. It refers to equipment that copies, scans, stores, or retrieves paper documents. It would include things like photocopiers and scanners.
Also new with this edition is $2,500 coverage for rewards. If covered property is damaged by arson, theft, or vandalism (including hacking and viruses), the insurer will pay the reward amount for information leading to the conviction of the person or persons responsible.
The causes of loss exclude damage from water that backs up from sewers and water below the surface of the ground. However, if the indication is present on the declarations page, the policy does cover such loss to covered property.
There is up to $50,000 of coverage for duplicate software that is stored at least 100 feet away from a described premises.
Another supplemental coverage is $10,000 for loss to telecommunications equipment. Recall that the policy defines such equipment and it includes telephone components, telephone operating systems, fax machines, and video conferencing equipment.
The last supplemental coverage is virus and hacking coverage. The policy limits this coverage to $25,000 per occurrence with an annual aggregate of $75,000.
Supplemental Coverages—IM 7202
4.Foreign Transit and Location Coverage—
a.Coverage—”We” cover direct physical loss caused by a covered peril to the covered property described below while temporarily at a foreign location outside of the boundaries described under Other Conditions, Territorial Limits or in transit to or from a temporary foreign location.
b.Covered Property—Under this supplemental coverage “we” only cover “your” portable computers including pre-installed “programs and applications”. Portable computers means:
1)laptops, palmtops, notebook PCs;
2)other portable computer devices; and
3)accessories including, but not limited to, multimedia projectors.
c.Property Not Covered—In addition to the property described under Property Not Covered, “we” do not pay for loss to personal property under this Supplemental Coverage if:
1)the property is shipped via mail;
2)”you” are required to provide a negotiable ocean cargo policy or certificate to any seller, buyer, or bank; or
3)the property is shipped to or is located in a country that is the subject of a trade embargo, economic sanctions, or other trade restrictions by the government of the United States of America.
d.Limit—The most “we” pay for loss to portable computers described above in any one occurrence while overseas is $5,000.
5.Incompatible Hardware and Media—
a.Coverage—In the event of a loss by a covered peril to covered “hardware” or “software”, “we” pay for “your” costs to modify or replace undamaged “hardware” or “media” when it:
1)was dependent on the damaged “hardware” or “software” prior to the covered loss; and
2)is not compatible with the “hardware” or “software” that is replacing the property that was involved in the covered loss.
b.Coverage Limitation—”We” will only pay for “your” costs to modify or replace undamaged “hardware” or “media” if the incompatible “hardware” or “media” is at a premises described on the “schedule of coverages”.
c.Limit—The most “we” pay in any one occurrence for “your” costs to modify or replace incompatible “hardware” or “media” is $10,000.
Analysis
The above 2 supplemental coverages are unique to form IM 7202. The first coverage provides up to $5,000 for damage to the named insured's portable equipment such as lap-tops and notebook PCs. Such equipment is covered while it is “temporarily” outside of the territorial limits or in transit to or from such a location.
However, form 7202 imposes three restrictions on the foreign transit coverage:
1. There is no coverage for property shipped via mail.
2. The form does not cover any property for which the insured is required to provide insurance.
3. There is no coverage for property shipped to or located in a country upon which the United States has issued trade restrictions.
The other supplemental coverage unique to the 7202 is incompatible hardware and media. Often when a loss occurs to hardware or software, the replacement hardware or software may not be compatible with existing, undamaged items. In this case, form 7202 pays up to $10,000 to replace the undamaged items with ones that will be compatible with the other new items.
Some of the other supplemental coverages are the same on the 7202 as on the 7200, except that the 7202 provides a greater amount of coverage:
1. Off-Site Computers: $5,000 on form 7200; $10,000 on form 7202.
2. Pollutant Clean-Up and Removal: $10,000 on form 7200; $15,000 on form 7202.
3. Property in Transit: $10,000 on form 7200; $15,000 on form 7202.
4. Rewards: $2,500 on form 7200; $5,000 on form 7202.
5. Virus and Hacking Coverage: $25,000/$75,000 on form 7200; $50,000/$150,000 on form 7202.
Note that the following supplemental coverages included on form 7200 are not included as supplemental coverages on form 7202, because the 7202 provides coverage for them as part of the insuring agreement.
1. Protection and Control Systems.
2. Reproduction Equipment.
3. Telecommunications Equipment.
“We” cover external risks of direct physical loss unless the loss is limited or caused by a peril that is excluded.
Analysis
This clause provides open perils coverage for EDP equipment covered under the policy. Coverage is inferred under this language unless an exclusion can be found on the form to void coverage.
1.”We” do not pay for loss or damage caused directly or indirectly by one or more of the following excluded causes or events. Such loss or damage is excluded regardless of other causes or events that contribute to or aggravate the loss, whether such causes or events act to produce the loss before, at the same time as, or after the excluded causes or events.
a.Civil Authority – “We” do not pay for loss caused by order of any civil authority, including seizure, confiscation, destruction, or quarantine of property.
