AAIS Commercial Properties Program
Building and Personal Property Coverage Part
Summary: The American Association of Insurance Services’ (AAIS) commercial properties program features simplified language and a modular approach. (Modular approach refers to the use of a declarations page plus one or more coverage parts, one or more perils parts, and a general provisions part to construct a policy suited to the particular insured.) The program provides coverage for direct loss to commercial property and time element coverages.
In the direct property damage area, there are coverage parts for buildings and personal property, builders’ risk, and condominium buildings and units. Time element coverage parts available are earnings, extra expense, and income. An introduction and contents form, supplemental declarations, and numerous endorsements are optional. Rules and rates are contained in the AAIS commercial property manual.
The property coverage parts state what property is covered and what is excluded and set forth any other provisions peculiar to the type of insurance being provided. Similarly, the time element coverage parts describe the particular time element being insured (income, earnings, etc.), and provisions specific to that coverage, such as the special coinsurance clause relating to income insurance.
The perils parts have as their sole purpose the naming of perils covered and excluded. The following perils parts are available: fire; basic, broad, special, and earthquake. This article examines the special form perils.
The following discussion describes the general features of the building and personal property coverage part.
Topics covered:
Insuring agreement and covered property
Property excluded and limitations
Mercantile, warehousing, nonmanufacturing, and habitational risks are eligible for coverage under the program. Habitational risks include apartment houses and mercantiles, boarding houses, convents and monasteries, dormitories, fraternity and sorority houses, dwellings, lodging and rooming houses, nurses homes, and orphanages. Processors, manufacturers, and farm operations are ineligible.
Insuring Agreement and Covered Property
We cover direct physical loss to covered property at the premises described on the declarations caused by a covered peril.
PROPERTY COVERED
We cover the following types of property for which a limit is shown on the declarations.
BUILDING PROPERTY
This means buildings and structures described on the declarations, including:
1.completed additions;
2.fixtures, machinery, and equipment which are a permanent part of the described building or structure;
3.outdoor fixtures;
4.personal property owned by you and used to maintain or service the described building or structure or its premises, including air-conditioning equipment; fire extinguishing apparatus; floor coverings; and appliances for refrigerating, cooking, dish washing, and laundering;
5.if not covered by other insurance;
a.additions under construction, alterations, and repairs to the building or structure; and
b.materials, equipment, supplies, and temporary structures, on or within 100 feet of the described premises, used for making additions, alterations, or repairs to the building or structure.
BUSINESS PERSONAL PROPERTY
This means your business personal property in the buildings and structures described on the declarations or in the open (or in vehicles) on or within 100 feet of the described premises. Unless otherwise specified on the declarations, this includes:
1.your interest in personal property of others to the extent of your labor, material, and services;
2.your use interest as tenant in improvements to the described building or structure. Improvements are fixtures, alterations, installations, or additions:
a.to a building or structure you occupy but do not own; and
b.made or acquired at your expense and which cannot be legally removed by you; and
3.leased personal property which you have a contractual responsibility to insure, unless otherwise insured by the Commercial Property Coverage under Personal Property of Others.
PERSONAL PROPERTY OF OTHERS
This means personal property of others:
1.that is in your care, custody, or control; and
2.located in the buildings and structures described on the declarations or in the open (or in vehicles) on or within 100 feet of the described premises.
However, our payment for loss to personal property of others is only for the benefit of the owners of the personal property.
Analysis
While the language of the AAIS form is very similar to the ISO CP 00 10 10 12, it is simpler in the area of business personal property. While the ISO form lists various categories of business personal property, the AAIS form simply promises to pay for damage to such property, without spelling out things like furniture, fixtures, and equipment.
Property Excluded and Limitations
PROPERTY EXCLUDED AND LIMITATIONS
1.Animals—We do not cover animals, including birds and fish, unless owned by others and boarded by you. We do cover animals you own and hold for sale.
2.Antennas, Awnings, Canopies, Fences, and Signs—Except as provided under Supplemental Coverages, we do not cover outdoor:
a.radio, television, satellite, dish-type, or other antennas including their masts, towers, and lead-in wiring;
b.awnings or canopies of fabric or slat construction or their supports;
c.fences; or
d.signs, other than signs attached to buildings.
3.Contraband—We do not cover contraband or property in the course of illegal transportation or trade.
4.Foundations, Retaining Walls, Piling, Piers, Wharves, or Docks—We do not cover foundations which are below the lowest basement floor or below ground level if there is no basement; retaining walls that are not part of buildings or structures; or pilings, piers, wharves, or docks.
5.Land; Water; Growing Crops or Lawns; Cost of Excavation, Grading, or Filling; Paved Surfaces; or Underground Pipes, Flues, or Drains—We do not cover:
a.land, including land on which the property is located;
b.underground or surface water;
c.growing crops or lawns;
d.cost of excavations, grading, or filling;
e.paved outdoor surfaces, including driveways, parking lots, roads, bridges, and walks; or
f.underground pipes, flues, and drains.
6.Money and Securities—We do not cover accounts, bills, currency, food stamps, or other evidences of debt, lottery tickets not held for sale, money, notes, or securities.
7.Property More Specifically Insured—We do not cover property which is more specifically insured in whole or in part by any other insurance. We do cover the amount in excess of the amount due from the more specific insurance.
8.Trees, Shrubs, and Plants—Except as provided under Supplemental Coverages, we do not cover trees; shrubs; plants; and grain, hay, straw, or other crops, when outdoors. However, we do cover trees, shrubs, and plants you own and hold for sale.
9.Valuable Papers and Records—Research Cost—Except as provided under Supplemental Coverages, we do not cover the cost to research, replace, or restore the information on valuable papers and records, including those which exist on electronic or magnetic media.
10.Vehicles, Aircraft, and Watercraft—We do not cover vehicles or self-propelled machines (including aircraft or watercraft and their motors, equipment, and accessories) that are:
a.required to be licensed for use on public roads; or
b.operated principally away from the described premises.
We do cover vehicles or self-propelled machines you manufacture, process, warehouse, or hold for sale. However, this does not include autos you hold for sale. We also cover rowboats or canoes out of water at the described premises.
Analysis
Like the ISO CP 00 10, the AAIS form defines the following items as “property not covered”: animals; contraband; foundations below the surface of the ground, retaining walls, piers, etc.; land, water, and growing crops; cost of excavations and backfilling; underground pipes, flues, or drains; money and securities (including accounts, food stamps, etc.); property specifically insured elsewhere; cost to research and restore valuable papers; and vehicles, aircraft, and watercraft.
The ISO policy specifies the following items as not covered, while the AAIS policy is silent on them: bridges, roadways, walks, patios, or other paved surfaces.
ADDITIONAL COVERAGES
1.Debris Removal—We cover the cost to remove the debris of covered property that is caused by a covered peril. This coverage does not include costs to:
a.extract pollutants from land or water; or
b.remove, restore, or replace polluted land or water.
We do not pay any more under this coverage than 25 percent of the amount we pay for the direct physical loss. We do not pay more for loss to property and debris removal combined than the limit for the damaged property.
However, we pay an additional amount of debris removal expense up to $5,000 when the debris removal expense exceeds 25 percent 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.
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.Emergency Removal—We cover loss to covered property while moved or being moved from the described premises for preservation from loss caused by a covered peril. We pay for any direct physical loss to that property. This coverage applies for up to 10 days after the property is first moved. This does not increase the limit.
