Summary: The floor plan coverage form (CM 00 52 09 04), one of the forms of the commercial inland marine program of Insurance Services Office, affords open perils coverage on merchandise held for sale that has been financed through a lending institution. The form may cover the single interest of the dealer, the lending institution, or their dual interest. Following is a discussion of the form.
Introduction
A monoline floor plan coverage policy is formed by combining a floor plan declarations, a floor plan coverage form, a common policy conditions form (IL 00 17 11 98), and a commercial inland marine conditions form (CM 00 01 09 04). As with the other forms of the commercial inland marine program, the floor plan declarations and coverage form may be included with forms and endorsements of the other commercial lines programs to form a commercial package policy.
Rules governing eligibility are in the commercial lines manual (CLM). The covered property must be specifically identifiable as encumbered to the lending institution. Further, the covered property may not be sold or otherwise disposed of unless the lending institution has relinquished its claim. Generally, the items thus covered will be expensive and individually identifiable. Although once primarily used for items such as autos, with the advent of the garage policy for automobiles, use of the floor plan form spread to other expensive items such as watercraft, furnaces and other household appliances.
Coverage may be at specified or unspecified locations and is written on a monthly reporting basis with payments due monthly.
Insuring Agreement
A. Coverage
We will pay for direct physical loss of or damage to Covered Property from any of the Covered Causes of Loss.
1. Covered Property, as used in this Coverage Form, means:
a. Property at your risk specified in the Declarations; and
b. Property at your risk specifically encumbered to a secured lender named in the Declarations.
Analysis
At first reading, this language may cause confusion. “Property at your risk” might be understood to mean “property located at your risk” when, in reality, it means property “in which the insured retains a financial interest“—in other words, the insured's risk of financial loss. Such property may be on the insured premises, at another premises, or in transit. Separate limits may be designated for each of these, as well as for all covered property per occurrence.
Property Not Covered
2. Property Not Covered
Covered Property does not include:
a. Property after your interest in it ceases;
b. Property after it is sold and delivered or otherwise disposed of; or
c. Contraband, or property in the course of illegal transportation or trade.
Analysis
The form clarifies that, once the dealer's or lender's interest in the covered property ceases, so does the coverage. In the example of a car dealership, once the vehicle is purchased and the new owner takes delivery, the financial interest passes to the buyer and coverage ceases under the floor plan coverage form.
Causes of Loss
3. Covered Causes of Loss
Covered Causes of Loss means RISKS OF DIRECT PHYSICAL LOSS OR DAMAGE to Covered Property except those causes of loss listed in the Exclusions.
Analysis
Covered property is insured against “risks of direct physical loss or damage.” As with the other forms of the ISO commercial inland marine program, this open perils coverage is subject to many exclusions, discussed elsewhere in this article. Note that the form covers physical loss; no time element or loss of use coverage is provided.
Collapse
4. Additional Coverage — Collapse
We will pay for direct physical loss or damage to Covered Property caused by collapse of a building that contains Covered Property insured under this Coverage Form, if the collapse is caused by one or more of the following:
a. Fire; lightning; windstorm; hail; explosion; smoke; aircraft; vehicles; riot; civil commotion; vandalism; leakage from fire extinguishing equipment; sinkhole collapse; volcanic action; breakage of building glass; falling objects; weight of snow, ice or sleet; water damage; earthquake; all only as insured against in this Coverage Form;
b. Decay that is hidden from view, unless the presence of such decay is known to an insured prior to collapse;
c. Insect or vermin damage that is hidden from view, unless the presence of such damage is known to an insured prior to collapse;
d. Weight of people or personal property;
e. Weight of rain that collects on a roof;
f. Use of defective materials or methods in construction, remodeling or renovation if the collapse occurs during the course of the construction, remodeling or renovation.
However, if the collapse occurs after construction, remodeling or renovation is complete and is caused by a cause of loss listed in Paragraphs a. through e., we will pay for loss or damage even if use of defective material or methods, in construction, remodeling or renovation, contributed to the collapse.
This Additional Coverage does not increase the Limits of Insurance provided in this Coverage Form.
