Mortgageholders Errors and Omissions Form
November 30, 2015
ISO Simplified Commercial Property Program
Summary: Errors and omissions coverage for mortgagees—banks, building and loan associations, insurance companies, and other financial institutions—protects against impairment of the mortgagee's own security through lack of physical damage insurance on the mortgaged property. Such a lack of insurance is usually the result of a mistake in the mortgagee's office procedure. A policy might be misfiled, expire, and not be renewed. If a fire were to destroy the property and the mortgagor was unable to continue payments, the institution holding the mortgage would have nothing but ruins upon which to foreclose.
Mortgageholder's Errors and Omissions Coverage Form, CP 00 70 10 12, covers a bank or other mortgage servicing institution against both direct damage and legal liability losses that may arise out of error or accidental omission in its customary mortgage-handling procedures. It offers four coverage agreements: A and B deal with property coverage; C and D with liability coverage. The applicable causes of loss are set out in the form itself under the provisions for each individual coverage so that no separate causes of loss form needs to be attached. The ISO Commercial Lines Manual (CLM) specifies that the Commercial Property Conditions form, CP 00 90 07 88 is not to be used with form CP 00 70. Instead, the form itself includes a modified version of those conditions that apply in addition to the Common Policy Conditions form, IL 00 17 11 98.
Topics covered:
Coverage A—mortgageholder's interest
Coverage B—property owned or held in trust
Coverage C—mortgageholder's liability
Coverage A—Mortgageholder's Interest
A. Coverage
1.Coverage A – Mortgageholder's Interest
We will pay for loss to your "mortgageholder's interest" in Covered Property due to error or accidental omission, by you or your representative, in the operation of your customary procedure in requiring, procuring and maintaining "valid insurance" payable to you as mortgageholder against the Covered Causes of Loss.
a.Covered Property
Covered Property means:
(1)Real property; and
(2)Personal property secured in connection with that real property.
It includes such property:
(a)During and after your foreclosure; and
(b)Sold under an agreement in which you retain title, such as a conditional sales agreement.
b.Property Not Covered
Covered Property does not include:
(1)Accounts, bills, currency, deeds, food stamps or other evidences of debt, money, notes or securities. Lottery tickets held for sale are not securities;
(2)Land (including land on which the property is located), water, growing crops or lawns (other than lawns which are part of a vegetated roof); or
(3)Electronic data, meaning information, facts or computer programs stored as or on, created or used on, or transmitted to or from computer software (including systems and applications software) on hard or floppy disks, CD-ROMS, tapes, drives, cells, data processing devices or any other repositories of computer software which are used with electronically controlled equipment. The term computer programs, referred to in the foregoing description of electronic data, means a set of related electronic instructions which direct the operations and functions of a computer or device connected to it, which enable the computer or device to receive, process, store, retrieve or send data. This paragraph, (3), does not apply to electronic data which is integrated in and operates or controls the building's elevator, lighting, heating, ventilation, air conditioning or security system.
c.Covered Causes of Loss
The Covered Causes of Loss are those causes of loss against which you customarily require mortgagors to provide insurance policies that protect your "mortgageholder's interest." They do not include:
(1)Causes of Loss excluded under Section B., Exclusions; or
(2)Losses insured under mortgage guarantee insurance policies or programs, or title, life, health or accident insurance policies.
d.Coverage Extension – Mortgages Serviced For Others
We will cover loss arising from mortgages owned by others and serviced by you as if you owned the "mortgageholder's interest" in them. All such mortgages must be serviced under a written contract. We will make loss payment payable jointly to you and the mortgage owner.
Analysis
Coverage A insures a "mortgageholder's interest," defined in the form as the interest of the named insured mortgageholder in the real or personal property (including any interest resulting from a fiduciary capacity). It protects the insured against loss arising from errors and accidental omissions by the insured or a representative in requiring, procuring, and maintaining valid insurance to protect its interest. A mortgageholder protects its interest in property that is the subject of a mortgage by either requiring that the borrower obtain insurance (in which case the mortgageholder is added as an additional insured under the policy) or by buying its own insurance. Coverage A pays the loss if the insurance that should have been procured is lacking because of a covered error or omission.
Covered property includes real property and personal property secured in connection with that real property. Coverage A applies during and after the named insured's foreclosure and to property sold under an agreement whereby the named insured retains title (such as a conditional sales agreement). In the event of foreclosure, the insured may be able to recover under both coverages A and B, as discussed later under Coverage B.
Covered property does not include accounts, bills, currency, deeds, evidences of debt, money, notes, or securities. The form specifies that food stamps are treated as evidences of debt, but lottery tickets held for sale are not treated as securities and are therefore covered. The form also states that land (including the land where the property is located), water, growing crops, or lawns are not covered property. The 2012 edition of the form added an exception for lawns that are part of a vegetated roof.
The 2002 form added electronic data to the list of property not covered. The section describes the meaning of electronic data and explains what computer programs are in relation to the description of electronic data. The 2012 edition made an exception for electronic data that is integrated in and operates or controls the building's elevator, lighting, heating, ventilation, air conditioning, or security system
Covered causes of loss under coverage A are those that the named insured customarily requires mortgagors to cover by way of insurance. This may range from named perils to unspecified risk of physical loss (open perils). It may also include flood protection or earthquake coverage. Whatever is customarily required by the mortgageholder is the rule of thumb. The form specifies that the causes of loss do not include losses insured under mortgage loan guarantee insurance—insurance that protects the mortgageholder in the event that the mortgagor defaults—or under title, life, health, or accident insurance policies.
Coverage A extends to cover a loss arising from mortgages owned by others and serviced by the named insured, as if the named insured owned the mortgageholder's interest. This servicing by the named insured must be done through a written contract. Any loss payment is made payable jointly to the named insured and the mortgage owner.
Certain exclusions apply to all coverages, including coverage A, as discussed in the Exclusions section. Collapse coverage is provided on a limited basis, as discussed in the Additional Coverage—Collapse section.