3.Fire Department Service Charges—We pay up to $1,000 to cover your liability, assumed by contract or agreement prior to the loss, for fire department service charges.
This coverage is limited to charges incurred when the fire department is called to save or protect covered property from a covered peril.
No deductible applies.
This is an additional limit.
4.Pollutant Clean Up and Removal—We pay your expense to extract pollutants from land or water at the described premises if the discharge, dispersal, seepage, migration, release, or escape of the pollutants is caused by a covered peril that occurs during the policy period.
We pay the cost of testing, evaluating, observing, or recording the existence, level, or effects of pollutants only when the expense of extracting the pollutants is covered by this Additional Coverage.
The most we pay for each described premises 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. The expenses are paid only if they are reported to us in writing within 180 days from the date the covered peril occurs.
This is an additional limit.
Analysis
AAIS’s commercial property program includes four additional coverages: debris removal, emergency removal; fire department service charge; and pollutant cleanup and removal.
Debris removal. The policy covers the cost to remove the debris of covered property that is caused by a covered peril. However, this coverage does not include costs to extract pollutants from land or water or remove, restore, or replace polluted land or water. Debris removal coverage is limited to 25 percent of the amount paid for direct physical loss; however, coverage for direct loss and debris removal combined is capped at the policy limit. If the amount of direct damage and debris removal expense exceeds the limit of liability, an additional $5,000 flat amount is available for debris removal. ISO provides $25,000 in this case in the latest version of its commercial property policy. Debris removal costs must be reported to the insurance company within 180 days from the date of direct physical loss in order to be covered.
Emergency removal. Without increasing the policy limits, the policy covers loss to covered property if it must be moved to avoid loss from a covered peril. This coverage is for any cause of loss—not just for the covered causes of loss. This coverage applies for up to ten days (thirty days in ISO) after the property is first moved.
Fire department service charge. $1,000 is available to pay the insured’s liability, assumed by contract or agreement prior to the loss, for fire department service charges. This applies to charges incurred when the fire department is called to save or protect covered property from a covered peril. No deductible applies and this amount is in addition to the policy limits.
Pollutant clean up and removal. Additional coverage applies to the insured’s expense to extract pollutants from land or water at the described premises. The discharge, dispersal, seepage, migration, release, or escape of the pollutants must be caused by a covered peril occurring during the policy period. The cost of testing, evaluating, observing, or recording the existence, level, or effect of pollutants is covered only when the expense of extracting pollutants is covered under this additional coverage. The limit for pollutant clean up is $10,000 for the sum of all such expenses arising out of a covered peril occurring during each separate twelve-month period. Such expenses must be reported to the insurer within 180 days from the date the covered peril occurs.
ADDITIONAL DEFINITIONS
1.Sinkhole Collapse—This 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. It does not include the value of the land or the cost of filling sinkholes.
2.Specified Perils—This 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 personal property in the open or to the interior of buildings or structures or personal property inside buildings or structures unless the exterior of the roof 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.
3.Volcanic Action—This means airborne volcanic blast or airborne shock waves; ash, dust, or particulate matter; or lava flow. It does not include the cost to remove ash, dust, or particulate matter that does not cause direct physical loss to the covered property.
PERILS COVERED
When “Special Perils” is shown on the declarations, we cover risks of direct physical loss unless the loss is limited or caused by a peril that is excluded.
PERILS EXCLUDED
1.We do not pay for loss if one or more of the following exclusions apply to the loss, 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.Ordinance or Law—We do not cover loss or increased cost caused by enforcement of any code, ordinance, or law regulating the use, construction, or repair of any building or structure; or requiring the demolition of any building or structure including the cost of removing its debris.
b.Earth Movement or Volcanic Eruption—We do not cover 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 cover direct physical loss by fire, explosion, or volcanic action resulting from either earth movement or eruption, explosion, or effusion of a volcano.
All volcanic eruptions that occur within a 168 hour period shall be considered a single loss.
c.Civil Authority—We do not cover loss caused by order of any civil authority, including seizure, confiscation, destruction, or quarantine of property.
We cover 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 policy.
d.Nuclear Hazard—We do not cover loss caused by a nuclear reaction, nuclear radiation, or radioactive contamination (whether controlled or uncontrolled; whether caused by, contributed to or aggravated by a covered peril; and whether caused by natural, accidental, or artificial means). Loss caused by nuclear hazard is not considered loss caused by fire, explosion, or smoke. Direct physical loss by fire resulting from the nuclear hazard is covered.
e.Utility Failure—We do not cover loss caused by interruption of power or other utility services resulting from any cause if the interruption takes place away from the described premises. Interruption includes reduced or increased voltage, low or high pressure, or other interruptions of normal services.
We cover the direct physical loss by a covered peril which occurs on the described premises as a result of any power interruption.
f.War—We do not cover loss caused by war. This means:
1)declared war, undeclared war, civil war, insurrection, rebellion, or revolution;
2)a warlike act by a military force or by military personnel;
3)the destruction, seizure, or use of the property for a military purpose; or
4)the discharge of a nuclear weapon, even if it is accidental.
g.Water—We do not cover loss caused by water. This means:
1)flood, surface water, waves, tidal water, or the overflow of a body of water. This includes spray that results from these whether driven by wind or not;
2)water that backs up through a sewer or drain; and
3)water below the surface of the ground. This includes water that exerts pressure on or flows, seeps, or leaks through or into a building or structure, sidewalk, driveway, foundation, swimming pool, or other structure.
If fire, explosion, or sprinkler leakage results, we do cover the resulting loss.
2.We do not pay for loss if one or more of the following exclusions apply to the loss:
a.Animals—We do not cover loss caused by animals, including birds, insects, or vermin. We cover any resulting loss caused by a specified peril or breakage of building glass.
b.Collapse—We do not cover loss caused by collapse, except as provided in the Additional Coverage for Collapse. If loss caused by a covered peril results at the described premises, we pay for that resulting loss.
c.Contamination or Deterioration—We do not cover loss caused by contamination or deterioration including corrosion, decay, fungus, mildew, mold, rot, rust or any quality, fault, or weakness in property that causes it to damage or destroy itself. We cover any resulting loss caused by a specified peril or breakage of building glass.
d.Criminal, Fraudulent, or Dishonest Acts—We do not cover loss caused by 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, joint adventurers; or
5)the employees or agents of 1), 2), 3), or 4) above, whether or not they are at work.
e.Defects, Errors, and Omissions—We do not cover loss which results from one or more of the following;
1)an act, error, or omission (negligent or not) relating to:
a)land use;
b)the design, specification, construction, workmanship, installation, or maintenance of property;
c)planning, zoning, development, siting, surveying, grading, or compaction; or
d)maintenance of property (including land, structures, or improvements);
whether on or off the described premises;
2)a defect, a weakness, the inadequacy, a fault, or unsoundness in materials used in construction or repair, whether on or off the described premises;
3)the cost to make good an error in design; or
4)a data processing error or omission in programming or giving improper instructions.
In addition, we do not cover loss to Business Personal Property caused by deficiency or defects in design, specifications, materials, or workmanship, or caused by latent or inherent defects.