“We” do pay for loss resulting from acts of destruction by the civil authority to prevent the spread of fire, unless the fire is caused by a peril excluded under this coverage.
b.Earth Movement – Except as provided under Supplemental Coverages – Earthquake Coverage, “we” do not pay for loss caused by any earth movement (other than “sinkhole collapse”) or caused by eruption, explosion, or effusion of a volcano. Earth movement includes, but is not limited to: earthquake; landslide; mudflow; mudslide; mine subsidence; or sinking, rising, or shifting of earth.
“We” do cover direct loss by fire, explosion, or “volcanic action” resulting from either earth movement or eruption, explosion, or effusion of a volcano.
c.Flood – Except as provided under Supplemental Coverages – Flood Coverage, “we” do not pay for loss caused by “flood”. However, “we” do cover the resulting loss if fire, explosion, or sprinkler leakage results.
d.Nuclear Hazard – “We” do not pay for loss caused by or resulting from a nuclear reaction, nuclear radiation, or radioactive contamination (whether controlled or uncontrolled; whether caused by natural, accidental, or artificial means). Loss caused by nuclear hazard is not considered loss caused by fire, explosion, or smoke. “We” do pay for direct loss by fire resulting from the nuclear hazard.
e.Sewer Backup and Water Below the Surface — Except as provided under Supplemental Coverages – Sewer Backup and Water Below the Surface, “we” do not pay for loss caused by or resulting from:
1)water that backs up through a sewer or drain; or
2)water below the surface of the ground, including but not limited to water that exerts pressure on or flows, seeps, or leaks through or into a covered building or structure, sidewalk, driveway, foundation, swimming pool, or other structure.
But if sewer backup and water below the surface results in fire, explosion, or sprinkler leakage, “we” cover the loss or damage caused by that fire, explosion, or sprinkler leakage.
f.War and Military Action — “We” do not pay for loss caused by:
1)war, including undeclared war or civil war; or
2)a warlike action by a military force, including action taken to prevent or defend against an actual or expected attack, by any government, sovereign, or other authority using military personnel or other agents; or
3)insurrection, rebellion, revolution, or unlawful seizure of power including action taken by governmental authority to prevent or defend against any of these.
With regard to any action that comes within the “terms” of this exclusion and involves nuclear reaction, nuclear radiation, or radioactive contamination, this War and Military Action Exclusion will apply in place of the Nuclear Hazard Exclusion.
2.”We” do not pay for loss or damage if one or more of the following exclusions apply to the loss.
a.Computer Virus or Computer Hacking — Except as provided under Supplemental Coverages – Virus and Hacking Coverage, “we” do not pay for:
1)any direct or indirect loss or damage; or
2)loss of access, loss of use, or loss of functionality
caused by a “computer virus” or by “computer hacking”.
b.Criminal, Fraudulent, or Dishonest Acts – “We” do not pay for loss caused by or resulting from criminal, fraudulent, dishonest, or illegal acts alone or in collusion with another by:
1)”you”;
2)others who have an interest in the property;
3)others to whom “you” entrust the property;
4)”your” partners, officers, directors, trustees, or joint adventurers; or
5)the employees or agents of 1), 2), 3), or 4) above, whether or not they are at work.
This exclusion does not apply to acts of destruction by “your” employees, but “we” do not pay for theft by employees.
This exclusion does not apply to covered property in the custody of a carrier for hire.
c.Loss of Use – “We” do not pay for loss caused by or resulting from loss of use, business interruption, delay, or loss of market.
d.Pollutants – “We” do not pay for loss caused by or resulting from release, discharge, seepage, migration, dispersal, or escape of “pollutants” unless the release, discharge, seepage, migration, dispersal, or escape is caused by a “specified peril”. “We” do pay for any resulting loss caused by a “specified peril”.
e.Temperature/Humidity – “We” do not pay for loss to covered property caused by:
1)dryness, dampness, humidity; or
2)changes in or extremes of temperature.
However, “we” do pay for loss to covered property that results from a direct physical loss, caused by a covered peril, to the air conditioning system that services covered “hardware”.
f.Voluntary Parting — Except as provided under Coverage Extensions – Fraud and Deceit, “we” do not pay for loss caused by or resulting from voluntary parting with title to or possession of any property because of any fraudulent scheme, trick, or false pretense.
3.”We” do not pay for loss or damage if one or more of the following exclusions apply to the loss. But if loss by a covered peril results, “we” will pay for the resulting loss.
a.Contamination, Deterioration, Rust, or Corrosion — “We” do not pay for loss caused by contamination or deterioration including corrosion, decay, fungus, mildew, mold, rot, rust, or any quality, fault, or weakness in covered property that causes it to damage or destroy itself.
This exclusion does not apply to loss caused by “mechanical breakdown”.
b.Wear and Tear, or Obsolescence—“We” do not pay for loss caused by wear and tear, depreciation, or obsolescence.