Coverage B—Property Owned or Held in Trust
2.Coverage B – Property Owned or Held In Trust
We will pay for direct physical loss of or damage to Covered Property caused by or resulting from any Covered Cause of Loss; provided the loss is not otherwise insured due to error or accidental omission, by you or your representative, in the operation of your customary procedure in procuring and maintaining "valid insurance" payable to you as owner or trustee of the Covered Property.
a.Covered Property
Covered Property means real and personal property:
(1)You own; or
(2)In which you have a fiduciary interest as trustee or otherwise.
b.Property Not Covered
Covered Property does not include:
(1)Accounts, bills, currency, deeds, food stamps or other evidences of debt, money, notes or securities. Lottery tickets held for sale are not securities;
(2)Land (including land on which the property is located), water, growing crops or lawns (other than lawns which are part of a vegetated roof); or
(3)Electronic data, meaning information, facts or computer programs stored as or on, created or used on, or transmitted to or from computer software (including systems and applications software) on hard or floppy disks, CD-ROMS, tapes, drives, cells, data processing devices or any other repositories of computer software which are used with electronically controlled equipment. The term computer programs, referred to in the foregoing description of electronic data, means a set of related electronic instructions which direct the operations and functions of a computer or device connected to it, which enable the computer or device to receive, process, store, retrieve or send data. This paragraph, (3), does not apply to electronic data which is integrated in and operates or controls the building's elevator, lighting, heating, ventilation, air conditioning or security system.
c.Covered Causes of Loss
The Covered Causes of Loss are:
(1)Fire.
(2)Lightning.
(3)Explosion, including the explosion of gases or fuel within the furnace of any fired vessel or within the flues or passages through which the gases of combustion pass. This cause of loss does not include loss or damage by:
(a)Rupture, bursting or operation of pressure-relief devices; or
(b)Rupture or bursting due to expansion or swelling of the contents of any building or structure, caused by or resulting from water.
(4)Windstorm or Hail, but not including:
(a)Frost or cold weather;
(b)Ice (other than hail), snow or sleet, whether driven by wind or not; or
(c)Loss or damage to the interior of any building or structure, or the property inside the building or structure, caused by rain, snow, sand or dust, whether driven by wind or not, unless the building or structure first sustains wind or hail damage to its roof or walls through which the rain, snow, sand or dust enters.
(d)Loss or damage by hail to lawns, trees, shrubs or plants which are part of a vegetated roof.
(5)Smoke causing sudden and accidental loss or damage. This cause of loss does not include smoke from agricultural smudging or industrial operations.
(6)Aircraft or Vehicles, meaning only physical contact of an aircraft, a spacecraft, a self-propelled missile, a vehicle or an object thrown up by a vehicle with the property or with the building or structure containing the property. This cause of loss includes loss or damage by objects falling from aircraft.
We will not pay for loss or damage caused by or resulting from vehicles you own or operate.
(7)Riot or Civil Commotion, including:
(a)Acts of striking employees while occupying the premises; and
(b)Looting occurring at the time and place of a riot or civil commotion.
(8)Sinkhole Collapse, meaning loss or damage caused by the sudden sinking or collapse of land into underground empty spaces created by the action of water on limestone or dolomite. This cause of loss does not include:
(a)The cost of filling sinkholes; or
(b)Sinking or collapse of land into man-made underground cavities.
(9)Volcanic Action, meaning direct loss or damage resulting from the eruption of a volcano when the loss or damage is caused by:
(a)Airborne volcanic blast or airborne shock waves;
(b)Ash, dust or particulate matter; or
(c)Lava flow.
With respect to coverage for Volcanic Action as set forth in (9)(a), (9)(b) and (9)(c), all volcanic eruptions that occur within any 168-hour period will constitute a single occurrence.
This cause of loss does not include the cost to remove ash, dust or particulate matter that does not cause direct physical loss or damage to the property.
Analysis
Coverage B covers direct physical loss of or damage to property owned by the named insured or in which the named insured has a fiduciary interest as trustee or otherwise.
It pays for loss to covered property if the loss is not otherwise insured due to error or accidental omission in the named insured's customary procedure in procuring valid insurance payable to the named insured as owner or trustee. If an insured buys both coverage A and coverage B, recovery under both coverages may be possible. For example, coverage A includes real property "during and after your foreclosure." Since coverage B covers property owned by the insured, a property that has been foreclosed on would fall under both coverages, allowing the insured to collect any remaining balance under B if the limits under A prove inadequate. However, the limits of coverage A and B cannot be combined to collect an amount greater than the insured's loss.
The provision concerning property not covered is identical to that discussed earlier under Coverage A.
Coverage B provides coverage for the following named perils: fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, sinkhole collapse, and volcanic action. Coverage provisions for each of these causes of loss are identical to those found in the Basic Causes of Loss form, CP 10 10 10 12. However, there is no coverage B protection for two perils covered under form CP 10 10—vandalism and sprinkler leakage. Certain exclusions apply to all coverages, including coverage B, as discussed in the Exclusions section.
The additional conditions in form CP 00 70 state that coverage B protection ends on the earlier of ninety days after the date that the insured acquires the property or the insured's fiduciary interest begins, or the day that other insurance is obtained.
Coverage C—Mortgageholder's Liability
3.Coverage C – Mortgageholder's Liability
We will pay those sums that you become legally obligated to pay as damages due to error or accidental omission in the operation of your customary procedure in processing and maintaining "valid insurance" against the Covered Causes of Loss for the benefit of the mortgagor in amounts, and under conditions, customarily accepted by the mortgagor. We will have the right and duty to defend any "suit" seeking those damages. However, we have no duty to defend you against a "suit" seeking damages to which this insurance does not apply. We may investigate and settle any claim or "suit" at our discretion. But:
(1)The amount we will pay for damages is limited as described in Section C. Limits of Insurance; and
(2)Our right and duty to defend end when we have used up the Limit of Insurance in the payment of judgments or settlements.
The damages payable under this Coverage Form must arise out of your capacity as a mortgageholder, mortgage fiduciary or mortgage servicing agency.
a.Covered Causes of Loss
The Covered Causes of Loss are those causes of loss against which the mortgagor customarily obtains insurance policies.
They do not include:
(1)Causes of loss excluded under Section B., Exclusions; or
(2)Losses insured under mortgage guarantee insurance policies or programs, or title, life, health or accident insurance policies.
b.Additional Coverage – Supplementary Payments.
We will pay, with respect to any claim or "suit" we defend:
(1)All expenses we incur.
(2)The cost of bonds to release attachments, but only for bond amounts within our Limit of Insurance. We do not have to furnish these bonds.
(3)All reasonable expenses incurred by you at our request, including actual loss of earnings up to $250 a day because of time off from work.
(4)All costs taxed against you in the "suit."
(5)Prejudgment interest awarded against you on that part of the judgment we pay. If we make an offer to pay the Limit of Insurance, we will not pay any prejudgment interest based on that period of time after the offer.
(6)All interest on the full amount of any judgment that accrues after entry of the judgment and before we have paid, offered to pay, or deposited in court the part of the judgment that is within our Limit of Insurance.
These payments will not reduce the applicable Limit of Insurance.
c.Coverage Extensions
(1)Additional Insureds.
If the Named Insured shown in the Declarations is a partnership, limited liability company or corporation under Coverage C – Mortgageholder's Liability, the words "you" and "your" are extended to include:
(a)Your partners, members, executive officers, trustees, directors and stockholders of such partnership, limited liability company or corporation, but only with respect to their duties as such.