We cover any resulting loss caused by a covered peril unless the resulting loss itself is excluded.
f.Electrical Currents—We do not cover loss caused by arcing or by electrical currents other than lightning. If a fire results, we cover only the loss caused by fire.
g.Explosion—We do not cover loss caused by explosion of steam boilers, steam pipes, steam turbines, or steam engines that you own or lease or that are operated under your control. If a fire or combustion explosion results, we cover the resulting loss. We also cover loss caused by the explosion of gas or fuel in a firebox, combustion chamber, or flue.
h.Freezing—We do not cover loss caused by water, other liquids, powder, or molten material that leaks or flows from plumbing, heating, air-conditioning systems or appliances (other than fire protective systems) as a result of freezing. This does not apply if you use reasonable care to maintain heat in the building or structure; or you drain the equipment and turn off the supply if the heat is not maintained.
i.Increased Hazard—We do not cover loss occurring while the hazard has been materially increased by any means within your knowledge or your control.
j.Loss of Use—We do not cover loss caused by loss of use, business interruption, delay, or loss of market.
k.Mechanical Breakdown—We do not cover loss caused by mechanical breakdown or rupturing or bursting of moving parts of machinery caused by centrifugal force. We cover any resulting loss caused by a specified peril, breakage of building glass, or elevator collision.
l.Neglect—We do not cover loss caused by your neglect to use all reasonable means to save covered property at and after the time of loss. We do not cover loss caused by your neglect to use all reasonable means to save and preserve covered property when endangered by a covered peril.
m.Pollutants—We do not cover loss caused by 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 cover any resulting loss caused by a specified peril.
n.Seepage—We do not cover loss caused by continuous or repeated seepage or leakage of water or steam that occurs over a period of 14 days or more.
o.Settling, Cracking, Shrinking, Bulging, or Expanding—We do not cover loss caused by settling, cracking, shrinking, bulging, or expanding of pavements, footings, foundations, walls, ceilings, or roofs. We cover any resulting loss caused by a specified peril or breakage of building glass.
p.Smog, Smoke, Vapor, or Gas—We do not cover loss caused by smog, smoke, vapor, or gas from agricultural smudging or industrial operations.
q.Temperature/Humidity—We do not cover loss to personal property caused by dampness, dryness, or changes in or extremes of temperature. We cover any resulting loss caused by specified perils or breakage of building glass.
r.Voluntary Parting—We do not cover loss caused by voluntary parting with title to or possession of any property because of any fraudulent scheme, trick, or false pretense.
s.Wear and Tear—We do not cover loss caused by wear and tear, marring, or scratching. We cover any resulting loss caused by a specified peril or breakage of building glass.
t.Weather—We do not pay for loss caused by weather conditions if the weather conditions contribute in any way with a cause or event excluded in paragraph 1. above.
We cover any resulting loss caused by a covered peril unless the resulting loss itself is excluded.
ADDITIONAL PROPERTY EXCLUDED AND LIMITATIONS
1.Animals—We do not cover loss to animals, including birds and fish, except death or destruction of animals caused by specified perils or breakage of building glass.
2.Boilers—We do not cover loss to steam boilers, steam pipes, steam turbines, or steam engines caused by any condition or occurrence within such equipment. We do cover loss to such equipment caused by the explosion of gas or fuel in a firebox, combustion chamber, or flue.
We do not cover loss to hot water boilers or heaters caused by any condition or occurrence within such equipment other than explosion. This exclusion includes bursting, cracking, exploding, or rupturing.
3.Building Materials—We do not cover loss to building materials and supplies that are not attached to buildings or structures, unless held for sale by you, caused by theft.
We cover loss caused by looting and pillaging at the time and place of a riot or civil commotion.
4.Furs—We do not cover furs or fur garments for loss by theft for more than $2,500 total in any one occurrence.
5Glass Breakage—We do not cover building glass breakage loss for more than $100 for any plate, pane, multiple plate insulating unit, heating pane, jalousie, louver, or shutter, or more than $500 in any one occurrence. These limits do not apply to loss by specified perils other than vandalism.
6.Glassware/Fragile Articles—We do not cover breakage of fragile articles such as glassware, statuary, porcelains, and bric-a-brac, except as a result of specified perils or breakage of building glass. This does not apply to glass that is a part of a building or structure; bottles or other containers held for sale; or lenses of photographic and scientific instruments.
7.Gutters and Downspouts—We do not cover loss to gutters and downspouts caused by the weight of ice, sleet, or snow.
8.Interior of Buildings—We do not cover loss to the interior of buildings or structures or to personal property in the buildings or structures caused by rain, snow, sleet, ice, sand, or dust, unless:
a.entering through openings made by a specified peril; or
b.the loss is caused by the thawing of snow, sleet, or ice on the building or structure.
9.Jewelry, Watches, Jewels, Pearls, Precious Stones, and Metals—We do not cover more than $2,500 total in any one occurrence for loss by theft of jewelry; watches; watch movements; jewels; pearls; precious or semi-precious stones; gold, silver, or other precious metals; or items consisting primarily of precious metals. This limitation does not apply to items of jewelry or watches worth $100 or less.
10.Machinery, Tools, and Equipment—We do not cover builders’ machinery, tools, and equipment owned by you or in your care, while away from the described premises except as a result of specified perils or breakage of building glass.
11.Missing Property—We do not cover missing property where the only proof of loss is unexplained or mysterious disappearance, or shortage discovered on taking inventory, or other instance where there is no physical evidence to show what happened to the property.
12.Patterns, Dies, Molds, Models, and Forms—We do not cover more than $2,500 total in one occurrence for loss by theft to patterns, dies, molds, models, or forms.
13.Personal Property in the Open—We do not cover loss to personal property in the open caused by rain, snow, ice, or sleet.
14.Stamps, Tickets, Letters of Credit—We do not cover more than $250 total in any one occurrence for loss by theft to stamps, tickets (including lottery tickets held for sale), or letters of credit.
15.Transferred Property—We do not cover loss to property that has been transferred to a person or to a place away from the described premises on the basis of unauthorized instructions.
16.Valuable Papers and Records—We do not cover loss to valuable papers or records except by specified perils or breakage of building glass. This applies to account books, bills, card index systems, electronic data processing media and the information on such media, deeds, drawings, evidence of debt, manuscripts, and other records.
ADDITIONAL COVERAGES
1.Collapse—We pay for loss caused by direct physical loss involving collapse of a building or structure or any part of a building or structure caused only by one or more of the following:
a.specified perils; all only as covered in the Commercial Property Coverage;
b.hidden decay;
c.hidden insect or vermin damage;
d.weight of people or business personal property;
e.weight of rain that collects on a roof; or
f.the use of defective material or methods in construction, remodeling, or renovation if the collapse occurs during the course of the construction, remodeling, or renovation.
If otherwise covered under the Commercial Property Coverage, under items a. through f. above, we do not pay for loss to the following types of property unless the loss is a direct result of the collapse of a building or structure:
outdoor radio, television, satellite, dish-type, or other antennas including their masts, towers, and lead-in wiring; outdoor awnings or canopies or their supports; fences; gutters and downspouts; yard fixtures; outdoor swimming pools; piers, wharves, and docks; beach or diving platforms or appurtenances; retaining walls; foundations; walks, roadways, and other paved surfaces.
Collapse does not include settling, cracking, shrinking, bulging, or expanding.
This does not increase the limit.
2.Tearing Out and Replacing—When loss caused by:
a.water;
b.other liquids;
c.powder; or
d.molten material
is covered, we also pay the cost of tearing out and replacing any part of the building or structure to repair damage to the system or appliance from which the water or other substance escapes.
We do not pay for damage to the system or appliance from which the water or other substance escapes. However, we pay the cost to repair or replace damaged parts of fire extinguishing equipment if the damage results in discharge of any substance from an automatic fire protection system; or is directly caused by freezing.