Analysis
The additional coverage clause for collapse was revised in 2004 to provide some level of consistency with other commercial property forms. The form provides coverage for direct physical loss or damage to covered buildings or any part of a building that contains covered property. The collapse must be caused by one of the perils listed. It is important to note that decay or insect or vermin damage that is hidden from view is covered only if an insured does not know of the damage prior to the collapse. A provision for post-construction collapses was also added with the 2004 revision. If defective materials or methods used in the construction, remodeling, or renovation contribute to a collapse, loss or damage caused partially by causes of loss listed in paragraphs a. through e. are covered.
Exclusions
B. Exclusions
1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
a. Governmental Action
Seizure or destruction of property by order of governmental authority.
But we will pay for loss or damage caused by or resulting from acts of destruction ordered by governmental authority and taken at the time of a fire to prevent its spread if the fire would be covered under this Coverage Form.
b. Nuclear Hazard
(1) Any weapon employing atomic fission or fusion; or
(2) Nuclear reaction or radiation, or radioactive contamination from any other cause. But if nuclear reaction or radiation, or radioactive contamination results in fire, we will pay for the direct loss or damage caused by that fire if the fire would be covered under this Coverage Form.
c. War and Military Action
(1) War, including undeclared or civil war;
(2) Warlike action by a military force, including action in hindering or defending against an actual or expected attack, by any government, sovereign or other authority using military personnel or other agents; or
(3) Insurrection, rebellion, revolution, usurped power or action taken by governmental authority in hindering or defending against any of these.
d. Water
Flood, surface water, waves, tides, tidal waves, overflow of any body of water or their spray, all whether driven by wind or not.
But if water, as described above, results in fire, explosion or theft, we will pay for the direct loss or damage caused by that fire, explosion or theft if these causes of loss would be covered under this Coverage Form.
This exclusion only applies to property at your premises.
Exclusions B.1.a. through B.1.d. apply whether or not the loss event results in widespread damage or affects a substantial area.
2. We will not pay for loss or damage caused by or resulting from any of the following:
a. Delay, loss of use, loss of market or any other consequential loss.
b. Bankruptcy, foreclosure or similar proceedings.
c. Dishonest or criminal act committed by:
(1) You, any of your partners, employees, directors, trustees, or authorized representatives;
(2) A manager or a member if you are a limited liability company;
(3) Anyone else with an interest in the property, or their employees or authorized representatives; or
(4) Anyone else to whom the property is entrusted for any purpose.
This exclusion applies whether or not such persons are acting alone or in collusion with other persons or such acts occur during the hours of employment.
This exclusion does not apply to Covered Property that is entrusted to others who are carriers for hire or to acts of destruction by your employees. But theft by employees is not covered.
d. Artificially generated current creating a short circuit or other electric disturbance within an article covered under this Coverage Form.
But if artificially generated current, as described above, results in fire or explosion, we will pay for the direct loss or damage caused by that fire or explosion, if fire or explosion would be covered under this Coverage Form.
This exclusion only applies to loss or damage to that article in which the disturbance occurs.
e. Breakage of glass or similar fragile property.
But we will pay for such loss or damage caused directly by fire, lightning, explosion, windstorm, vandalism, falling aircraft, rioters, strikers, collapse of buildings, theft or attempted theft, or by accident to the vehicle carrying the property, if these causes of loss would be covered under this Coverage Form.
f. Rain, hail, sleet, snow or freezing with respect to property in the open. This exclusion does not apply to property in transit.
g. Voluntary parting with any property by you or anyone entrusted with the property if induced to do so by any fraudulent scheme, trick, device or false pretense.
h. Unauthorized instructions to transfer property to any person or to any place.
i. Neglect of an insured to use all reasonable means to save and preserve property from further damage at and after the time of loss.
3. We will not pay for loss or damage caused by or resulting from any of the following. But if loss or damage by a Covered Cause of Loss results, we will pay for the loss or damage caused by that Covered Cause of Loss.
a. Weather conditions. But this exclusion only applies if weather conditions contribute in any way with a cause or event excluded in paragraph 1. above to produce the loss or damage.
b. Acts or decisions, including the failure to act or decide, of any person, group, organization or governmental body.
c. Faulty, inadequate or defective:
(1) Planning, zoning, development, surveying, siting;
(2) Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;
(3) Materials used in repair, construction, renovation or remodeling; or
(4) Maintenance;
of part or all of any property wherever located.
d. Collapse except as provided in the Additional Coverage – Collapse section of this Coverage Form.
e. Wear and tear, any quality in the property that causes it to damage or destroy itself, hidden or latent defect, gradual deterioration or mechanical breakdown.