(b)Managers of a limited liability company, but only with respect to their duties as such. The existence of one or more Additional Insureds does not increase the Limit of Insurance.
(2)Newly Acquired Organizations.
Under Coverage C – Mortgageholder's Liability, the words, "you" and "your" also include any organization (other than a partnership, joint venture or limited liability company) that you acquire or form and over which you maintain ownership or majority interest if there is no other similar insurance available to that organization.
This Coverage Extension ends:
(a)ninety days after you acquire or form the organization; or
(b)At the end of the policy period shown in the Declarations; whichever is earlier.
This Extension does not apply to errors or accidental omissions that occurred before you acquired or formed the organization.
Analysis
Under coverage C, the form shifts from insuring property exposures to insuring liability exposures. Mortgageholder's liability pays those sums that the insured becomes legally obligated to pay as damages due to error or accidental omission in the customary procedure in processing and maintaining valid insurance for the benefit of the mortgagor against covered causes of loss. (Covered causes of loss are those perils against which the mortgagor customarily obtains insurance. Collapse coverage is limited, as discussed under Additional Coverage—Collapse.) In other words, if the insured, in its capacity as a mortgageholder, mortgage fiduciary, or mortgage servicing agency, has agreed with the mortgagor to procure and maintain insurance against loss—thereby relieving the mortgagor of those responsibilities—and then fails to obtain such insurance, coverage C will pay the legal obligations as damages that subsequently may befall if a loss occurs. The duty to defend is also included under coverage C, although this duty ends when the coverage C limit of insurance is used up in settlements or judgments.
In addition to the coverage C limits of insurance (as shown in the declarations), supplemental payments are also available. The insurer, with respect to any claim or suit defended, will pay the cost of bonds to release attachments; expenses incurred by the insurer (and the insured, if incurred at the insurer's request); costs taxed against the insured in the suit; prejudgment interest awarded on that part of the judgment paid by the insurer (but no interest is payable after the date on which the insurer offers to pay the limit of insurance); and post judgment interest that accrues until the insurer pays, offers to pay, or deposits its part of the judgment in court. Punitive damages are not mentioned; state law may control on the issue of whether payment of punitive damages is considered to be against public policy. A "suit" is defined in the policy as including an arbitration proceeding to which the insured must submit or submits to with the insurer's consent.
For purposes of coverage C, the named insured's partners, members, executive officers, trustees, directors, and stockholders are included as additional insureds within the limit of insurance. Coverage as an insured is also extended for a limited time to newly acquired or newly formed organizations over which the named insured maintains ownership or majority interest if the organization is not insured under a similar type of insurance. The extension is limited to a maximum of ninety days (ending at the earlier of the policy period or ninety days after acquisition or formation of the organization) and does not apply to errors or omissions that occurred before acquisition or formation.
Certain exclusions apply to all coverages, including coverage C, as discussed under Exclusions. Collapse coverage is provided on a limited basis, as discussed under Additional Coverage—Collapse.
Coverage D—Real Estate Tax Liability
4.Coverage D – Real Estate Tax Liability
We will pay for damages for which you are legally liable due to error or accidental omission in paying real estate taxes, as agreed, on behalf of the mortgagor.
Analysis
Some mortgages are set up so that the mortgagee makes the real estate tax payments on behalf of the mortgagor with the monthly mortgage payments being adjusted accordingly. This relieves the mortgagor of the responsibility of handling the payments, though not of the payments themselves. Coverage D deals with this type of arrangement.
If the named insured has agreed to administer payment of real estate taxes on behalf of the mortgagor, and through some error or accidental omission the payment is not made or is in the wrong amount, the named insured becomes legally liable for damages suffered by the mortgagor. Coverage D pays for those damages. However, the policy limits the amount payable to not more than 15 percent of the limit of insurance for damages in connection with any single mortgage. Explanatory information from ISO states that this limit is expressed as a percentage rather than a dollar amount in order to reflect that property values, upon which real estate taxes are based, usually affect the amount of insurance selected by the mortgagee and thus the revised computation will be more accurately tied to the mortgagee's insurance needs. The 15 percent limit also corresponds to the requirements for real estate tax errors and omissions liability coverage of the Federal National Mortgage Association (Fannie Mae).
Exclusions
B.Exclusions
The following exclusions apply to Coverages A, B, C and D.
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.Ordinance Or Law
The enforcement of or compliance with any ordinance or law:
(1)Regulating the construction, use or repair of any property; or
(2)Requiring the tearing down of any property, including the cost of removing its debris.
This exclusion, Ordinance Or Law, applies whether the loss results from:
(a)An ordinance or law that is enforced even if the property has not been damaged; or
(b)The increased costs incurred to comply with an ordinance or law in the course of construction, repair, renovation, remodeling or demolition of property, or removal of its debris, following a physical loss to that property.
b.Earth Movement
(1)Earthquake, including tremors and aftershocks and any earth sinking, rising or shifting related to such event;
(2)Landslide, including any earth sinking, rising or shifting related to such event;
(3)Mine subsidence, meaning subsidence of a man-made mine, whether or not mining activity has ceased;
(4)Earth sinking (other than sinkhole collapse), rising or shifting, including soil conditions which cause settling, cracking or other disarrangement of foundations or other parts of realty. Soil conditions include contraction, expansion, freezing, thawing, erosion, improperly compacted soil and the action of water under the ground surface.
But if Earth Movement, as described in b.(1) through b.(4) above, results in fire or explosion, we will pay for the loss or damage caused by that fire or explosion.
(5)Volcanic eruption, explosion or effusion. But if volcanic eruption, explosion or effusion results in fire or Volcanic Action, we will pay for that resulting loss or damage caused by that fire or Volcanic Action.
This exclusion applies regardless of whether any of the above, in Paragraphs (1) through (5), is caused by an act of nature or is otherwise caused.
c.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 by this Coverage Part.
d.Nuclear Hazard
Nuclear reaction or radiation, or radioactive contamination, however caused.
But if nuclear reaction or radiation, or radioactive contamination, results in fire, we will pay for the loss or damage caused by that fire.
e.Utility Services
The failure of power, communication, water or other utility service supplied to the described premises, however caused, if the failure:
(1)Originates away from the described premises; or
(2)Originates at the described premises, but only if such failure involves equipment used to supply the utility service to the described premises from a source away from the described premises.
Failure of any utility services includes lack of sufficient capacity and reduction in supply.
Loss or damage caused by a surge of power is also excluded, if the surge would not have occurred but for an event causing a failure of power.
But if the failure or surge of power or the failure of communication, water or other utility service results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.