Analysis
As with any special causes of loss policy, an understanding of the exclusions is critical to proper use of the coverage form. Under this form, coverage is inferred if covered property at a scheduled location is damaged by a covered peril. A peril is covered unless it is limited or excluded elsewhere on the form. Therefore, an insurer must identify an exclusion or limitation in order to deny coverage based on the cause of loss.
Section 1 of the perils excluded section states that there are three exclusions that eliminate coverage, regardless of whether other causes or events contribute to or aggravate the loss. This type of wording is known as the concurrent causation doctrine, which is discussed extensively elsewhere in this volume. See Concurrent Causation.
These six exclusions are for actions of civil authority, earth movement, flood, nuclear, sewer back-up and water beneath the surface of the ground, and war. There is an exception to the civil authority exclusion, which permits coverage for loss caused by civil authority in trying to prevent the spread of fire, unless the peril that causes the loss is excluded elsewhere. Thus, if firemen intentionally discharged a fire suppression system over EDP equipment in order to prevent the spread of fire from an adjoining property, the loss would not be excluded under the civil authority clause. These exclusions involve perils that also are excluded on the ISO special causes of loss form. However, the war exclusion is somewhat broader than that included in the ISO form. The AAIS form IM 7200 and IM 7202 exclude destruction, seizure, or use of property for a military purpose and the discharge of a nuclear weapon, even if accidental.
New to this edition of the forms is the exclusion of water beneath the surface of the ground and sewer back up. The policy does cover resultant loss from fire, explosion, or sprinkler leakage.
Section 2 incorporates six excluded perils. The first of these removes coverage for computer viruses and hacking, except as provided in the supplemental coverages.
Number two excludes coverage for criminal, fraudulent, or dishonest acts by the insureds; others who have interests in the property; anyone the insured has entrusted with the property; partners, officers, directors, trustees, or joint adventurers of the insured; or employees of any of the above. This exclusion specifically deletes coverage for theft by employees, although destruction of covered property by employees is covered. There also is an exception that permits coverage for covered property that is in the custody of a carrier the insured has hired.
The form does not cover any damages caused by or resulting from loss of use, business interruption, delay, or loss of market.
Damage caused by or resulting from pollutants is excluded, unless the pollution discharge is caused by a specified peril as defined in the policy, in which case the resulting loss is insured.
The fifth exclusion voids coverage for loss that is caused by humidity, dampness, dryness, or changes/extremes in temperature. However, there is coverage for direct physical loss that is caused by a covered peril to air conditioning systems that service covered hardware.
The sixth exclusion removes coverage for loss caused when an insured is tricked into voluntarily parting with covered property. Some coverage is given back in the coverage extension, fraud and deceit.
Deterioration, contamination, rust, or corrosion within the covered property is excluded except for loss that is caused by mechanical breakdown, which is a covered peril. This exclusion reinforces the fact that only external risks are insured by the policy. The definition of mechanical breakdown used in this form does not require that the breakdown be “sudden and accidental”, which could contribute to disagreement about whether a loss was caused by mechanical breakdown, which is covered, or fault or weakness within the covered property that causes it to damage itself, which is not covered. An example of disagreement over the meaning of mechanical breakdown is seen in Ready Food Products, Inc., v. Great Northern Insurance Co., 612 A.2d 1385 (Pa. Super. 1992) a case involving boiler and machinery coverage that included mechanical breakdown as a covered cause of loss. The trial court ruled that mechanical breakdown “would include any situation where a machine fails to function correctly, not merely one in which it has ceased functioning completely.” On appeal, Great Northern argued that the machinery failed because of corrosion, an excluded peril, and that the corrosion was both the cause and effect of the loss. In affirming the trial court's ruling, the superior court stated that “. . .we need not define the terms involved here to find that appellant's verbal gymnastics make clear the susceptibility of the exclusionary clauses to more than one interpretation.” Similarly, the EDP coverage form does not define weakness or fault, which could lead to disagreements over whether a loss is covered or not.
Wear and tear and obsolescence is the final exclusion. This voids coverage for EDP equipment that merely wears out or becomes obsolete. In some circumstances, there could be disagreement as to whether a loss is caused by mechanical breakdown, which is covered, or wear and tear, which is not covered, just as in losses that may involve fault or weakness within the property, itself.
What Must Be Done in Case of Loss
1.Notice – In case of a loss, “you” must:
a.give “us” or “our” agent prompt notice including a description of the property involved (“we” may request written notice); and
b.give notice to the police when the act that causes the loss is a crime.
2.You Must Protect Property – “You” must take all reasonable steps to protect covered property at and after an insured loss to avoid further loss.
a.Payment of Reasonable Costs – “We” do pay the reasonable costs incurred by “you” for necessary repairs or emergency measures performed solely to protect covered property from further damage by a peril insured against if a peril insured against has already caused a loss to covered property. “You” must keep an accurate record of such costs.
b.We Do Not Pay – However, “we” do not pay for such repairs or emergency measures performed on property which has not been damaged by a peril insured against. This does not increase “our” “limit”.