Analysis
The floor plan form is subject to exclusions—many of them common to the other inland marine forms. Note, however, that the exclusion of loss caused by governmental action, nuclear hazard, war, and water applies only to property at the insured's premises. Property in transit is covered for loss caused by these perils.
A detailed exclusion applies to loss caused by loss of market, bankruptcy, or dishonest or criminal acts. The exclusion of coverage for dishonest or criminal acts, however, does not apply to covered property entrusted to carriers for hire, nor does it apply to acts of destruction (except for theft) carried out by employees.
Artificially generated current causing damage within a covered article is excluded, but resulting fire or explosion is covered if the fire or explosion are covered. Breakage of glass or similar fragile property is not covered; however, if the breakage is caused by certain specified perils, the resulting breakage is covered. Loss to property in the open caused by rain, hail, sleet, snow or freezing is excluded, unless the covered property is in transit.
Loss resulting from “trick or device”—voluntary parting with covered property by the named insured, or anyone entrusted with the property, if induced to do so by deception or fraud—is excluded.
The floor plan coverage form also contains the neglect of an insured exclusion. An example of applying the exclusion is an insured who leaves some covered property in the parking lot after that property has been damaged by a fire. If that property is then stolen because the insured did not guard it, CM 00 52 will pay for the fire damage (as much as fire damage can be proven) but will not pay for the theft of the property. This exclusion is meant to provide an incentive to the insured to protect damaged property from further damage, thus saving money for the insured and the insurer.
Loss caused by or resulting from perils such as acts or decisions, or faulty planning or maintenance are excluded, but if they result in a loss not excluded, then the resulting loss is covered. Loss resulting from weather conditions is excluded if the conditions contribute in any way with a cause or event excluded in exclusion B.1.
Limits of Insurance and Deductible
C. Limits Of Insurance
The most we will pay for loss or damage in any one occurrence is the applicable Limit of Insurance shown in the Declarations.
D. Deductible
We will not pay for loss or damage in any one occurrence until the amount of the adjusted loss or damage before applying the applicable Limits of Insurance exceeds the Deductible shown in the Declarations. We will then pay the amount of the adjusted loss or damage in excess of the Deductible, up to the applicable Limit of Insurance.
Analysis
Losses are adjusted as necessary according to the valuation condition prior to deductible application. In common with the other inland marine forms, the insurer does not owe for any loss until the amount of the adjusted loss exceeds the deductible shown in the declarations. Unless otherwise specified by the insured, the deductible on a floor plan policy is $500.
Conditions
E. Additional Conditions
1. Valuation
General Condition F. Valuation in the Commercial Inland Marine Conditions is replaced by the following:
a. Unsold Property. The value of unsold property will be the least of the following amounts:
(1) The cost of reasonably restoring that property to its condition immediately before loss or damage;
(2) The cost of replacing that property with substantially identical property; or
(3) The purchase price to the dealer, including transportation charges.
b. Sold Property.
The value of property sold but not yet delivered will be your net selling price after all allowances and discounts.
c. Loss Limitation – Single Interest.
We will pay only that proportion of any loss or damage that the amount of your interest in the property bears to the value of the property.
In the event of loss or damage, the value of property will be determined as of the time of loss or damage.
2. The following conditions apply in addition to the Commercial Inland Marine Conditions and the Common Policy Conditions:
a. Coverage Territory
We cover property wherever located within:
(1) The United States of America (including its territories and possessions);
(2) Puerto Rico; and
(3) Canada.
b. Transit Coverage In The Event Of Cancellation
If this policy is cancelled, we will cover property already in transit until it reaches its destination.
c. Dual Interest
All provisions are binding on all parties of interest. But the protection given a secured lender named in the Declarations will not be impaired by the failure of another party of interest to comply with all provisions, if the secured lender is diligent in trying to obtain compliance with all provisions.
d. Records And Inventory
You will keep accurate records of your business and retain them for 3 years after the policy ends.