Communication services include but are not limited to service relating to Internet access or access to any electronic, cellular or satellite network.
f.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.
g.Water
(1)Flood, surface water, waves (including tidal wave and tsunami), tides, tidal water, overflow of any body of water, or spray from any of these, all whether or not driven by wind (including storm surge);
(2)Mudslide or mudflow;
(3)Water that backs up or overflows or is otherwise discharged from a sewer, drain, sump, sump pump or related equipment;
(4)Water under the ground surface pressing on, or flowing or seeping through:
(a)Foundations, walls, floors or paved surfaces;
(b)Basements, whether paved or not; or
(c)Doors, windows or other openings; or
(5)Waterborne material carried or otherwise moved by any of the water referred to in Paragraph (1), (3) or (4), or material carried or otherwise moved by mudslide or mudflow.
This exclusion applies regardless of whether any of the above, in Paragraphs (1) through (5), is caused by an act of nature or is otherwise caused. An example of a situation to which this exclusion applies is the situation where a dam, levee, seawall or other boundary or containment system fails in whole or in part, for any reason, to contain the water.
But if any of the above, in Paragraphs (1) through (5), results in fire, explosion or sprinkler leakage, we will pay for the loss or damage caused by that fire, explosion or sprinkler leakage (if sprinkler leakage is a Covered Cause of Loss)
h."Fungus", Wet Rot, Dry Rot And Bacteria
Presence, growth, proliferation, spread or any activity of "fungus", wet or dry rot or bacteria.
But if "fungus", wet or dry rot or bacteria results in a "specified cause of loss", we will pay for the loss or damage caused by that "specified cause of loss".
This exclusion does not apply:
When "fungus", wet or dry rot or bacteria results from fire or lightning; or
(2)To the extent that coverage is provided in the Additional Coverage – Limited Coverage For "Fungus", Wet Rot, Dry Rot And Bacteria with respect to loss or damage by a cause of loss other than fire or lightning.
Exclusions B.1.a. through B.1.h. 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:
a.Discharge, dispersal, seepage, migration, release or escape of "pollutants." If you customarily require mortgagors to provide insurance against causes of loss on a special form basis (covering any cause of loss not excluded or limited in the policy), this exclusion does not apply if the discharge, dispersal, seepage, migration, release or escape is itself caused by any of the "specified causes of loss."
If the discharge, dispersal, seepage, migration, release or escape of "pollutants" results in a "specified cause of loss," we will pay for the loss or damage caused by that "specified cause of loss."
b.Artificially generated electrical, magnetic or electromagnetic energy that damages, disturbs, disrupts or otherwise interferes with any:
(1)Electrical or electronic wire, device, appliance, system or network; or
(2)Device, appliance, system or network utilizing cellular or satellite technology;
For the purpose of this exclusion, electrical, magnetic or electromagnetic energy includes but is not limited to:
(a)Electrical current, including arcing;
(b)Electrical charge produced or conducted by a magnetic or electromagnetic field;
(c)Pulse of electromagnetic energy; or
(d)Electromagnetic waves or microwaves
But if fire results, we will pay for the loss or damage caused by that fire.
c.We will not pay for loss of or damage to lawns, trees, shrubs or plants which are part of a vegetated roof, caused by or resulting from:
(1)Dampness or dryness of atmosphere or of soil supporting the vegetation;
(2)Changes in or extremes of temperature;
(3)Disease;
(4)Frost or hail; or
(5)Rain, snow, ice or sleet.
d.Any event that occurs more than thirty days after you know that an error or accidental omission may have occurred.
e.Your failure to obtain, maintain or properly handle the following types of insurance policies or programs:
(1)Title;
(2)Mortgage guarantee;
(3)Life; or
(4)Health or accident.
f.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, 3.a. through 3.d. But if an excluded cause of loss that is listed in 3.a. through 3.d. results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.
a.Collapse, including any of the following conditions of property or any part of the property:
(1)An abrupt falling down or caving in;
(2)Loss of structural integrity, including separation of parts of the property or property in danger of falling down or caving in; or
(3)Any cracking, bulging, sagging, bending, leaning, settling, shrinkage or expansion, as such condition relates to (1) or (2) above.
This exclusion, a., does not apply:
(a) To the extent that coverage is provided under the Additional Coverage – Collapse; or
(b) To collapse caused by one or more of the following:
(i)The "specified causes of loss";
(ii)Breakage of building glass;
(iii)Weight of rain that collects on a roof; or
(iv)Weight of people or personal property.
b.Weather conditions, if weather conditions contribute in any way with a cause or event excluded in paragraph 1. above to produce the loss or damage.
c.Acts or decisions, including the failure to act or decide, of any person, group, organization or governmental body.
d.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 on or off the described premises.
Analysis
The following exclusions apply to coverages A, B, C, and D of form CP 00 70: loss or damage caused directly or indirectly by building ordinance or law; earth movement; governmental action; nuclear hazard; utility services failure; war and military action; water; or fungus, wet or dry rot, or bacteria. These exclusions apply "regardless of any other cause or event that contributes concurrently or in any sequence to the loss," language adopted to combat court decisions granting unintended coverage under the doctrine of concurrent causation.
The 2012 edition of the form added language to the earth movement exclusion stating that tremors and aftershocks are included under the earth movement moniker. ISO also stated that, after examining the issue of damage caused by nature or otherwise, language was added to reinforce that earth movement is excluded if caused by acts of nature or otherwise caused, such as ground settling caused by swamp drainage.
Also in the 2012 edition of the form, ISO integrated the language from the now-withdrawn Water Exclusion endorsement into the form. Tsunami was added to the description of water, as well as waterborne material that is carried or otherwise moved by flood, mudslide, or water under the ground surface. Wording was also added to emphasize that the exclusion applies whether damage is caused by nature or is otherwise caused.
The following exclusions also apply (but without the concurrent causation wording): losses caused by or resulting from artificially generated electrical, magnetic, or electromagnetic energy (although resulting fire damage is covered); loss or damage to lawns, trees, shrubs, or plants that are part of a vegetated roof caused by or resulting from dampness or dryness of atmosphere or soil, changes in or extremes in temperature, disease, frost, hail, rain, sleet, snow, or ice (added in the 2012 edition); any event occurring more than thirty days after the insured knows that an error or accidental omission may have occurred; the insured's failure to obtain or maintain title, mortgage guarantee, life, health, or accident insurance; and the insured's neglect to use all reasonable means to save and preserve the property from further damage following a loss.