3.Proof of Loss – “You” must send “us”, within 60 days after “our” request, a signed, sworn proof of loss. This must include the following information:
a.the time, place, and circumstances of the loss;
b.other policies of insurance that may cover the loss;
c.”your” interest and the interests of all others in the property involved, including all mortgages and liens;
d.changes in title of the covered property during the policy period; and
e.estimates, specifications, inventories, and other reasonable information that “we” may require to settle the loss.
4.Examination – “You” must submit to examination under oath in matters connected with the loss as often as “we” reasonably request and give “us” sworn statements of the answers. If more than one person is examined, “we” have the right to examine and receive statements separately and not in the presence of others.
5.Records – “You” must produce records, including tax returns and bank microfilms of all cancelled checks relating to value, loss, and expense and permit copies and extracts to be made of them as often as “we” reasonably request.
6.Damaged Property – “You” must exhibit the damaged and undamaged property as often as “we” reasonably request and allow “us” to inspect or take samples of the property.
7.Volunteer Payments – “You” must not, except at “your” own expense, voluntarily make any payments, assume any obligations, pay or offer any rewards, or incur any other expenses except as respects protecting property from further damage.
8.Abandonment – “You” may not abandon the property to “us” without “our” written consent.
9.Cooperation – “You” must cooperate with “us” in performing all acts required by this policy.
Analysis
The insured is obliged to notify the insurer or its agent promptly of any loss. The police must be notified when the act that causes the loss is a crime. “Prompt” is not defined in the policy, and no time period is attached to it.
In addition to promptly reporting the loss, the insured must take reasonable steps to protect covered property that already has been damaged by a covered peril from further loss. The insurer will pay reasonable costs to do this, and the insured must record expenses that arise from such activities in order to collect.
However, there is no provision for the insurer to assume the costs of protecting covered property from impending loss by a covered peril. Therefore, the cost to board up the windows in an EDP processing room prior to a windstorm, in the attempt to avoid wind and water loss, will not be assumed by the insurer. However, if some computer equipment already had been damaged, the insurer would pay the cost of moving the equipment to a safer location. The coverage provided in this section is a part of, and not in addition to, the limit of insurance shown on the declarations for the location in question.
The insured must provide the insurer with a signed, sworn proof of loss within 60 days after the insurance company requests it. The policy outlines what must be included in the proof of loss. The insurer retains the right to examine the insured under oath about the loss. If more than one individual is involved or affected by the loss, the insurer may interview the individuals separately from one another.
The insured is obliged to produce records—such as canceled checks and tax returns—that relate to the values claimed and details of the loss as often as the insurance company reasonably requests. In addition to this, the insurer can inspect damaged and undamaged property as often as is reasonable. Again, reasonable is not defined in the policy, so its common definition would be used in the event that a disagreement arose as to its interpretation.
The insured is prohibited from making any voluntary payments or offering any rewards in regard to the loss, with the exception of taking action to protect property from further damage. The insured may not abandon property to the insurance company unless prior permission, in writing, is obtained. The last condition requires the insured to cooperate with the insurer in carrying out the requirements of the policy.
1.Hardware and Web Site Servers—The following is the value of “hardware” and “Web site servers”:
a.Hardware and Servers That Are Replaced—The value of “hardware” and “Web site servers” that are replaced will be based on the cost of replacing the “hardware” and “Web site servers” with new equipment that is functionally comparable to the “hardware” and “Web site servers” that are being replaced.
b.Hardware and Servers That Are Not Replaced—The value of “hardware” and “Web site servers” that are not repaired or replaced will be based on the actual cash value at the time of loss (with a deduction for depreciation).
c.Partial Loss—In no event will “we” pay more than the reasonable cost of restoring partially damaged “hardware” and “Web site servers” to their condition directly prior to the damage.
2.Software—The following is the value of “software” and, for the purposes of determining valuation only, includes “Web site software”:
a.Programs and Applications—
1)Cost To Reinstall—The value of “programs and applications” will be based on the cost to reinstall the “programs or applications” from the licensed discs that were originally used to install the programs or applications.
2)If The Original Discs Are Lost—If the original licensed discs are lost, damaged, or can no longer be obtained, the value of “programs and applications” will be based on the cost of the most current version of the “programs or applications”.
b.Proprietary Programs—
1)Cost of Reproduction—The value of “proprietary programs” will be based on the cost of reproduction from duplicate copies. The cost of reproduction includes, but is not limited to, the cost of labor to copy or transcribe from duplicate copies.
2)If Duplicate Copies Do Not Exist—If duplicate copies do not exist, the value of “proprietary programs” will be based on the cost of research or other expenses necessary to reproduce, replace, or restore lost “proprietary programs”.
c.Data Records—
1)Cost of Reproduction — The value of “data records” will be based on the cost of reproduction from duplicate copies. The cost of reproduction includes, but is not limited to, the cost of labor to copy or transcribe from duplicate copies.
