Summary: The Businessowners Coverage Form, BP 00 03 07 13, incorporates special perils coverage for property, liability coverage, and policy conditions. Coverage may be changed to named perils by attaching endorsement BP 10 09 07 13, Named Perils. The Businessowners conditions and liability coverage are discussed in a different section. See Businessowners Program for a discussion of eligibility and the general conditions, and see Businessowners Liability Coverage.
The following discussion focuses on the conditions and definitions applicable to the property coverages. Remember that not all insurers immediately adopt new ISO forms; many use earlier editions. Therefore, check carefully in making any coverage determinations.
Topics covered:
Limits of insurance
Deductibles
Property loss conditions
Loss payment conditions
Additional loss conditions
Property general conditions
Property definitions
Limits of Insurance
C. Limits Of Insurance
1.The most we will pay for loss or damage in any one occurrence is the applicable Limits Of Insurance of Section I – Property shown in the Declarations.
2.The most we will pay for loss of or damage to outdoor signs attached to buildings is $1,000 per sign in any one occurrence.
3.The amounts of insurance applicable to the Coverage Extensions and the following Additional Coverages apply in accordance with the terms of such coverages and are in addition to the Limits of Insurance of Section I – Property:
a.Fire Department Service Charge;
b.Pollutant Clean-up And Removal;
c.Increased Cost Of Construction;
d.Business Income From Dependent Properties;
e.Electronic Data; and
f.Interruption Of Computer Operations.
4.Building Limit – Automatic Increase
a.In accordance with Paragraph C.4.b., the Limit of Insurance for Buildings will automatically increase by 8%, unless a different percentage of annual increase is shown in the Declarations.
b.The amount of increase is calculated as follows:
(1)Multiply the Building limit that applied on the most recent of the policy inception date, the policy anniversary date or any other policy change amending the Building limit by:
(a)The percentage of annual increase shown in the Declarations, expressed as a decimal (example: 7% is .07); or
(b).08, if no percentage of annual increase is shown in the Declarations; and
(2)Multiply the number calculated in accordance with b.(1) by the number of days since the beginning of the current policy year, or the effective date of the most recent policy change amending the Building limit, divided by 365.
Example:
If: The applicable Building limit is $100,000. The annual percentage increase is 8 percent. The number of days since the beginning of the policy year (or last policy change) is 146.
The amount of increase is
$100,000 x .08 x 146 divided by 365 = $3,200.
5.Business Personal Property Limit – Seasonal Increase
a.Subject to Paragraph 5.b, the Limit of Insurance for Business Personal Property is automatically increased by:
(1)The Business Personal Property – Seasonal Increase percentage shown in the Declarations; or
(2)25% if no Business Personal Property – Seasonal Increase percentage is shown in the Declarations;
to provide for seasonal variances.
b.The increase described in Paragraph 5.a.will apply only if the Limit Of Insurance shown for Business Personal Property in the Declarations is at least 100 percent of your average monthly values during the lesser of:
(1)The twelve months immediately preceding the date the loss or damage occurs; or
(2)The period of time you have been in business as of the date the loss or damage occurs.
Analysis
This portion of the policy makes it clear that the limits of coverage applicable to the coverage extensions are additional amounts of insurance. The fire department service charge, pollutant clean-up and removal, increased cost of construction, business income from dependent properties, electronic data, and interruption of computer operations additional coverages also are in addition to, and not included in, the limits of insurance. However, the additional coverage for debris removal is capped by the limit of insurance, except for an additional $10,000 per location that may be paid if the total of direct property loss and debris removal costs exceed the limit of insurance or if the debris removal expense is more than 25 percent of the sum of the deductible plus the amount paid for the direct physical loss.
The businessowners form contains provisions for an automatic inflation increase and for a seasonal business personal property increase in event of a covered loss at that time. The 2010 edition of the form now specifies that the automatic increase will be 8 percent unless a different percent is shown in the declarations and that the insured has the option of choosing a seasonal increase percentage. The insured must maintain a business personal property limit of at least 100 percent of the average monthly values during the lesser of the twelve months immediately preceding the loss or the period of time the insured has been in business as of the date of loss.
The limited coverage for outdoor signs may be increased by purchasing the optional outdoor sign coverage.