Because some lenders have been held liable in recent years for pollution losses that have occurred on mortgaged property, the policy excludes loss caused by or resulting from the "discharge, dispersal, seepage, migration, release or escape of 'pollutants.'" However, if the insured customarily requires mortgagors to insure the property under the special causes of loss form (CP 10 30 10 12), pollution losses caused by one of the specified causes of loss (defined in the policy) are covered. Following the language that has been added to other forms in the commercial property program, pollutants are defined as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste." The meaning of "waste" includes materials to be recycled, reconditioned, or reclaimed. Failure to obtain, maintain, or properly handle title, mortgage guarantee, or health or accident insurance policies and neglect of an insured to use all reasonable means to protect the property from further damage are also excluded.
For purposes of form CP 00 70, the specified causes of loss include the following perils: fire; lightning; explosion; windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire extinguishing equipment; sinkhole collapse; volcanic action; falling objects; weight of snow, ice, or sleet; water damage. If loss or damage by the specified cause of loss results, the insurer pays for the resulting damage.
The third set of exclusions, also introduced to avoid coverage under the doctrine of concurrent causation, correspond to exclusions already found in the special causes of loss form, CP 10 30. Excluded as part of this group are loss or damage caused by or resulting from collapse (except as modified by the additional coverage for collapse); weather conditions; acts or decisions (and the failure to act or decide) of individuals or groups; and 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—in regard to any property, whether on or off the described premises. However, if loss or damage by a covered cause of loss results from one of these excluded perils, coverage applies to the resulting loss or damage.
The 2007 version of the form revised the collapse exclusion to describe conditions affecting property and to reinforce the relationship between the exclusion and the additional coverage, which gives back a small amount of coverage. The exclusion now states that it does not apply to the specified causes of loss, building glass breakage, weight of rain that collects on a roof, and weight of people or personal property.
The 2007 revision also added references to communication and water services to the utility services exclusion to explicitly mention those. The exclusion was also revised to address utility failure originating at the described premises involving equipment provided by an off-premises provider. The revision is consistent with the focus of the exclusion in regards to precluding coverage for utility failure related to an off-premises provider. The exclusion contains a statement making it clear that it encompasses power surge related to the power failure event, and that communication services include electronic network access and internet service.
The exclusion formerly known as the artificially generated electrical current exclusion also got an overhaul in the 2007 revision. It was updated to incorporate more current technical terms, such as electromagnetic energy.
4.Additional Exclusion
The following provisions apply only to the specified property.
Loss Or Damage To Products
We will not pay for loss or damage to any merchandise, goods or other product caused by or resulting from error or omission by any person or entity (including those having possession under an arrangement where work or a portion of the work is outsourced) in any stage of the development, production or use of the product, including planning, testing, processing, packaging, installation, maintenance or repair. This exclusion applies to any effect that compromises the form, substance or quality of the product. But if such error or omission results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.
Analysis
The 2007 edition of the form added this additional exclusion. The exclusion reinforces the coverage intent, as ISO stated in its explanatory materials, "with an explicit provision, in light of sporadic claims being asserted in contradiction of intent."
Limits of Insurance
C.Limits of Insurance
The most we will pay under this Coverage Form for all loss arising from one error or accidental omission is the applicable Limit Of Insurance shown in the Declarations, subject to the following additional limitations:
1.Under Coverage A – Mortgageholder's Interest, or Coverage B -Property Owned or Held in Trust, we will not pay more than the least of:
a.The amount of direct physical loss or damage determined in accordance with the insurance policies that would have covered the loss or damage if no error or accidental omission occurred, less the amount of any other insurance recovery payable to you on the Covered Property;
b.The amount that would have been paid to you under insurance policies you would customarily have procured and maintained if the error or accidental omission had not occurred; or
c.The amount of your "mortgageholder's interest" under Coverage A.
2.Under Coverage D – Real Estate Tax Liability, we will not pay more than 15 percent of the Limit Of Insurance shown in the Declarations as applicable to this Coverage Form, for damages due to error or accidental omission in paying real estate taxes in connection with any single mortgage.
Analysis
The most the company will pay for all loss is the applicable limit of insurance shown in the declarations, subject to certain limitations. Under coverage A or coverage B, the company will not pay more than the least of (1) the amount of direct physical loss or damage adjusted under the insurance policies that would have applied without the error or omission, less the amount of any other insurance recovery payable to the insured, (2) the amount that would be due from the insurance that should have been in force, or (3) the amount of the insured's mortgageholder's interest under coverage A. The coverage under coverages C and D applies separately to the named insured and each additional insured, but the limits of insurance are aggregate limits. Coverage D is limited to 15 percent of the limit of insurance in relation to any one mortgage.
Additional Coverage—Collapse
D.Additional Coverage – Collapse
The coverage provided under this Additional Coverage – Collapse applies only to an abrupt collapse as described and limited in D.1. through D.6.
1.For the purpose of this Additional Coverage – Collapse abrupt collapse means an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose.
2.We will pay for direct physical loss or damage to Covered Property, caused by abrupt collapse of a building or any part of a building that is insured under this Coverage Form or that contains Covered Property insured under this Coverage Form, if such collapse is caused by one or more of the following:
a.Building decay that is hidden from view, unless the presence of such decay known to a mortgagor prior to collapse;
b.Insect or vermin damage that is hidden from view, unless the presence of such damage is known to a mortgagor prior to collapse;
c.Use of defective material or methods in construction, remodeling or renovation if the abrupt collapse occurs during the course of the construction, remodeling, or renovation; or
d.Use of defective material or methods in construction, remodeling or renovation if the abrupt collapse occurs after the construction, remodeling or renovation is complete, but only if the collapse is caused in part by:
(1)A cause of loss listed in 2.a. or 2.b.;
(2)One or more of the "specified causes of loss";
(3)Breakage of building glass;
(4)Weight of people or personal property; or
(5)Weight of rain that collects on a roof.
3.This Additional Coverage – Collapse does not apply to:
a.A building or any part of a building that is in danger of falling down or caving in;
b.A part of a building that is standing, even if it has separated from another part of the building; or
c.A building that is standing or any part of a building that is standing, even if it shows evidence of cracking, bulging, sagging, bending, leaning, settling, shrinkage or expansion.
4.If personal property abruptly falls down or caves in and such collapse is not the result of abrupt collapse of a building, we will pay for loss or damage to Covered Property caused by such collapse of personal property only if:
a.The collapse of personal property was caused by a cause of loss listed in 2.a. through 2.d; and
b.The personal property which collapses is inside a building.
The coverage stated in this paragraph 4 does not apply to personal property if marring and/or scratching is the only damage to that personal property caused by the collapse.
Collapse of personal property does not mean cracking, bulging, sagging, bending, leaning, settling, shrinkage or expansion.
5.This Additional Coverage – Collapse does not apply to personal property that has not abruptly fallen down or caved in, even if the personal property shows evidence of cracking, bulging, sagging, bending, leaning, settling, shrinkage or expansion.