Analysis
The AAIS Special Perils Part is a separate form—CP-85—and covers insured property for risks of direct physical loss, except as excluded or limited in the form. The exclusions and limitations of the other AAIS perils parts are also included in the special form. In addition, there are numerous other exclusions and limitations, most of which closely parallel the comparable provisions of ISO’s Causes of Loss – Special form, CP 10 30 10 12. For a discussion of this form see Causes of Loss Forms.
The AAIS special perils part, like the ISO Causes of Loss – Special form, describes certain categories of property that are covered only for specified perils. Those categories of property are valuable papers and records, animals and pets held for sale, glassware and other fragile items, and in the ISO form, builders’ machinery, tools, and equipment while away from the premises. Under the most recent editions of AAIS and ISO forms, the definition of specified perils is similar, except that AAIS lists sonic boom and building collapse as specified perils and the ISO form does not..
Other types of property—furs, jewelry, patterns and dies, stamps, and tickets—are subject to dollar limitations for loss due to theft. The only difference between the AAIS and ISO forms is that under AAIS provisions the limitation does not apply to items of jewelry or watches worth $50 or less and $100 or less under ISO wording.
The specified perils are mentioned in connection with the exclusion of building glass breakage in excess of $100 per pane, plate, multiple plate insulating unit, heating pane, jalousie, lover, or shutter or $500 per occurrence. The limits do not apply if glass is broken by a specified peril other than breakage of building glass (i.e., breakage by any cause other than another specified peril) or vandalism. Because collapse is a specified peril on the AAIS form, the limits do not apply if building glass breakage is caused by collapse.
Another reference to the specified perils occurs with reference to rain, snow, sand, or dust. The form states that loss to the interior of buildings by those elements is covered if the rain, snow, sand, or dust enters through openings made by specified perils. The ISO wording provides broader coverage, requiring only that the opening be made by a covered cause of loss, not just by a specified peril.
There is one other mention of specified perils in conjunction with an exclusion in the AAIS special perils part entitled “work or operations.” It excludes “loss to property resulting from actual work or operations. This includes: altering, constructing, installing, manufacturing, processing, servicing or testing.” However, the exclusion does not apply to resulting losses caused by specified perils. A similar workmanship exclusion was removed from ISO forms in favor of the broader concurrent causation-based exclusion concerning weather conditions, acts or decisions of persons or groups, and faulty, inadequate, or defective planning, design, materials, and maintenance. Interestingly, the AAIS special perils part contains its version of such an exclusion (entitled “defects, errors and omissions”) as well as the work or operations exclusion just mentioned.
An AAIS exclusion applies to freezing of fire protection equipment during periods of permitted vacancy or unoccupancy unless the insured has “used reasonable care to maintain conditions necessary for the proper operation of the fire protection equipment.” In the ISO program, due diligence during vacancy is required only with respect to sprinkler leakage systems.
SUPPLEMENTAL COVERAGES
If a Coinsurance percentage of 80% or more is shown on the declarations, we provide the following supplemental coverages.
Unless otherwise stated, each supplemental coverage:
a.applies for loss caused by a covered peril;
b.applies to property in or on buildings or structures described on the declarations or in the open (or in vehicles) within 100 feet of the described premises;
c.is an additional amount of coverage; and
d.is not subject to and not considered in applying coinsurance.
1.The following supplemental coverages apply when a limit is shown on the declarations for either Building Property or Business Personal Property.
a.Antennas, Awnings, Canopies, Fences, and Signs—We pay up to $1,000 for your outdoor:
1)radio, television, satellite, dish-type, or other antennas including their masts, towers, and lead-in wiring;
2)awnings or canopies of fabric or slat construction or their supports;
3)fences; or
4)signs.
We only cover direct physical loss caused by aircraft, civil commotion, explosion, fire, lightning, or riot, including debris removal expense.
b.Property Off Premises—We pay up to $5,000 for covered property while temporarily at a location that you do not own, control, rent, or lease.
This coverage does not include property:
1)in or on a vehicle;
2)in the care, custody, or control of your salesperson; or
3)at any fair or exhibition.
2.The following supplemental coverages apply only when a limit is shown on the declarations for Building Property.
a.Increased Costs—Ordinance or Law—We pay up to $5,000 for each described premises to cover the increased costs of a covered loss, including debris removal expense, resulting from the enforcement of any ordinance, law, or decree that regulates or requires:
1)the construction, use, or repair of any property; or
2)the demolition of any property, in part or in whole, not damaged by a covered peril.
The ordinance, law, or decree must be in force at the time of loss.
Under Perils Excluded, Ordinance or Law does not apply to this Supplemental Coverage.
b.Newly Acquired Buildings—We cover your buildings or structures being built or that you acquire during the policy period.
This coverage applies for 30 days after construction is started or for 30 days from the date you acquire the building or structure; or until you report the newly acquired property to us; whichever occurs first. This coverage does not extend beyond the end of the policy period.
You must pay any additional premium due from the date construction is started or the date you acquire the property.
We pay up to 25 percent of the limit shown on the declarations for Building Property but not exceeding $250,000 for each building or structure.
c.Trees, Shrubs, and Plants—We pay up to $1,000 for your outdoor trees, shrubs, and plants not held for sale. We only cover loss caused by aircraft, civil commotion, explosion, fire, lightning, or riot. This coverage is limited to $250 on any one tree, shrub, or plant, including debris removal.
3.The following supplemental coverages apply only when a limit is shown on the declarations for Business Personal Property.
a.Condominium Units—If the described premises is a condominium unit that you own, we cover the fixtures, improvements, and alterations within your unit.
We pay up to 10 percent of the limit shown on the declarations for Business Personal Property but not exceeding $20,000 for each building or structure.
This is not an additional amount of coverage.
b.Extra Expenses—We pay up to $1,000 for the necessary extra expenses that you incur in order to continue as nearly as practical your normal business following loss by a covered peril. This applies when the damage is to property in the described buildings or structures or in the open (or in vehicles) on or within 100 feet of the described premises.
We cover your extra expenses for the time it should reasonably take to resume your normal business, but not longer than the time it should reasonably take to rebuild, repair, or replace the property that has incurred the loss.
We do not cover the normal cost of repair, replacement, or restoration of property. We cover expenses in excess of normal that you necessarily incur to reduce loss, but only to the extent they reduce the loss under this coverage.
We do not cover the cost of research or other extra expense necessary to reproduce, replace, or restore lost information on lost or damaged valuable papers and records, including those which exist on electronic or magnetic media.
We cover expenses in excess of normal that you necessarily incur to reduce loss, but only to the extent that they reduce the loss under this coverage.
c.Personal Effects—We pay up to $500, at each described premises, for personal effects owned by you, your officers, your partners, or your employees. This coverage is limited to $100 on property owned by any one person.
d.Personal Property—Acquired Locations—We cover your business personal property at locations that you acquire, other than fairs or exhibitions.
This coverage applies for 30 days from the date you acquire the location or until you report the acquired location to us, whichever occurs first. This coverage does not extend beyond the end of the policy period.
You must pay any additional premium due from that date you acquire the location.