2)If Duplicate Copies Do Not Exist — If duplicate copies do not exist, the value of “data records” will be based on the cost of research or other expenses necessary to reproduce, replace, or restore lost files, documents, and records.
d.Media—The value of “media” will be based on the cost to repair or replace the “media” with material of the same kind or quality.
3.Other Equipment—
a.Replacement Cost—The value of “telecommunications equipment”, “reproduction equipment”, and “protection and control systems” will be based on the replacement cost without any deduction for depreciation.
b.Replacement Cost Limitation—The replacement cost is limited to the cost of repair or replacement with similar materials on the same site and used for the same purpose. The payment will not exceed the amount “you” spend to repair or replace the damaged or destroyed property.
c.Replacement Cost Does Not Apply Until Repair or Replacement—Replacement cost valuation does not apply until the damaged or destroyed property is repaired or replaced.
d.Time Limitation—“You” may make a claim for actual cash value before repair or replacement takes place, and later for the replacement cost if “you” notify “us” of “your” intent within 180 days after the loss.
4. Pair or Set—
a.Reasonable Proportion of Value — 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.
b.Provision Does Not Apply To Software—The Pair or Set provision does not apply to “software” that comes in sets. If part of a “software” set cannot be replaced, the loss is considered a total loss of the set.
5.Loss To Parts—The value of a lost or damaged part of an item that consists of several parts when it is complete is based on the value of only the lost or damaged part or the cost to repair or replace it.
Analysis
The AAIS EDP forms value each type of covered property in a different manner. The first category of covered property is hardware and Web Site servers. If the insured chooses to replace damaged hardware and servers, the insurer will provide equipment that is “functionally comparable” to the property being replaced. This recognizes the fact that, due to advances in technology, such equipment is constantly changing and being upgraded. Thus, it may not be possible to replace damaged hardware exactly as it was. However, if the insured chooses not to replace the damaged property, the settlement is on an actual cash value (ACV) basis, with a deduction for depreciation. In the event of a partial loss, the policy pays the “reasonable cost” to restore the damaged property to its pre-loss condition.
The second category is software. For valuation purposes, the forms divide software into four categories:
1. Programs and Applications;
2. Proprietary Programs;
3. Data Records; and
4. Media.
The forms value programs and applications – those purchased commercially or pre-installed on hardware – at the cost to reinstall them using the original discs. If those discs are not available, the forms place the value at the “cost of the most current version.”
The value of proprietary programs—those developed by the insured or for which the insured paid someone else to develop—is the cost to reproduce the programs from duplicate copies. If duplicate copies of such proprietary programs are not available, the value of them is then the cost of research. Such cost includes any expenses that are needed to reproduce, replace, or restore proprietary programs that are lost or damaged. The value of data records (information stored on media) is determined in the same manner
.
Finally, the forms value media at replacement cost.
The third category of covered property is other equipment. Recall that this includes telecommunications equipment, reproduction equipment, and protection and control systems. Loss to these items is settled on a replacement cost basis, but for no more than the amount the insured actually spends to replace the property. The insurer will make an up-front payment of ACV and then reimburse the difference to replacement cost, once the insured has actually replaced the items.
Loss of one part of a set is not considered a total loss of the set; the value is determined at a reasonable proportion of the total value of the set. In like fashion, the value of a lost or damaged part of an item that has several parts is based on only the value of the damaged part; it is not considered a total loss. However, there is an exception to this provision for software that comes in sets. When part of a software set cannot be replaced the loss is considered a total loss of the set.
1.Insurable Interest – “We” do not cover more than “your” insurable interest in any property.
2.Earthquake Period – All earthquakes or volcanic eruptions that occur within a 168-hour period will be considered a single event. This 168-hour period is not limited by the policy expiration.
3.Deductible – “We” pay only that part of “your” loss over the deductible amount indicated on the “declarations” in any one occurrence.
The deductible may be shown as either an amount or a percentage. When shown as a percentage, the deductible is that percentage of the value of the covered property at the time of the loss.
4.Loss Settlement Terms – Subject to paragraphs 1., 2., 3., 5., 6., and 7. under How Much We Pay, “we” pay the lesser of:
a.the amount determined under Valuation;
b.the cost to repair, replace, or rebuild the property with material of like kind and quality to the extent practicable; or
c.the “limit” that applies to the covered property.
5.Coinsurance –
a.When Coinsurance Applies – “We” only pay a part of the loss if the “limit” is less than the percentage of the value of the covered property that is indicated on the “schedule of coverages”.
b.How We Determine Our Part of The Loss – “Our” part of the loss is determined using the following steps:
1)multiply the percent indicated on the “schedule of coverages” by the value of the covered property at the time of loss;
2)divide the “limit” for covered property by the result determined in 5.a. above;
3)multiply the total amount of loss, after the application of any deductible, by the result determined in 5.b. above.