6.This Additional Coverage – Collapse, will not increase the Limits of Insurance provided in this Coverage Part.
7.The term Covered Cause of Loss includes the Additional Coverage – Collapse as described and limited in D.1. through D.6.
Analysis
As was done with the special causes of loss forms in 1983, the peril of collapse is limited in form CP 00 70 by first excluding it altogether and then giving back some coverage as an additional coverage.
The 2007 revision made some editorial changes to the additional coverage. Changes were also made in paragraph 2.a. to make clear that the coverage applies to building decay.
Collapse coverage does not include settling, cracking, sagging, leaning, bending, shrinkage, bulging, or expansion. Whether damage qualifies as collapse or is excluded due to these causes may depend on the jurisdiction where the property is located. See Meaning of Collapse for more information about collapse coverage.
The additional coverage is provided within the limit of insurance.
Additional Coverage—Limited Coverage For "Fungus", Wet Rot, Dry Rot And Bacteria
E.Additional Coverage – Limited Coverage For "Fungus", Wet Rot, Dry Rot And Bacteria
1.The coverage described in E.2. only applies when the "fungus", wet or dry rot or bacteria are the result of one or more of the following causes that occurs during the policy period and only if all reasonable means were used to save and preserve the property from further damage at the time of and after that occurrence.
a.A "specified cause of loss" other than fire;
b.Flood, if the Flood Coverage Endorsement applies to the affected premises.
This Additional Coverage does not apply to lawns, trees, shrubs or plants which are part of a vegetated roof.
2.We will pay for loss or damage by "fungus", wet or dry rot or bacteria. As used in this Limited Coverage, the term loss or damage means:
a.Direct physical loss or damage to Covered Property caused by "fungus", wet or dry rot or bacteria, including the cost of removal of the "fungus", wet or dry rot or bacteria;
b.The cost to tear out and replace any part of the building or other property as needed to gain access to the "fungus", wet or dry rot or bacteria; and
c.The cost of testing performed after removal, repair, replacement or restoration of the damage property is completed, provided there is a reason to believe that "fungus", wet or dry rot or bacteria are present.
3.The coverage described under E.2. of this Limited Coverage is limited to $15,000. Regardless of the number of claims, this limit is the most we will pay for the total of all loss or damage arising out of all occurrences of "specified causes of loss" (other than fire or lightning) and Flood which takes place in a 12-month period (starting with the beginning of the present annual policy period). With respect to a particular occurrence of loss which results in "fungus", wet or dry rot or bacteria, we will not pay more than a total of $15,000 even if the "fungus", wet or dry rot or bacteria continues to be present or active, or recurs, in a later policy period.
4.The coverage provided under this Limited Coverage does not increase the applicable Limit of Insurance on any Covered Property. If a particular occurrence results in loss or damage by "fungus", wet or dry rot or bacteria, and other loss or damage, we will not pay more, for the total of all loss or damage, than the applicable Limit of Insurance on the affected Covered Property.
If there is covered loss or damage to Covered Property, not caused by "fungus", wet or dry rot or bacteria, loss payment will not be limited by the terms of this Limited Coverage, except to the extent that "fungus", wet or dry rot or bacteria causes an increase in the loss. Any such increase in the loss will be subject to the terms of this Limited Coverage.
5.The terms of this Limited Coverage do not increase or reduce the coverage provided under the Additional Coverage – Collapse.
Analysis
Consistent with other property forms, limited coverage for fungus, wet and dry rot, and bacteria was added to the 2002 edition of the CP 00 70. The fungus, wet or dry rot, or bacteria must results from a specified cause of loss other than fire or lightning or flood. The fungus, wet or dry rot, or bacteria must cause direct physical damage to covered property. The cost to remove the fungus, wet or dry rot, or bacteria, as well as the cost to tear out and replace parts of the building to gain access to the fungus, wet or dry rot, or bacteria, is also covered. If there is reason to believe that fungus, wet or dry rot, or bacteria exists, the cost to test after the removal of the damaged property is covered, too.
The insured receives an annual aggregate amount of $15,000 for mold that results from specified causes of loss—except fire and lightning—and flood. However, the $15,000 is a lifetime limit for mold caused by the same event. The coverage does not increase the limit of insurance or increase or reduce the limited coverage for collapse.
The 2012 edition of the form added a statement that the additional coverage does not apply to lawns, trees, shrubs, or plants that are part of a vegetated roof.
Additional Conditions
F.Additional Conditions
The following conditions apply in addition to the Common Policy Conditions.
1.Condition Applicable to Coverage A – Mortgageholder's Interest
Transfer Of Mortgage – Coverage A
We and all other insurance companies covering a loss, if in agreement, may pay you an amount equal to the outstanding balance on the mortgage, even if that amount is greater than the amount of loss. If so, we and the other insurance companies may demand and receive a full assignment of the mortgage, including all securities held as collateral for the debt, as interests may appear.
2.Conditions Applicable to Coverage B – Property Owned Or Held In Trust
a.Our Options – Coverage B
In the event of loss or damage covered under Coverage B, at our option, we will either:
(1)Pay the value of lost or damaged property;
(2)Pay the cost of repairing or replacing the lost or damaged property;
(3)Take all or any part of the property at an agreed or appraised value; or
(4)Repair, rebuild or replace the property with other property of like kind and quality.
We will give notice of our intentions within thirty days after we receive the sworn statement of loss.
We will not pay you more than your financial interest in the Covered Property.
b.Recovered Property – Coverage B
If either you or we recover any property after loss settlement, that party must give the other prompt notice. At your option, the property will be returned to you. You must then return to us the amount we paid to you for the property. We will pay recovery expenses and the expenses to repair the recovered property, subject to the Limit of Insurance.
c.Time Period – Coverage B
Coverage on each item of Covered Property applies only during the period of time that:
(1)Begins on the day you acquire the property or your fiduciary interest in it begins; and
(2)Ends on the earlier of:
(a)ninety days after the date in Paragraph (1). above; or
(b)the day other insurance on the property is obtained.
d.Valuation – Coverage B
We will determine the value of Covered Property in the event of loss or damage at actual cash value as of the time of loss or damage.
3.Conditions Applicable to Coverage C – Mortgageholder's Liability and Coverage D – Real Estate Tax Liability
a.Bankruptcy – Coverages C and D
Bankruptcy or insolvency of you or your estate will not relieve us of our obligations under Coverages C and D.
b.Separation of Insureds – Coverages C and D
The insurance under Coverages C and D applies separately to you and each additional insured, except with respect to the Limits of Insurance.