D. Deductibles
1.We will not pay for loss or damage in any one occurrence until the amount of loss or damage exceeds the Deductible shown in the Declarations. We will then pay the amount of loss or damage in excess of the Deductible up to the applicable Limit of Insurance of Section I – Property.
2.Regardless of the amount of the Deductible, the most we will deduct from any loss or damage under all of the following Optional Coverages in any one occurrence is the Optional Coverage Glass Deductible shown in the Declarations:
a.Money and Securities;
b.Employee Dishonesty;
c.Outdoor Signs; and
d.Forgery or Alteration.
But this Optional Coverage Deductible will not increase the Deductible shown in the Declarations. This Deductible will be used to satisfy the requirements of the Deductible in the Declarations.
3.No deductible applies to the following Additional Coverages:
a.Fire Department Service Charge;
b.Business Income;
c.Extra Expense;
d.Civil Authority; and
e.Fire Extinguisher Systems Recharge Expense.
Analysis
The standard deductible for the BP 00 03 is $500. It applies to all property coverages, including optional coverages, except for business income, extra expense, civil authority, fire extinguisher system recharge expense, and the fire department service charge. Optional deductibles of $250, $1,000, and $2,500 are available for mechanical breakdown coverage and permanent yards–maintenance or storage coverage. The 2010 edition of the form removed references to glass in this section as glass is now subject to the policy deductible; the separate glass deductible has been removed.
The insured may also select a separate deductible applicable to the optional coverages. In event of a loss occurring to, money and securities, for example, that deductible applies. But if there is a loss to other covered property as well as the money and securities, the deductible applying to the money and securities will be included within the property deductible so only one deductible applies.
There is no deductible applicable to the additional coverages of business income, extra expense, civil authority, fire department service charge, and the fire extinguisher systems recharge expense. (Business income is subject to a time deductible; see Property Definitions later in this discussion.)
E. Property Loss Conditions
1.Abandonment
There can be no abandonment of any property to us.
2.Appraisal
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:
a.Pay its chosen appraiser; and
b.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.
3.Duties In The Event Of Loss Or Damage
a.You must see that the following are done in the event of loss or damage to Covered Property:
(1)Notify the police if a law may have been broken.
(2)Give us prompt notice of the loss or damage. Include a description of the property involved.
(3)As soon as possible, give us a description of how, when and where the loss or damage occurred.
(4)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 of Section I – Property. 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.
(5)At our request, give us complete inventories of the damaged and undamaged property. Include quantities, costs, values and amount of loss claimed.
(6)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.
(7)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.
(8)Cooperate with us in the investigation or settlement of the claim.
(9)Resume all or part of your “operations” as quickly as possible.
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.
Analysis
These property conditions are found in the commercial property forms as well as the businessowners forms. For a discussion, see Building and Personal Property Coverage Form. The form requires the insured to take “all reasonable steps to protect the Covered Property from further damage,” even though the steps taken may not be reimbursable. For example, the insured cannot move covered property from his burning building into the path of a flood and expect the reasonable expenses for doing so to be covered. The use of the word consideration has led to some confusion, in that some believe it means the insurer will consider whether or not to reimburse the expenses. Rather, in this instance, it means “recompense; payment” (Webster's Collegiate Dictionary, Tenth Edition). Indeed, many early insurance contracts began “For consideration received, we promise to….” Thus, although the expenses will not increase the limit of insurance applying to the covered loss, they may be included in the payment of the loss.
4.Legal Action Against Us
No one may bring a legal action against us under this insurance unless:
a.There has been full compliance with all of the terms of this insurance; and
b.The action is brought within two years after the date on which the direct physical loss or damage occurred.
Analysis
This clause is commonly found in property and liability coverage forms, and, simply stated, means no legal action against the company may be taken unless the terms of the policy have been complied with. The time limit for such action is within two years from the date on which the direct physical loss or damage occurred.