We pay up to 10 percent of the limit shown on the declarations for Business Personal Property but not exceeding $100,000 for each location.
e.Personal Property of Others—We pay up to $2,500, at each described premises, for personal property of others in your care, custody, or control. This coverage is only for the benefit of the owners of the personal property.
f.Property in Transit—We pay up to $1,000 for covered business personal property (other than property in the care, custody, or control of your salesperson) in transit more than 100 feet from the described premises in vehicles you own, lease, or operate.
We only cover direct physical loss caused by civil commotion; collision with another vehicle or object, other than the road bed; explosion, fire; hail; lightning; overturn or upset of the vehicle; riot; vandalism; or windstorm.
This coverage also includes loss of an entire package, case, or bale from within a locked part of your vehicle caused by theft. Theft must be proven by visible marks of forced entry.
g.Valuable Papers and Records—Research Cost—We pay up to $1,000 for the cost of research or other expenses necessary to reproduce, replace, or restore lost information on lost or damaged valuable papers and records, including those which exist on electronic or magnetic media, for which duplicates do not exist.
Analysis
Certain supplemental coverages apply provided that insurance coverage is written with a coinsurance percentage of 80 percent or more. Unless otherwise stated in the policy, each supplemental coverage applies for a loss caused by a covered peril; applies to property in or on buildings or structures named in the declarations or in the open (or in vehicles) within 100 feet of the premises; is an additional amount of coverage; and is not subject to and not considered in applying coinsurance.
The following supplemental coverages apply when a limit is shown on the declarations for either building property or business personal property:
1.Antennas, awnings, canopies, fences and signs. $1,000 coverage applies to loss of such property when caused by the perils of aircraft, civil commotion, explosion, fire, lightning, or riot, including debris removal.
2.Property off premises. There is $5,000 coverage for covered property while temporarily at a location not owned, controlled, rented, or leased to the insured. This coverage does not apply to property in or on a vehicle, in the care, custody, or control of the insured’s salespersons, or at any fair or exhibition.
The following supplemental coverages apply when a limit is shown on the declarations for building property:
1.Increased costs—ordinance or law. The policy provides $5,000 coverage for each described location to cover the increased costs of a covered loss, including debris removal expense, resulting from the enforcement of any ordinance, law, or decree that requires the construction, use or repair of any property, or the demolition of any property, in whole or in part, not damaged by a covered peril.
2.Newly acquired buildings. Buildings and structures built or acquired by the insured during the policy period are covered. This coverage applies for thirty days after the start of construction or from the acquisition of the building, or until the insured reports the newly acquired property to the insurer. Additional premium is required. Coverage is limited to 25 percent of the policy limit, not to exceed $250,000 for each building or structure.
3.Trees, shrubs, and plants. There is $1,000 coverage ($250 on any one item) for outdoor trees, shrubs, and plants not held for sale. Only loss caused by aircraft, civil commotion, explosion, fire, lightning or riot is covered.
The following supplemental coverages apply when a limit is shown on the declarations for business personal property:
1.Condominium units. If the described premises is a condominium unit that the insured owns, the fixtures, improvements, and alterations within the insured’s unit are covered. This coverage is limited to 10 percent of the business personal property limit, but does not exceed $20,000 for each building or structure.
2.Extra expenses. $1,000 is available for the necessary extra expenses that the insured incurs in order to continue normal business operations following a loss from a covered peril. There is no coverage for research or other expense necessary to reproduce, replace, or restore lost information.
3.Personal effects. There is $500 ($100 per individual), at each insured location, for personal effects owned by the insured, its officers, partners, or employees.
4.Personal property—acquired locations. Business personal property at acquired locations is covered, unless at a fair or exhibition. Coverage applies for 30 days after the acquisition of the premises and extra premium is required. Coverage is limited to 10 percent of the business personal property limits, not to exceed $100,000 per insured location.
5.Personal property of others. Coverage of $2,500 is available for personal property of others in the insured’s care, custody, or control.
6.Property in transit. $1,000 in coverage is available for covered business personal property (other than in the care of the insured’s salesperson) in transit more than 100 feet from the insured premises. The property must be in vehicles owned, leased or operated by the insured. Coverage is limited to the perils of civil commotion, collision with another vehicle or object (other than the road/bed), explosion, fire, hail, lightning, overturn or upset of vehicle, riot, vandalism, or windstorm. This coverage also includes loss of an entire package, case, or bale from within a locked part of the insured’s vehicle if caused by theft. Theft must be proven by marks of forced entry.
7.Valuable papers and records—research cost. The insurer will pay up to $1,000 for the cost of research or other expense necessary to reproduce, replace, or restore lost information on lost or damaged valuable papers or records.
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);
b.give notice to the police when the act that causes the loss is a crime; and
c.give notice to the credit card company if the loss involves a credit card.
2.Protect Property—You must take all reasonable steps to protect covered property at and after an insured loss to avoid further loss. We pay the reasonable costs incurred by you for necessary repairs or emergency measures performed solely to protect covered property from further damage by a covered peril if a covered peril has already caused a loss to covered property. However, we do not pay for such repairs or emergency measures performed on property which has not been damaged by a covered peril. 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 or occupancy of the covered property during the policy period;
e.detailed estimates for repair or replacement of covered property;
f.available plans and specifications of buildings or structures;
g.detailed estimates of any covered loss of income and expenses; and
h.an inventory of damaged and undamaged covered personal property showing in detail the quantity, description, cost, actual cash value, and amount of the loss. You must attach to the inventory copies of all bills, receipts, and related documents that substantiate the inventory. An inventory of undamaged personal property is not required if the total claim for a loss is less than $10,000 and less than five percent of the total limit.
4.Examination Under Oath—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 the 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—We do not have to accept any abandonment of property.
9.Cooperation—You must cooperate in performing all acts required by the Commercial Property Coverage.
Analysis
The AAIS building and personal property form contains nine provisions that outline the insured’s duties in the event of loss.
1.Notice. The insured is required to notify the insurer, the police (in the event a loss is caused by crime), and credit card companies (if the loss involves a credit card).
2.Protect property. The insured must take all reasonable steps to protect property from further damage after a loss.
3.Proof of loss. Proof of loss must be filed within sixty days of loss.
4.Examination under oath. The insurer reserves the right to examine the insured under oath as to circumstances surrounding a loss.
5.Records. The insured must produce all records related to value of property and loss as reasonably requested by the insurer.
6.Damaged property. The insurer reserves the right to examine damaged property, and the insured must produce damaged property requested by the insurer.
7.Volunteer payments: The insured must not, except at his own expense, make any payments, settlements, or assume any obligations related to loss or protection of property.
It is interesting to note that ISO does not include this provision in its commercial property policy. Typically, such a provision is found in liability policies, where the insurer does not want the insured to make any voluntary payments to injured third parties. Remember that the property form does contain some liability-like coverage in that it covers the property of others in the insured’s care. It is this situation at which this provision is aimed. In case of loss to the property of others, the insurer does not want the insured to settle the claim on his own.
8.Abandonment. The insurer does not have to accept any abandonment of property.
9.Cooperation. The insured must cooperate in performing all acts required by the commercial property coverage.
VALUATION
1.Actual Cash Value—When replacement cost is not shown on the declarations for covered property, the value is based on the actual cash value at the time of the loss (with a deduction for depreciation), except as provided in paragraphs 2. through 9. below.
2.Limited Replacement Cost—When the limit for Building Property satisfies the coinsurance requirement, we pay up to $2,500 to cover the cost to repair or replace your buildings or structures. This applies only when the total loss does not exceed $2,500. This provision does not apply to awnings; canopies; floor coverings; appliances for refrigerating, ventilating, cooking, dishwashing, or laundering; or outdoor equipment or furniture.