4.Conditions Applicable to All Coverages
a.Abandonment
There can be no abandonment of any property to us.
b.Appraisal – Coverages A and B Only
If we and you disagree on the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding. Each party will:
(1)Pay its chosen appraiser; and
(2)Bear the other expenses of the appraisal and umpire equally.
If there is an appraisal, we will still retain our right to deny the claim.
c.Duties In The Event Of Loss
(1)Under Coverages A and B:
(a)You must see that the following are done in the event of loss or damage to Covered Property:
(i)Notify the police if a law may have been broken.
(ii)Give us prompt notice of the loss or damage once you are aware of it. Include a description of the property involved.
(iii)Take all reasonable steps to protect the Covered Property from further damage, and keep a record of your expenses necessary to protect the Covered Property, for consideration in the settlement of the claim. This will not increase the Limit of Insurance. However, we will not pay for any subsequent loss or damage resulting from a cause of loss that is not a Covered Cause of Loss. Also, if feasible, set the damaged property aside and in the best possible order for examination.
(iv)At our request, give us complete inventories of the damaged and undamaged property. Include quantities, costs, values and amount of loss claimed.
(v)As often as may be reasonably required, permit us to inspect the property proving the loss or damage and examine your books and records.
Also permit us to take samples of damaged and undamaged property for inspection, testing and analysis, and permit us to make copies from your books and records.
(vi)Send us a signed, sworn proof of loss containing the information we request to investigate the claim. You must do this within sixty days after our request. We will supply you with the necessary forms.
(vii) Cooperate with us in the investigation or settlement of the claim.
(b)We may examine any insured under oath, while not in the presence of any other insured and at such times as may be reasonably required, about any matter relating to this insurance or the claim, including an insured's books and records. In the event of an examination, an insured's answers must be signed.
(2)Under Coverages C and D:
(a)If a claim is made or "suit" is brought against you, you must see to it that we receive prompt written notice of the claim or "suit."
(b)You must:
(i)Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or "suit";
(ii)Authorize us to obtain records and other information;
(iii)Cooperate with us in the investigation, settlement or defense of the claim or "suit";
(iv)Assist us, upon our request, in the enforcement of any right against any person or organization that may be liable to you because of damage to which this insurance may also apply; and
(v)If requested, give us a signed statement of facts containing the information we request to determine our rights and duties under this insurance.
(c)You will not, except at your own cost, voluntarily make a payment, assume any obligation, or incur any expense without our consent.
d.Insurance Under Two or More Coverages
If two or more of this policy's coverages apply to the same loss or damage, we will not pay more than the actual amount of the loss or damage.
e.Legal Action Against Us
(1)No one may bring a legal action against us under Coverages A and B unless:
(a)There has been full compliance with all of the terms of Coverages A and B; and
(b)The action is brought within two years after you discover the error or accidental omission.
(2).No person or organization has a right under Coverages C and D:
(a)To join us as a party or otherwise bring us into a "suit" asking for damages from you; or
(b)To sue us on this Coverage Form unless all of its terms have been fully complied with.
A person or organization may sue us to recover on an agreed settlement or on a final judgment against you obtained after an actual trial; but we will not be liable for damages that are not payable under the terms of this Coverage Form or that are in excess of the Limit of Insurance. An agreed settlement means a settlement and release of liability signed by us, you and the claimant or the claimant's legal representative.
f.Liberalization
If we adopt any revision that would broaden the coverage under this Coverage Part without additional premium within forty-five days prior to or during the policy period, the broadened coverage will immediately apply to this Coverage Part.
g.Loss Payment
We will pay for covered loss or damage to Covered Property within thirty days after we receive the sworn proof of loss, if you have complied with all of the terms of this Coverage Part; and
(1)We have reached agreement with you on the amount of loss; or
(2)An appraisal award has been made.
h.Other Insurance
(1)You may have other insurance subject to the same plan, terms, conditions and provisions as the insurance under this Coverage Part. If you do, we will pay our share of the covered loss or damage. Our share is the proportion that the applicable Limit Of Insurance under this Coverage Part bears to the Limits of Insurance of all insurance covering on the same basis.
(2)If there is other insurance covering the same loss or damage, other than that described in (1) above, we will pay only for the amount of covered loss or damage in excess of the amount due from that other insurance, whether you can collect on it or not. But we will not pay more than the applicable Limit of Insurance.
i.Policy Period, Coverage Territory
Under this Coverage Form:
(1)These coverages only apply to:
(a)Loss or damage, or
(b)Claims or "suits" arising from an event, that occurs during the policy period shown in the Declarations. The date of error or accidental omission does not have to be within the policy period.
(2)We will pay for loss arising from errors or accidental omissions in connection with insurance policies or real estate tax payments on property located in:
(a)The United States of America (including its territories and possessions); and
(b)Puerto Rico.
j.Transfer of Rights of Recovery Against Others to Us
(1)Under Coverages A and B, if any person or organization to or for whom we make payment under this Coverage Form has rights to recover damages from another, those rights are transferred to us to the extent of our payment. That person or organization must do everything necessary to secure our rights and must do nothing after loss to impair them. But you may waive your rights against another party in writing:
(a)Prior to a loss to your Covered Property.
(b)After a loss to your Covered Property only if, at time of loss, that party is one of the following:
(i)Someone insured by this insurance;
(ii)A business firm:
Owned or controlled by you; or
That owns or controls you; or
(iii)Your tenant.
This will not restrict your insurance.
(2)Under Coverages C and D, if you have rights to recover all or part of any payment we have made under this Coverage Form, those rights are transferred to us. You must do nothing after loss to impair them. At our request, you will bring "suit" or transfer those rights to us and help us enforce them.
k.Vacancy
We will not pay for any loss or damage if the building where loss or damage occurs, or out of which a claim or "suit" arises, has been vacant for more than sixty days before that loss or damage, or the event that gives rise to the claim or "suit."
A building is vacant unless at least 31 percent of its total square footage is:
(1)Rented to a lessee or sub-lessee and used by the lessee or sub-lessee to conduct its customary operations; and/or
(2)Used by the building owner to conduct customary operations.
l.Your Duties
You must make every reasonable effort, with respect to:
(1)Coverage A – Mortgageholder's Interest, to require, procure and maintain "valid insurance," payable to you as mortgageholder, against the Covered Causes of Loss.
(2)Coverage B – Property Owned Or Held In Trust, to procure and maintain "valid insurance" against the Covered Causes of Loss in amounts, and under conditions, you customarily require to protect your interest as owner, fiduciary or trustee of the Covered Property.
(3)Coverage C – Mortgageholder's Liability, to maintain "valid insurance" against the Covered Causes of Loss in amounts, and under conditions, customarily accepted by the mortgagor, as agreed.