The most “we” pay is the amount determined in 5.c. above or the “limit”, whichever is less. “We” do not pay any remaining part of the loss.
c.If There is More Than One “Limit” – If there is more than one “limit” indicated on the “schedule of coverages” for this coverage part, this procedure applies separately to each “limit”.
d.If There is Only One “Limit” – If there is only one “limit” indicated on the “schedule of coverages” for this coverage, this procedure applies to the total of all covered property to which the “limit” applies.
e.When Coinsurance Does Not Apply – Conditions for coinsurance do not apply unless a coinsurance percentage is indicated on the “schedule of coverages”.
6.Insurance Under More Than One Coverage – If more than one coverage of this policy insures the same loss, “we” pay no more than the actual claim, loss, or damage sustained.
7.Insurance Under More Than One Policy -
a.Proportional Share – “You” may have another policy subject to the same “terms” as this policy. If “you” do, “we” will pay “our” share of the covered loss. “Our” share is the proportion that the applicable “limit” under this policy bears to the “limit” of all policies covering on the same basis.
b.Excess Amount – If there is another policy covering the same loss, other than that described above, “we” pay only for the amount of covered loss in excess of the amount due from that other policy, whether “you” can collect on it or not. But “we” do not pay more than the applicable “limit”.
Analysis
This section explains how much the insurer will pay in the event of a covered loss. The first requirement is that the insurer will be responsible only for the insured's insurable interest in the property. Therefore, the insured only will be reimbursed for the portion of loss in which an insurable interest is held, regardless of the limits of insurance purchased. This type of provision is common in first party insurance contracts.
This section clarifies that all earthquakes or volcanic eruptions occurring within 168 hours will be treated as one occurrence.
Losses are reduced by the amount of deductible shown on the declarations. The deductible applies per occurrence. Therefore, if 10 computers are destroyed in a fire, only one deductible will be applied to the value of all 10 items.
Losses are settled at the lesser of the amount determined under the valuation section, which was discussed previously in this article; the cost to repair, replace, or rebuild the property with material of like kind and quality as far as practicable; or the limit that applies to the covered property. It is important to keep in mind that the insurer retains the right to determine which of these three settlement provisions is used. The insured cannot dictate the choice.
There is a coinsurance penalty if the limit of insurance purchased is less than required by the coinsurance percentage chosen and indicated on the declarations. The coinsurance percentages that are available are 80, 90, or 100 percent. The insurer will pay the lesser of the amount determined by employing the coinsurance formula included in this clause or the limit of insurance. The coinsurance formula requires that the value of the covered property—at the time of loss—be multiplied by the coinsurance percentage shown on the declarations to determine the limit of insurance that should have been purchased. The limit actually purchased then is divided by the amount that should have been carried. The resulting percentage is multiplied times the amount of loss minus the deductible to determine the recovery.
As an example, a coinsurance percentage of 90 percent is shown on the declarations, and the limit of insurance for hardware at location 1 is $150,000. At the time of a total hardware loss at location 1, the hardware actually is worth $250,000. The insured bought $150,000 of coverage (the limit the insured “had”), but $225,000 of coverage was required (90 percent x $250,000 value at time of loss—what “should” have been purchased). There is a $1,000 deductible per occurrence. This results in the following settlement:
| Had Should | x | (Loss – Deductible) | = | Recovery |
| $150,000 $225,000 | x | ($250,000 – $1,000) | = | $166,000 recovery |
Note that form IM 7202 does not contain a coinsurance clause.
In the event that more than one policy coverage applies to the same loss, the insurer will pay no more than the actual claim, loss, or damage sustained. This again restricts payment to only what actually is lost by the insured.
The last provision deals with situations in which coverage is available under more than one policy. If the terms of coverage on the other policy are the same as those contained in the AAIS form, the AAIS insurer will pay the portion of the loss that the applicable limit under this policy bears to the limits of all policies covering on the same basis. This is called pro-rata sharing by limits. If the other policy does not have the same terms as the AAIS form, then the AAIS policy will be excess of the amount due from the other policy whether the coverage is collectible or not. In any event, the policy will not pay more than the applicable limit on the covered property.
1.Loss Payment Options -
a.Our Options—In the event of loss covered by this coverage form, “we” have the following options:
1)pay the value of the lost or damaged property;
2)pay the cost of repairing or replacing the lost or damaged property;
3)rebuild, repair, or replace the property with equivalent kind and quality, to the extent practicable, within a reasonable time; or
4)take all or any part of damaged property at the agreed or appraised value.
b.Notice of Our Intent to Rebuild, Repair, or Replace – “We” must give “you” notice of “our” intent to rebuild, repair, or replace within 30 days after receipt of a duly executed proof of loss.