5.Loss Payment
In the event of loss or damage covered by this policy:
a.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, subject to Paragraph d.(1)(e) below.
b.We will give notice of our intentions within thirty days after we receive the sworn proof of loss.
c.We will not pay you more than your financial interest in the Covered Property.
d.Except as provided in Paragraphs (2) through (8) below, we will determine the value of Covered Property as follows:
(1)At replacement cost without deduction for depreciation, subject to the following:
(a)If, at the time of loss, the Limit of Insurance on the lost or damaged property is 80 percent or more of the full replacement cost of the property immediately before the loss, we will pay the cost to repair or replace, after application of the deductible and without deduction for depreciation, but not more than the least of the following amounts:
(i)The Limit of Insurance under Section I – Property that applies to the lost or damaged property;
(ii)The cost to replace, on the same premises, the lost or damaged property with other property:
i. Of comparable material and quality; and
ii. Used for the same purpose; or
(iii)The amount that you actually spend that is necessary to repair or replace the lost or damaged property.
If a building is rebuilt at a new premises, the cost is limited to the cost which would have been incurred had the building been built at the original premises.
(b)If, at the time of loss, the Limit of Insurance applicable to the lost or damaged property is less than 80 percent of the full replacement cost of the property immediately before the loss, we will pay the greater of the following amounts, but not more than the Limit of Insurance that applies to the property:
(i)The actual cash value of the lost or damaged property; or
(ii)A proportion of the cost to repair or replace the lost or damaged property, after application of the deductible and without deduction for depreciation. This proportion will equal the ratio of the applicable Limit of Insurance to 80% of the full replacement cost of the property.
Example
The full replacement cost of property which suffers a total loss
is $100,000. The property is insured for $70,000. 80% of the
full replacement cost of the property immediately before the
loss is $80,000 ($100,000 x 80 =$80,000). A partial loss of
$25,000 is sustained. Theamount of recovery is determined
as follows:
Amount of recovery
$70,000 ÷ $80,000 = .875
.875 x $25,000 = $21,875
(c)You may make a claim for loss or damage covered by this insurance on an actual cash value basis instead of on a replacement cost basis. In the event you elect to have loss or damage settled on an actual cash value basis, you may still make a claim on a replacement cost basis if you notify us of your intent to do so within 180 days after the loss or damage.
(d)We will not pay on a replacement cost basis for any loss or damage:
(i) Until the lost or damaged property is actually repaired or replaced; and
(ii) Unless the repair or replacement is made as soon as reasonably possible after the loss or damage.
However, if the cost to repair or replace the damaged building property is $2,500 or less, we will settle the loss according to the provisions of Paragraphs d.(1)(a) and d.(1)(b) above whether or not the actual repair or replacement is complete.
(e)The cost to repair, rebuild or replace does not include the increased cost attributable to enforcement of or compliance with any ordinance or law regulating the construction, use or repair of any property.
(2)If the Actual Cash Value – Buildings option applies, as shown in the Declarations, Paragraph (1) above does not apply to Buildings. Instead, we will determine the value of Buildings at actual cash value.
Analysis
The businessowners form provides replacement cost on covered property insured to at least 80 percent of its replacement value unless the actual cash value option is selected. The insurer will pay the least of the limit of insurance, the cost to replace the damaged property with like kind and quality and for the same use; or the amount actually spent to repair or replace the damaged property. Although the insured need not rebuild at the original premises, the insurer will not pay more than it would have cost to rebuild at that premises.
If the insured does not carry at least 80 percent insurance to value, the insurer will pay the greater of the actual cash value of the property or a proportion equal to the ratio of the limit of insurance to 80 percent of the replacement cost.
The 2013 revision added an example of how to determine the amount of recovery for a partial loss when the policy limit does not equal 80 percent of the replacement cost.
The insured may make an initial claim for the actual cash value and make an additional claim for the full replacement cost if the insurer is notified within one hundred and eighty days from the date of loss that the insured intends to do so. In other words, the replacement need not be completed within one hundred and eighty days, but the insurer must be put on notice within that time that the insured will be seeking replacement cost. The insurer will not pay more than actual cash value, however, until the actual repair or replacement is complete. Small claims—those $2,500 or less—will be settled at full replacement whether or not replacement is complete.
In any event, the cost to repair or rebuild does not include the increased cost attributable to enforcement of any ordinance or law. Thus, no more is available that the $10,000 for the increased cost of construction.
If the insured has chosen an actual cash value option as indicated on the declarations, the replacement cost provisions do not apply; the value of buildings is determined at actual cash value.