(4)Coverage D – Real Estate Tax Liability, to promptly pay real estate taxes, if agreed to, on behalf of the mortgagor.
Analysis
Certain conditions apply to individual coverages under the form. A condition applicable to mortgageholder's interest (coverage A) states that if all insurers on the loss agree, payment equaling the balance due under the mortgage may be made (even if that amount is greater than the amount of loss), in which case the insurers have the right to full assignment of the mortgage, including all securities held as collateral. The mortgagor's obligation is unaffected.
In the event of loss or damage under coverage B, the insurer reserves the choice of four options for itself. It can do one of the following:
1.pay the value of lost or damaged property;
2.pay the cost of repairing or replacing the lost or damaged property;
3.take all or any part of the property at an agreed or appraised value; or
4.repair, rebuild or replace the property with other property of like kind and quality.
In any case, the insured's recovery is limited to its financial interest in the covered property. Furthermore, the value of lost or damaged property is determined at actual cash value as of the time of loss or damage.
Three conditions—duties in the event of loss, legal action against the insurer, and transfer of rights of recovery against others—contain different requirements that apply depending on whether property coverages A and B or liability coverages C and D are involved.
The form states that the insurer may take samples of undamaged property (as well as damaged property) for inspection, since comparisons may be helpful, and permits the insurer not only to examine the insured's books and records, but also to make copies from them. Also, the insured must submit a sworn proof of loss (rather than a statement), emphasizing that proof must be submitted to corroborate the loss. The insurer has the right to examine the insured "while not in the presence of any other insured." Courts have held that the term "examine" encompasses both oral and written questioning, and the right to isolate the insured from others was made explicit after a Missouri appellate court ruled that the insurer had no such right without an explicit provision.
The requirements applicable to coverages C and D under this condition are as follows: first, the insured must see to it that the insurer receives prompt written notice of any claim or suit (including arbitration proceedings). Then the insured must assist the insurer by immediately forwarding copies of demands, notices, summonses, or legal papers in connection with the claim or suit; authorize the insurer to receive records and other information; cooperate in the investigation, settlement, or defense; if asked, the insured must help with the enforcement of any right against persons or organizations that may be liable to the insured for damage to which the insurance may apply; and, upon request, give a signed statement of facts regarding information the insurer requests for determining its rights and duties. If the insured voluntarily makes a payment, assumes an obligation, or incurs an expense without the insurer's consent, it will be at the insured's own expense.
No one may bring legal action against the insurer, under coverages A and B, unless there is full compliance with all requirements of those coverages and the action is brought within two years after the insured discovers the error or accidental omission. Under coverages C and D, no person or organization may join the insurer as a party or bring it into a suit or arbitration proceeding asking for damages against the insured, or sue the insurer directly, unless all of the policy's requirements have been fully complied with. After an agreed settlement, or actual trial resulting in a judgment against the insured, suit may be brought to recover the amount due. An agreed settlement is defined as a settlement and release of liability signed by all parties.
Rights to recover from another under all coverages may be transferred to the insurer—to the extent of the insurer's payment—and the insured must do nothing to impair the insurer's rights. Under coverages A and B, the insured may waive its rights against another party if the waiver is in writing. The waiver will be valid if made before the loss, or if, in the case of a waiver made after the loss, the other party is another insured under the policy, a business firm owned or controlled by the insured or the insured's owner or controller, or the insured's tenant. Valid waivers do not restrict the insured's insurance.
Rights of recovery against another under coverages C and D are also transferred to the insurer. At the insurer's request, the insured must bring a suit (including an arbitration proceeding), or transfer the rights and help the insurer enforce them.
As regards the liability coverages under C and D, the insurer is obligated to provide coverage even if the insured or the insured's estate becomes bankrupt or insolvent.
In addition to the common policy conditions, a number of other conditions apply to the Mortgageholder's Errors and Omissions Coverage form.
The policy period condition identifies coverage under the mortgageholders coverage form as occurrence-based. It specifies that coverage applies to loss or damage and claims or suits (including arbitration proceedings to which the insured must submit or submits to with the insurer's consent) arising from an event that occurs during the policy period shown in the declarations. Therefore, even if an error or accidental omission happens outside the policy period, this coverage applies as long as the loss or damage occurs within the policy period.
This form applies only to errors or omissions with respect to policies (or real estate tax payments) in connection with real property located in the United States, its territories and possessions, and Puerto Rico. The territory is related only to the location of the real property. It is the location of the mortgaged property—not the site of the error or omission—that governs.
The other insurance condition states that payment is on a pro rata basis with other insurance written under the identical terms, conditions, and provisions of this form. With respect to any other valid insurance, this policy applies only as excess coverage of the amount due from that other insurance, whether it is collectible or not.
No payment will be made if the building where loss or damage occurs has been vacant for more than sixty days before that loss or damage, or sixty days before the event that gives rise to the claim or suit. At least 31 percent of the building's total square feet must be used by the owner, lessees, or sub-lessees to conduct customary operations to be considered vacant.
The insured is required to make every reasonable effort to procure and maintain valid insurance (i.e., either a valid policy or other evidence of insurance), or, in the case of coverage D, prompt payment of real estate taxes on behalf of the mortgagor. These requirements indicate that this form protects against a failure due to unintentional error or omission. The insured is protected against those errors that happen regardless of the best efforts to avoid them. Other portions of this condition apply to individual coverages.
The loss payment condition promises payment for covered loss to covered property within thirty days of receipt of the sworn statement of loss if the named insured has complied with all the terms of the coverage part and an agreement has been reached on the amount of loss or an appraisal award has been made.
Definitions
G.Definitions
1."Fungus" means any type or form of fungus, including mold or mildew, and any mycotoxins, spores, scents or by-products produced or released by fungi.
2."Mortgageholder's interest" means your interest, as mortgageholder, in real or personal property, including your interest in any legal fiduciary capacity.
3."Pollutants" means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.
4."Specified causes of loss" means the following: fire; lightning; explosion; windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire-extinguishing equipment; sinkhole collapse; volcanic action; falling objects; weight of snow, ice or sleet; water damage. Water damage means accidental discharge or leakage of water or steam as the direct result of the breaking apart or cracking of any part of a system or appliance (other than a sump system including its related equipment and parts) containing water or steam.
5."Suit" includes an arbitration proceeding to which you must submit or submit with our consent.
6."Valid insurance" means a valid policy, or other evidence, of insurance.
Analysis
The policy concludes with the definitions of six terms. "Fungus," "pollutants," "specified causes of loss," and "suit" are defined the same as in the building and personal property form.
"Mortgageholder's interest" is what the policy protects—the lienholder's (named insured) interest in mortgaged property. Valid insurance refers to what must be missing in order for the mortgageholders E&O policy to be activated.
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