3.Glass—The value of glass is based on the cost of safety glazing material where required by code, ordinance, or law.
4.Merchandise Sold—The value of merchandise that you have sold but not delivered is based on the selling price less all discounts and unincurred expenses.
5.Valuable Papers and Records—The value of valuable papers and records, including those which exist on electronic or magnetic media (other than prepackaged software programs) is based on the cost of blank materials, and the labor to transcribe or copy the records when there is a duplicate.
6.Tenant’s Improvements—The value of tenant’s improvements losses is based on the actual cash value if repaired or replaced at your expense within a reasonable time.
The value of tenant’s improvements losses is based on a portion of your original cost if not repaired or replaced within a reasonable time. This portion is determined as follows:
a.Divide the number of days from the date of the loss to the expiration date of the lease by the number of days from the date of installation to the expiration date of the lease; and
b.Multiply the figure determined in 6.a. above by the original cost.
If your lease contains a renewal option, the expiration of the lease in this procedure is replaced by the expiration of the renewal option period.
Tenant’s improvements losses are not covered if repaired or replaced at another’s expense.
7.Pair or Set—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.
8.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.
9.Replacement Cost—When replacement cost is shown on the declarations for covered property, the value is based on replacement cost without any deduction for depreciation.
This replacement cost provision does not apply to objects of art, rarity, or antiquity; property of others; or paragraphs 3. through 8. above.
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 shall not exceed the amount you spend to repair or replace the damaged or destroyed property.
Except as provided under Limited Replacement Cost, replacement cost valuation does not apply until the damaged or destroyed property is repaired or replaced. 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.
Analysis
When replacement cost is not shown on the declarations for covered property, the value is based on actual cash value at the time of the loss, with deduction for depreciation.
When the limit for building property satisfies the coinsurance requirement, the insurer will pay up to $2,500 to cover the cost to repair or replace the insured buildings and structures. This applies only when the total loss amount does not exceed $2,500 and does not apply to awnings; canopies; floor coverings; appliances for refrigerating, ventilating, cooking, dishwashing, or laundering; or outdoor equipment or furniture.
Glass is valued based on the cost of safety glazing where required by code, ordinance, or law.
Merchandise sold but not delivered is valued at the selling price less all discounts and unincurred expenses.
Valuable papers and records are settled using the cost of blank materials and the labor to transcribe or copy the records when there is a duplicate.
Tenant’s improvements. The value of tenant’s improvements losses is based on the actual cash value if repaired or replaced at the insured’s expense within a reasonable time. If not repaired or replaced within a reasonable time, the value is based on a portion of the insured’s original cost via a mathematical formula given in the provision. There is no coverage for such loss if repaired or replaced at another’s expense (such as the building owner).
Pair or set. The value of a lost or damaged article that 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 a pair or set.
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.
Replacement cost. Where coverage is written on a replacement cost basis, the value is based on replacement cost without any deduction for depreciation. Replacement cost does not apply to objects of art, rarity, or antiquity; property of others; and glass, merchandise sold, valuable papers and records, tenant’s improvements, pairs and sets, or loss to parts.
Replacement cost is limited to the cost to repair or replace with similar materials on the same site and used for the same purposes. The policy limits payment to the amount expended by the insured. Replacement cost, except under the limited replacements cost provision, does not apply until the damaged property is repaired or replaced. The insured may make claim for actual cash value before repair or replacement, and later for replacement cost if the insurer is notified of the insured’s intention within 180 days of loss.
HOW MUCH WE PAY
1.Insurable Interest—We do not cover more than your insurable interest in any property.
2.Deductible—We pay only that part of your loss over the deductible amount stated on the declarations in any one occurrence. The deductible applies to the loss before application of any coinsurance or reporting provision.
3.Loss Settlement Terms—Subject to paragraphs 1., 2., 4., 5., and 6. 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 covered property.
4.Coinsurance—When a coinsurance percentage is shown on the declarations, we only pay a part of the loss if the limit is less than the value of the covered property at the time of the loss multiplied by the coinsurance percentage shown for it on the declarations. Our part of the loss is determined using the following steps:
a.Multiply the value of the covered property at the time of the loss by the coinsurance percentage;
b.Divide the limit for covered property by the figure determined in 4.a. above; and
c.Multiply the total amount of loss, after the application of any deductible, by the figure determined in 4.b. above.
The most we pay is the amount determined in 4.c. above or the limit, whichever is less. We do not pay any remaining part of the loss.
If there is more than one limit shown on the declarations for this Coverage Part, this procedure applies separately to each limit.
If there is only one limit shown on the declarations for this Coverage Part, this procedure applies to the total of all covered property to which the limit applies.
Example—Underinsurance
Value of covered property$100,000
Coinsurance 80%
Limit $60,000
Loss $21,000
Deductible $1,000
Step a.$100,000 x 80% = $80,000 (minimum limit needed to meet coinsurance requirements)
Step b.$60,000 ) $80,000 = .75
Step c.$21,000 – $1,000 = $20,000
$20,000 x .75 = $15,000
We pay no more than $15,000. We do not pay the remaining $6,000.
Example—Sufficient Insurance
Value of covered property$100,000
Coinsurance 80%
Limit $80,000
Loss $21,000
Deductible $1,000
Step a.: $100,000 x 80% = $80,000 (minimum limit needed to meet coinsurance requirements)
Step b.: $80,000 ) $80,000 = 1.00
Step c.: $21,000 – $1,000 = $20,000
$20,000 x 1.00 = $20,000
We pay no more than $20,000 in excess of the deductible. No penalty applies.
Example—Blanket Limit
Value of covered property
Building at Location 1$75,000
Building at Location 2$75,000
Personal Property at Location 2$50,000
Total Value of covered property$200,000
Coinsurance 80%
Limit $128,000
Loss
Building at Location 2 $20,000
Personal Property at Location 2 $11,000
Total Loss $31,000
Deductible $1,000
Step a.: $200,000 x 80% = $160,000 (minimum limit needed to meet coinsurance requirements)
Step b.: $128,000 / $160,000 = .80
Step c.: $31,000 – $1,000 = $30,000
$30,000 x .80 = $24,000
We pay no more than $24,000. We do not pay the remaining $7,000.
5.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 or loss sustained.
6.Insurance Under More Than One Policy—You may have another policy subject to the same plan, terms, conditions, and provisions as this policy. If you do, we 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.
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 provisions outline the insurer’s obligations and procedures for making payment in the event of loss. The following clauses are included:
Insurable interest. The insurer’s payment obligation is capped at the insured’s insurable interest in the covered property.
Deductible. Insurance recovery is limited to that part of the insured’s loss over the deductible amount stated in the declarations. The deductible applies to the loss before the application of any coinsurance or reporting provision.
Loss settlement terms. Subject to the provisions on insurable interest, deductible, coinsurance, and other insurance coverage, the policy calls for the insurer to pay the lesser of the amount under valuation; the cost to repair, replace, or rebuild the property with material of like kind and quality to the extent practicable; or the limit that applies to covered property.
Coinsurance. The coinsurance provision outlines the formula by which payment is calculated where coverage is written on a coinsurance basis. The insurer pays only a part of the loss if the policy limit is less than the value of the covered property at the time of the loss multiplied by the coinsurance percentage shown on the declarations. The formula and examples are given in the policy.