(3)The following property at actual cash value:
(a)Used or secondhand merchandise held in storage or for sale;
(b)Property of others. However, if an item(s) of personal property of others is subject to a written contract which governs your liability for loss or damage to that item(s), then valuation of that item(s) will be based on the amount for which you are liable under such contract, but not to exceed the lesser of the replacement cost of the property or the applicable Limit of Insurance;
(c)Household contents, except personal property in apartments or rooms furnished by you as landlord;
(d)Manuscripts;
(e)Works of art, antiques or rare articles, including etchings, pictures, statuary, marbles, bronzes, porcelains and bric-a-brac.
(4)Glass at the cost of replacement with safety glazing material if required by law.
(5)Tenants' improvements and betterments at:
(a)Replacement cost if you make repairs promptly.
(b)A proportion of your original cost if you do not make repairs promptly. We will determine the proportionate value as follows:
(i)Multiply the original cost by the number of days from the loss or damage to the expiration of the lease; and
(ii)Divide the amount determined in (i) above by the number of days from the installation of improvements to the expiration of the lease.
If your lease contains a renewal option, the expiration of the renewal option period will replace the expiration of the lease in this procedure.
(c)Nothing if others pay for repairs or replacement.
Analysis
The earlier forms valued property of others at actual cash value but not for more than the insured was liable, plus the cost of materials and labor. In the current form, an exception to the actual cash value valuation states that if a written contract governs the insured's liability for property of others, the policy responds with the amount for which the insured is liable but for no more than the replacement cost of the property or the applicable limit of liability.
If the insured is a tenant, loss or damage to improvements and betterments is settled at replacement cost if repairs are made promptly. According to Webster's Collegiate Dictionary, Tenth Edition, prompt means “being ready and quick to act as occasion demands.” Unfortunately, the tenant insured may not be in a position to enforce prompt replacement or repairs to the property.
If repairs are not made promptly, settlement reverts to a proportion as outlined. If others repair or replace the damaged property—the building owner or manager, for example—then the insured will receive nothing from the insurer.
(6)Applicable only to the Optional Coverages:
(a)”Money” at its face value; and
(b)”Securities” at their value at the close of business on the day the loss is discovered.
(7)Applicable only to accounts receivable:
(a)If you cannot accurately establish the amount of accounts receivable outstanding as of the time of loss or damage:
(i)We will determine the total of the average monthly amounts of accounts receivable for the twelve months immediately preceding the month in which the loss or damage occurs; and
(ii)We will adjust that total for any normal fluctuations in the amount of accounts receivable for the month in which the loss or damage occurred or for any demonstrated variance from the average for that month.
(b)The following will be deducted from the total amount of accounts receivable, however that amount is established:
(i)The amount of the accounts for which there is no loss or damage;
(ii)The amount of the accounts that you are able to re-establish or collect;
(iii)An amount to allow for probable bad debts that you are normally unable to collect; and
(iv)All unearned interest and service charges.
Analysis
Conditions (6) and (7) detail loss settlement for money, securities, and accounts receivable. If the insured cannot accurately reconstruct the amounts outstanding at the time of the loss, the condition describes the steps the insurer will take in settling the claim.
e.Our payment for loss of or damage to personal property of others will only be for the account of the owners of the property. We may adjust losses with the owners of lost or damaged property if other than you. If we pay the owners, such payments will satisfy your claims against us for the owners' property. We will not pay the owners more than their financial interest in the Covered Property.
f.We may elect to defend you against suits arising from claims of owners of property. We will do this at our expense.
g.We will pay for covered loss or damage within thirty days after we receive the sworn proof of loss, provided you have complied with all of the terms of this policy, and
(1)We have reached agreement with you on the amount of loss; or
(2)An appraisal award has been made.
h.A party wall is a wall that separates and is common to adjoining buildings that are owned by different parties. In settling covered losses involving a party wall, we will pay a proportion of the loss to the party wall based on your interest in the wall in proportion to the interest of the owner of the adjoining building. However, if you elect to repair or replace your building and the owner of the adjoining building elects not to repair or replace that building, we will pay you the full value of the loss to the party wall, subject to all applicable policy provisions including Limits Of Insurance and all other provisions of this Loss Payment Condition. Our payment under the provisions of this paragraph does not alter any right of subrogation we may have against any entity, including the owner or insurer of the adjoining building, and does not alter the terms of the Transfer Of Rights Of Recovery Against Others To Us Condition in this policy.