2.Your Losses –
a.Adjustment and Payment of Loss – “We” adjust all losses with “you”. Payment will be made to “you” unless another loss payee is named in the policy.
b.Conditions for Payment of Loss – An insured loss will be payable 30 days after:
1)a satisfactory proof of loss is received, and
2)the amount of the loss has been established either by written agreement with “you” or the filing of an appraisal award with “us”.
3.Property of Others -
a.Adjustment and Payment of Loss to Property of Others – Losses to property of others may be adjusted with and paid to:
1)”you” on behalf of the owner; or
2)the owner.
b.We Do Not Have to Pay You If We Pay the Owner – If “we” pay the owner, “we” do not have to pay “you”. “We” may also choose to defend any suits arising from the owners at “our” expense.
Analysis
At the time of a loss, the insurer has four options. It can pay the value of the loss; pay the cost to repair or replace the damaged property; rebuild, repair, or replace the damaged property with material of like kind and quality to the degree that is practical within a reasonable time; or take all or any of the damaged property at the agreed or appraised value. The insurer must notify the insured of its decision to rebuild, repair, or replace the property within 30 days after receiving a duly executed proof of loss. Regardless of which option is chosen, the insurer will not pay more than the insured's insurable interest in the property. Once again, the insurer retains the sole right to choose the option; the insured has no contractual right to negotiate the option chosen.
The insurer will adjust all losses with the insured. Payment must be made to the insured with 30 days after receiving an acceptable proof of loss and establishing the amount of settlement through either a written agreement between the insured and insurer or the filing of an appraisal award with the insurer. However, if another loss payee is named in the policy, the payment will be made to that loss payee.
The insurer retains the right to adjust losses to property of others with either the insured or the owner of the property. If the insurer elects to deal with the owner, there is no obligation to pay the insured. If the owners of property sue the insured, the insurance company may choose to defend the suit at its expense. The policy is silent on who bears the cost of defense if the insurer elects not to defend the insured in such a situation.
1.Appraisal – If “you” and “we” do not agree on the amount of the loss or the actual cash value of covered property, either party may demand that these amounts be determined by appraisal.
If either makes a written demand for appraisal, each will select a competent, independent appraiser and notify the other of the appraiser's identity within 20 days of receipt of the written demand. The two appraisers will then select a competent, impartial umpire. If the two appraisers are unable to agree upon an umpire within 15 days, “you” or “we” can ask a judge of a court of record in the state where the property is located to select an umpire.
The appraisers will then determine and state separately the amount of each loss.
The appraisers will also determine the value of covered property items at the time of the loss, if requested.
If the appraisers submit a written report of any agreement to “us”, the amount agreed upon will be the amount of the loss. If the appraisers fail to agree within a reasonable time, they will submit only their differences to the umpire. Written agreement so itemized and signed by any two of these three sets the amount of the loss.
Each appraiser will be paid by the party selecting that appraiser. Other expenses of the appraisal and the compensation of the umpire will be paid equally by “you” and “us”.
2.Benefit to Others – Insurance under this coverage shall not directly or indirectly benefit anyone having custody of “your” property.
3.Conformity With Statute – When a condition of this coverage is in conflict with an applicable law, that condition is amended to conform to that law.
4.Estates – This provision applies only if the insured is an individual.
a.Your Death – On “your” death, “we” cover the following as an insured:
1)the person who has custody of “your” property until a legal representative is qualified and appointed; or
2)”your” legal representative.
This person or organization is an insured only with respect to property covered by this coverage.
b.Policy Period is Not Extended – This coverage does not extend past the policy period indicated on the “declarations”.
5.Misrepresentation, Concealment, or Fraud – This coverage is void as to “you” and any other insured if, before or after a loss:
a.”you” or any other insured have willfully concealed or misrepresented:
1)a material fact or circumstance that relates to this insurance or the subject thereof; or
2)”your” interest herein.
b.there has been fraud or false swearing by “you” or any other insured with regard to a matter that relates to this insurance or the subject thereof.
6.Policy Period – “We” pay for a covered loss that occurs during the policy period.
7.Recoveries – If “we” pay “you” for the loss and lost or damaged property is recovered, or payment is made by those responsible for the loss, the following provisions apply:
a.”you” must notify “us” promptly if “you” recover property or receive payment;
b.”we” must notify “you” promptly if “we” recover property or receive payment;
c.any recovery expenses incurred by either are reimbursed first;
d.”you” may keep the recovered property but “you” must refund to “us” the amount of the claim paid, or any lesser amount to which “we” agree; and
e.if the claim paid is less than the agreed loss due to a deductible or other limiting “terms” of this policy, any recovery will be pro rated between “you” and “us” based on “our” respective interest in the loss.
8.Restoration of Limits – Except as indicated under Virus and Hacking Coverage, a loss “we” pay under this coverage does not reduce the applicable “limits”.
9.Subrogation – If “we” pay for a loss, “we” may require “you” to assign to “us” “your” right of recovery against others. “You” must do all that is necessary to secure “our” rights. “We” do not pay for a loss if “you” impair this right to recover.