Insurance under more than one coverage. If more than one coverage part of the commercial property program applies to the same loss, the insurer pays no more than the actual claim or loss.
Insurance under more than one policy. This other insurance provision calls for a pro rata payment in relationship to other applicable insurance. This coverage’s share of a loss is the proportion that the applicable limit under this policy bears to the limit of all policies covering the loss on the same basis. If another policy covers the loss on other than the same terms and conditions as the commercial property program, this insurance is excess of the amount due from the other insurance, whether collectible or not.
LOSS PAYMENT
1.Our Options—We may:
a.pay the value of the loss;
b.pay the cost of repairing or replacing the loss;
c.rebuild, repair, or replace with property of equivalent kind and quality, to the extent practicable; or
d.take all or any part of the damaged property at the agreed or appraised value.
We must give you notice of our intentions within 30 days after we have received a satisfactory proof of loss.
2.Your Losses—We adjust all losses with you. Payment is made to you unless another loss payee is named in the policy. A covered loss is payable 30 days after a satisfactory proof of loss is received, and:
a.the amount of the loss has been agreed to in writing;
b.an appraisal award has been filed with us; or
c.a final judgment has been entered.
3.Property of Others—Losses to property of others may be adjusted with and paid to:
a.you on behalf of the owner; or
b.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
The insurer reserves various loss payment options. At its discretion, the insurer may pay the value of the loss; pay the cost of repairing or replacing the loss; rebuild, repair, or replace with property of equivalent kind and quality; or take all or any part of the damaged property at the agreed or appraised value.
The insurer must give notice of its payment option intent within thirty days of receiving a satisfactory proof of loss.
Payment for the insured’s losses is adjusted with the insured unless another loss payee is named in the policy. A covered loss is payable thirty days after one of the following occurs:
1.A satisfactory proof of loss is received.
2.The amount of loss has been agreed to in writing.
3.An appraisal award has been filed with the insurer.
4.A final judgment has been entered.
Payment for loss to property of others may be adjusted with the insured on behalf of the owner or directly with the owner.
Commercial Property Coverage Conditions, CP-100
AGREEMENT
In return for your payment of the required premium, we provide the coverage described herein subject to all the terms of the Commercial Property Coverage. This coverage is also subject to the declarations and additional conditions relating to assignment or transfer of rights or duties, cancellation, changes or modifications, inspections, and examination of books and records.
Endorsements may also apply. They are identified on the declarations. Certain words have special meaning. These words are shown in “bold type”.
DEFINITIONS
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 Commercial Property Coverage.
3.Declarations means all pages labeled “Declarations,” “Supplemental Declarations,” or “Schedules,” which pertain to this policy.
4.Limit means the amount of coverage that applies.
5.Pollutant means:
a.any solid, liquid, gaseous, thermal, or radioactive irritant or contaminant, including acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Waste includes materials to be disposed of as well as recycled, reclaimed, or reconditioned.
b.electrical or magnetic emissions, whether visible or invisible, and sound emissions.
6.Terms means all provisions, limitations, exclusions, conditions, and definitions that apply.
CONDITIONS
1.Benefit to Others—Insurance under the Commercial Property Coverage shall not directly or indirectly benefit anyone having custody of your property.
2.Conformity With Statute—Terms of the Commercial Property Coverage, in conflict with the statutes of the state where the described premises are located, are amended to conform to such statutes.
3.Control of Property—The Commercial Property Coverage is not affected by any act or neglect beyond your control.
4.Death of an Individual Named Insured—If you die, your rights and duties under the Commercial Property Coverage pass to your legal representative or other person having proper temporary custody of your property.
5.Liberalization—If we adopt a revision of forms during a policy period which broadens the Commercial Property Coverage without additional premium, the broadened coverage will automatically apply to this policy. This also applies if we adopt the revision within 60 days before or during the policy period.
6.Misrepresentation, Concealment, or Fraud—The Commercial Property Coverage is void as to you and any other insured if, before or after a loss:
a.you have or any other insured has 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.
7.Policy Period—We cover loss during the policy period shown on the declarations.
8.Restoration of Limits—Any loss we pay under the Commercial Property Coverage does not reduce the limits applying to a later loss.
9.Subrogation—If we pay for a loss under the Commercial Property Coverage we may require that you assign to us any right of recovery against others up to the amount we paid.
You may waive your right to recover, in writing, before the loss takes place without voiding coverage.
We are not liable for a loss if, after the loss, you impair our right to recover. But, you may waive your right to recover in writing after a loss only as to the following parties:
a.someone insured under the Commercial Property Coverage;
b.your tenant;
c.a business firm owned or controlled by you; or
d.a business firm which owns or controls your business.
10.Suit Against Us—No suit to recover any loss may be brought against us unless:
a.the terms of the Commercial Property Coverage have been fully complied with; and
b.the suit is commenced within two years after the loss.
If any applicable law makes this limitation invalid, then suit must begin within the shortest period permitted by the law.
11.Territorial Limits—We only cover loss within the United States of America, its territories and possessions, Canada, and Puerto Rico.
Analysis
The commercial property coverage conditions include the insuring agreement, definitions, and coverage conditions.
The insuring agreement provides that, in return for payment of the required premium, the insurer will provide the coverage described in the policy, subject to the declarations, common policy terms, and any endorsements identified on the declarations.
There are six defined terms. “You” and “your” mean the persons or organizations named as the insured on the declarations. “We,” “us,” and “our,” mean the company providing commercial property coverage. “Declarations” means all pages labeled “declarations,” “supplemental declarations,” and “schedules” that pertain to the policy. “Limit” means the amount of coverage that applies, and “terms” means all provisions, limitations, exclusions, conditions, and definitions that apply.
Of special interest is the definition of “pollutant.” A “pollutant” is defined as any solid, liquid, gaseous, thermal, or radioactive irritant or contaminant, including acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. “Waste” is further defined as including materials to be disposed of as well as recycled, reclaimed, or reconditioned. A second part of the definition of pollutant specifically makes electrical emissions, whether visible or invisible, and sound emissions pollutants.
The commercial property coverage conditions form also contains the following conditions applicable to the policy:
Benefit to others. This provision limits the benefits of the contract to the insured only, specifically stating that the insurance is not for the benefit of anyone having custody of the insured’s property.
Conformity with statute. Terms of the policy that are in conflict with the statutes of the state where the described premises are located are amended to conform to such statutes.
Control of property. The commercial property coverage is not affected by any act or neglect beyond the insured’s control.
Death of an individual named insured. If the named insured dies, the insured’s rights and duties under the policy pass to the legal representative or other person having proper temporary custody of the insured’s property.
Liberalization. If the insurer revises the coverage forms during a policy period, which broadens coverage without additional premium, the broadened coverage automatically applies to the policy. This applies to revisions within sixty days before issuance of the policy or during the policy term.
Misrepresentation, concealment, or fraud. The coverage is void as to the named insured and any other insured if, before or after a loss, any insured willfully conceals or misrepresents a material fact or circumstance or the insured’s interest in insured property or if there has been fraud or false swearing by any insured with regard to the insuring of the property. See Effects of Insured’s Declarations or Statements.
Policy period The policy covers only loss occurring during the policy period.
Restoration of limits. This provision provides that loss paid does not reduce the limits applying to later losses.