These records will consist of:
(1) An itemized inventory of your stock in trade including:
(a) Actual locations;
(b) Property in transit;
(c) Purchase price of property to the dealer; and
(d) Transportation charges.
(2) Records of outstanding balances, payments or values at risk, as required to be reported by Additional Condition 2.e. Reports and Premium;
(3) Records of all purchases and sales whether cash or credit;
(4) Records of property of others in your care, custody or control; and
(5) Records of property you send to others for any purpose.
You will also take a physical inventory of all your stock in trade at least every 12 months.
e. Reports And Premium
(1) Reporting Requirements.
Within thirty days after the end of each month, you will report to us as determined by Additional Condition 2.d. Records and Inventory:
(a) Dual Interest – total values.
(b) Single Interest – the value of the property as of the last day of that month:
(i) If you are a lender, the total amount of outstanding balances; or
(ii) If you are a dealer, the total amount of your payments.
(2) Rates and Premium.
Premium will be computed at the monthly rate(s) stated in the Declarations applied to the total amounts at all locations.
This monthly premium will be applied to the premium charged for this coverage until fully earned. After that you will pay us additional premium earned for each month.
The due date for any additional premium is the date shown as the due date on the bill.
(3) Minimum Premium. You must pay at least the minimum annual premium shown in the Declarations.
(4) Failure to Submit Reports. If as of the time of loss or damage you have failed to submit the required reports:
(a) Our liability will not exceed the amounts included in your last report; or
(b) If you have not submitted any reports, our liability will be limited to no more than 90 percent of the amount for which we should otherwise be liable.
(5) Reports in Excess of Limits of Insurance. Although the total amount reported will be used in calculating earned premium, we will not pay more than the applicable Limit of Insurance stated in the Declarations.
(6) Reporting Less than the Total Amount Required. If your last report before any loss or damage is for less than the total amount required to be reported, we will pay only that proportion of the loss or damage that the amounts you reported bear to the actual total amount as of the last report.
(7) Annual Rerating. This coverage will be rerated at each anniversary. The premium will be changed to reflect the rates then in effect. You will furnish us with information we require for rerating purposes within thirty days after each anniversary.
(8) Cancellation. If this coverage is cancelled you will report the total amount required up to and including the date of cancellation. Premium for less than a full month will be computed on a pro rata basis.
Analysis
In addition to the commercial inland marine conditions (CM 00 01), other conditions apply specifically to the floor plan form. For example, in event of the policy's being cancelled, property already in transit is covered until it reaches its destination.
The valuation clause for sold but not delivered property is identical to that of the equipment dealers form. In event of a loss, the value is the net selling price after all allowances and discounts. For unsold property, the value is the least of: the cost of reasonably restoring the property to its condition immediately before the loss; the cost of replacing the property with substantially identical property; or the purchase price to the dealer, including transportation charges. It is important to note that selling price (profit) does not enter into the loss settlement provisions.
Two provisions are unique to this form and reflect the fact that the form is designed to protect both the dealer's and the lender's interest in the property. First, the single interest loss limitation states the insurer will pay no more than the proportion the dealer's interest bears to the value of the property. Second, when there is a dual interest, the secured lender's right to recover under the policy is not affected by another party of interest's failure to comply with all provisions as long as the secured lender tries to obtain compliance with the provisions.
In common with other inland marine forms, the insured must maintain accurate records. The records must include property in transit and transportation charges. The insured is required to submit regular reports within thirty days after the end of each month. If the policy covers the dual interests of lender and seller, then the total values must be reported; if the policy covers the single interest of either lender or dealer, the reporting figures are the outstanding balance of the loan or the total payments made, respectively.
Failure to submit a report according to policy requirements limits the insurance company's liability to the amount of the last report, subject to policy limits. And, if the delinquent report is the first report due, the insurer's liability is limited to 90 percent of the amount otherwise payable. Further, if reports are submitted with less than the total amounts required, loss payment is based on the proportion the reported amount bears to the actual total amount shown on the last report.
The coverage under this form is rerated at each anniversary with the premium reflecting rates then in effect. The named insured is required to furnish rerating information to the insurer within thirty days after each anniversary.