“You” may waive “your” right to recover from others in writing before a loss occurs.
10.Suit Against Us – No one may bring a legal action against “us” under this coverage unless:
a.all of the “terms” of this coverage have been complied with; and
b.the suit has been brought within two years after “you” first have knowledge of the loss.
If any applicable law makes this limitation invalid, then suit must begin within the shortest period permitted by law.
11.Territorial Limits – “We” cover property while it is in the United States of America, its territories and possessions, Canada, and Puerto Rico.
Analysis
This section contains all other policy conditions. The first provides for an appraisal in the event that the insured and insurer disagree on the amount of the loss or the value of the property. Either party may demand that an appraisal be conducted. After a written demand for an appraisal, each party will choose an independent appraiser and notify the other party of its choice. This must be done within twenty days of the receipt of the written demand. The two appraisers then will select a third. If the two appraisers cannot agree on the third within fifteen days, either the insured or the insurer may ask a judge to intervene and select an umpire. The appraisers separately will determine the amount of loss. If the appraisers agree, the amount agreed upon will be the amount of the loss. However, if they cannot agree, the amount of the difference will be submitted to the umpire. Written agreement of two of the three will set the amount of loss. Each party will pay its own appraiser, with the expenses of the umpire, as well as other expenses of the appraisal, shared between the parties.
The second condition states that the insurance shall not benefit anyone having custody of the insured's property.
If a condition that is stated in the policy is contrary to applicable law, the condition is amended to conform to the law.
The fourth condition applies only if the insured is an individual. In that case, upon the insured's death, either the person who has custody of the insured's property until a legal representative is appointed, or the legal representative, becomes the insured in regard to property covered under the policy. Such coverage will not extend past normal policy expiration.
Misrepresentation, concealment, or fraud—before or after a loss—will void the coverage. Condition 5 specifically outlines what is considered a misrepresentation, concealment, or fraud. This includes the insured willfully concealing a material fact or the insured's interest in the coverage.
The sixth condition states that losses only will be covered if they occur within the policy period, which is stated on the declarations page.
The insured and the insurer are obligated to inform the other party if lost or damaged property is recovered after the insurer has paid for it. In this event, recovery expenses incurred by either party are reimbursed first. The insured may keep the recovered property but, if this is done, the insured must reimburse the insurer for the amount of the claim paid or any lesser amount the insurer agrees to. If a deductible or other policy limitation decreases the claim paid to less than the agreed loss, any recovery will be pro-rated between the insured and insured based on their respective interest in the loss.
A loss that is paid under the policy does not decrease the applicable limits of insurance. The only exception is virus and hacking coverage where, depending upon the form, the coverage is limited to $25,000/$75,000 or $50,000/$150,000.
The ninth condition permits the insurer to require that any subrogation rights of the insured be assigned to it. The insured is required to do all it can to secure the insurer's subrogation rights, and the insurer may refuse to pay a loss if its subrogation rights are impaired by action of the insured. However, the insured may waive recovery rights from others in writing prior to a loss.
Suits against the insurer under the coverage are precluded unless all coverage terms have been complied with and unless the suit is brought within two years after the insured first knows about the loss. If a law invalidates this limitation, then suit must be brought within the shortest period permitted by law.
The last condition sets the territorial limits of coverage within the United States of America, its territories and possessions; Canada; and Puerto Rico. This is the same coverage territory as provided for in the ISO property program.
Earthquake, Flood, and Sewer Backup Endorsement IM 7238—This endorsement provides coverage for the perils of earthquake, flood, and/or sewer backup on a sub-limit basis. It is used in conjunction with Schedule IM 7239.
Upgrade value endorsement IM 7213—This endorsement provides for the replacement of hardware by equipment of greater processing ability and cost. It is applicable only after a total lost. The existing hardware that will be upgraded after a total loss, the upgrade hardware, and an upgrade hardware limit per piece must be listed on the upgrade value schedule form IM 7214 when this coverage is endorsed onto the policy.
Electrical and Power Supply Disturbance Limitation—Endorsement IM 7223 adds a 500 ft. limitation for electrical disturbance and power supply disturbance.
Incompatible Hardware and Media—After a loss, hardware or media that was not damaged might not be compatible with the new hardware or software. Endorsement IM 7224 adds coverage for the cost to modify or replace those undamaged items to make them compatible with the new items.
Foreign Transit and Location Coverage—Endorsement IM 7226 extends coverage to a laptop or personal computing device that the insured or the insured's employee takes along during overseas business travel. Coverage is provided while in transit to and from a foreign location and while temporarily at a foreign location. Note that this coverage is provided in form IM 7202.
Reproduction Equipment (IM 7227); Telecommunications Equipment (IM 7228); and Power Protection Equipment (IM 7232)—These endorsements amend the definition of covered property under the IM 7200 to include these items. Note that they are covered under form IM 7202.