Subrogation. This provision grants the insurer the right to require assignment of the insured’s rights against others up to the amount paid by the insurance company. The insured is allowed to waive its right to recover against another party prior to a loss without voiding coverage. The insurer is not liable for a loss if, after the loss, the insured impairs the insurer’s right to recover. However, the insured may waive its right to recover in writing after a loss as to the following parties: another insured under the commercial property coverage; the insured’s tenant; a business owned or controlled by the insured; or a business firm that owns or controls the insured’s business.
Suit against us. This provision precludes any lawsuit to recover loss under the policy unless the terms of the policy are fully complied with and the suit is commenced within two years after the loss. If any applicable law makes this limitation invalid, then suit must be brought within the shortest period permitted by the law.
Territorial limits. The policy covers loss only within the United States, its territories and possessions, Canada, and Puerto Rico.
OTHER CONDITIONS
In addition to the policy terms which are contained in other sections of the Commercial Property Coverage, the following conditions apply.
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 selects a competent, independent appraiser and notifies the other of the appraiser’s identity within 20 days of receipt of the written demand. The two appraisers 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 then determine and state separately the amount of each loss.
The appraisers also determine the actual cash value of covered property items at the time of the loss, if requested.
A written agreement is binding on all parties. If the appraisers fail to agree within a reasonable time, they submit only their differences to the umpire. Written agreement so itemized and signed by any two of these three is binding on all parties.
Each appraiser is paid by the party selecting that appraiser. Other expenses of the appraisal and the compensation of the umpire is paid equally by you and us.
If there is an appraisal, we retain our right to deny the claim.
2.Mortgage Provisions—If a mortgagee (mortgage holder) is named in this policy, loss to Building Property shall be paid to the mortgagee and you as their interest appears. If more than one mortgagee is named, they shall be paid in order of precedence.
The insurance for the mortgagee continues in effect even when your insurance may be void because of your acts, neglect, or failure to comply with the coverage terms. The insurance for the mortgagee does not continue in effect if the mortgagee is aware of changes in ownership or substantial increase in risk and does not notify us.
If we cancel this policy, we notify the mortgagee at least 10 days before the effective date of cancellation if we cancel for your nonpayment of premium, or 30 days before the effective date of cancellation if we cancel for any other reason.
We may request payment of the premium from the mortgagee, if you fail to pay the premium.
If we pay the mortgagee for a loss where your insurance may be void, the mortgagee’s right to collect that portion of the mortgage debt from you then belongs to us. This does not affect the mortgagee’s right to collect the remainder of the mortgage debt from you. As an alternative, we may pay the mortgagee the remaining principal and accrued interest in return for a full assignment of the mortgagee’s interest and any instruments given as security for the mortgage debt.
If we choose not to renew this policy, we give written notice to the mortgagee at least 10 days before the expiration date of this policy.
3.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.
e.If the claim paid is less than the agreed loss due to a deductible or other limiting term of this policy any recovery is pro rated between you and us based on our respective interest in the loss.
4.Vacancy—Unoccupancy—We do not pay for loss caused by attempted theft, breakage of building glass, sprinkler leakage (unless you have protected the system against freezing), theft, vandalism, or water damage occurring while the building or structure has been:
a.vacant for more than 60 consecutive days; or
b.unoccupied for more than
1) 60 consecutive days; or
2)the usual or incidental unoccupancy period for the described premises whichever is longer.
The amount we pay for any loss that is not otherwise excluded is reduced by 15%.
Unoccupied means that the customary activities or operations of the described occupancy are suspended, but business personal property has not been removed. The building or structure shall be considered vacant and not unoccupied when the occupants have moved, leaving the building or structure empty or containing only limited business personal property. Buildings or structures under construction are not considered vacant or unoccupied.
Analysis
The AAIS building and personal property coverage part is subject to four additional other conditions.
Appraisal. If the insurer and insured cannot agree on the amount of loss, procedures for selecting independent appraisers and umpires are outlined.
Mortgage provisions. If a mortgage holder is named in the policy, loss to building property will be paid to the insured and the mortgage holder, as their interests appear. Insurance for the mortgage holder continues even where coverage may be void as to the insured due to the insured’s acts or failure to comply with policy terms. If the insurer pays a loss to the mortgage holder where coverage was void as to the insured, the insurer takes over the portion of the mortgage represented by the insurance payment.
Recoveries. If, after insurance payment, property is recovered or payment made by a party responsible for the loss, the following applies: (a) the insured must promptly notify the insurer (or vice versa), (b) recovery expenses incurred by either party are reimbursed first, (c) the insured may keep recovered property but must refund the amount of the claim paid.
Vacancy—Unoccupancy. There is no coverage for loss caused by attempted theft, breakage of building glass, sprinkler leakage (unless the insured has protected the system against freezing), theft, vandalism, or water damage occurring while the building has been vacant for more than sixty consecutive days or unoccupied for more than sixty days or the “usual or incidental unoccupancy period for the described premises” (i.e., the closed season for a fruit market or ice cream stand).
Further, the amount paid for any loss not otherwise excluded is reduced by 15 percent where the building is vacant under the above provision.
“Unoccupied” is defined to mean the customary activities or operation of the described occupancy are suspended, but business personal property has not been removed. The building or structure is considered vacant and not unoccupied when the occupants have moved, leaving the building empty or containing only limited business personal property. Buildings under construction are not considered vacant or unoccupied.
COMMON POLICY CONDITIONS
Assignment
1.Assignment – This policy may not be assigned without “our” written consent.
2.Cancellation – “You” may cancel this policy by returning the policy to “us” or by giving “us” written notice and stating at what future date coverage is to stop.
“We” may cancel this policy, or one or more of its parts, by written notice sent to “you” at “your” last mailing address known to “us”. If notice of cancellation is mailed, proof of mailing will be sufficient proof of notice.
If “we” cancel this policy for nonpayment of premium, “we” will give “you” notice at least ten days before the cancellation is effective. If “we” cancel this policy for any other reason, “we” will give “you” notice at least 30 days in advance of cancellation. The notice will state the time that the cancellation is to take effect.
“Your” return premium, if any, will be calculated according to “our” rules. It will be refunded to “you” with the cancellation notice or within a reasonable time. Payment or tender of the unearned premium is not a condition of cancellation.
3.Change, Modification, or Waiver of Policy Terms – A waiver or change of the “terms” of this policy must be issued by “us” in writing to be valid.
4.Inspections – “We” have the right, but are not obligated, to inspect “your” property and operations at any time. This inspection may be made by “us” or may be made on “our” behalf. An inspection or its resulting advice or report does not warrant that “your” property or operations are safe, healthful, or in compliance with laws, rules, or regulations. Inspections or reports are for “our” benefit only.
5.Examination of Books and Records – “We” may examine and audit “your” books and records that relate to this policy during the policy period and within three years after the policy has expired.
Analysis
The common policy conditions include assignment, cancellation, change, inspection, and examination of books and records.
The assignment provision states that the policy may not be assigned to another without written consent of the insured.
The cancellation provisions are as follows: the insured may cancel the policy upon written notice to the insurer; the insurer may cancel the policy, or one or more of its parts, with ten-days notice in the event of nonpayment of premium or upon thirty days notice for any other reason.
The change or modification provision requires that a waiver or change of the terms of the policy must be issued by the insurer in order to be valid.
The inspections provision reserves the right, but not the obligation, of the insurer to make inspections of insured property and states that the inspections are for the benefit of the insurer only and create no warranty of safe or lawful conditions.
The examination provision gives the insurer the right to examine and audit the insured’s books and records, as they relate to the policy, during the policy period and for three years thereafter.