Analysis
The insurer may adjust a loss to personal property of others directly with the owners of the property. If this is done, the insured will have no further claim on the insurer for any other settlement for that property. If a suit should arise from the owner of the property, the insurer will defend the suit.
The 2010 edition of the form added a provision for party walls. ISO explanatory materials state, “A party wall is generally defined as a wall which divides two adjoining properties and in which each of the owners shares the rights. Ownership of a party wall may or may not be shared; there are numerous legal variations including tenancy in common and unilateral ownership with easement rights.” A coverage issue could result when one of the wall's owners refuses to pay for damage or loss to the wall. The insured will be paid for his interest in the wall unless the other party does not pay, in which case the insured will receive the full value.
6.Recovered Property
If either you or we recover any property after loss settlement, that party must give the other prompt notice. At your option, you may retain the property. But then you must 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 Limits of Insurance of Section I – Property.
7.Resumption Of Operations
We will reduce the amount of your:
a.Business Income loss, other than Extra Expense, to the extent you can resume your “operations”, in whole or in part, by using damaged or undamaged property (including merchandise or stock) at the described premises or elsewhere.
b.Extra Expense loss to the extent you can return “operations” to normal and discontinue such Extra Expense.
8.Vacancy
a.Description Of Terms
(1)As used in this Vacancy Condition, the term building and the term vacant have the meanings set forth in Paragraphs (a) and (b) below:
(a)When this policy is issued to a tenant, and with respect to that tenant's interest in Covered Property, building means the unit or suite rented or leased to the tenant. Such building is vacant when it does not contain enough business personal property to conduct customary operations.
(b)When this policy is issued to the owner or general lessee of a building, building means the entire building. Such building is vacant unless at least 31 percent of its total square footage is:
(i)Rented to a lessee or sublessee and used by the lessee or sublessee to conduct its customary operations; and/or
(ii)Used by the building owner to conduct customary operations.
(2)Buildings under construction or renovation are not considered vacant.
b.Vacancy Provisions
If the building where loss or damage occurs has been vacant for more than sixty consecutive days before that loss or damage occurs:
(1)We will not pay for any loss or damage caused by any of the following even if they are Covered Causes of Loss:
(a)Vandalism;
(b)Sprinkler leakage, unless you have protected the system against freezing;
(c)Building glass breakage;
(d)Water damage;
(e)Theft; or
(f)Attempted theft.
(2)With respect to Covered Causes of Loss other than those listed in Paragraphs (1)(a) through (1)(f) above, we will reduce the amount we would otherwise pay for the loss or damage by 15 percent.
Analysis
Condition 6. describes the manner in which property recovered by either the insured or insurer is to be treated.
If a business income loss is triggered, the insured is obliged to resume operations (if at all possible) with all due haste. Condition 7. reinforces this requirement by decreasing the amount of business income loss to the extent the insured can use other property at the described premises or elsewhere. For example, a covered fire loss destroys the insured office, including new employees' desks. But the old desks have not been disposed of and are not damaged. The insured cannot therefore wait for new desks to arrive before resuming business. Or, another example is that damaged stock can be sold, albeit at a reduced price. The insured is obligated to sell at the reduced price.
Once the insured's operations return to normal, the extra expense coverage begins to decrease.
While prior forms stated that a building was vacant if 70 percent or more in square footage was not rented or used, the current form refers to a percentage (at least 31 percent) that is being rented or used. Thus, if the policy is issued to a building owner or general lessee, at least 31 percent of the total square footage must be either rented to a lessee or sub-lessee and used by that entity to conduct customary operations, and/or at least 31 percent must be used by the building owner to conduct customary operations. A building under construction or renovation is not considered vacant. Also, in regard to the tenant insured, the unit or suite rented or leased to the tenant is considered vacant when it does not contain enough business personal property to conduct customary operations. Under the vacancy provision, therefore, loss payment is contingent upon the tenant's status and not the possible vacancy of the remainder of the building.
The vacancy provisions contain exclusions for loss or damage caused by water damage, theft, or attempted theft, vandalism, sprinkler leakage (unless the system has been protected against freezing), and building glass breakage—when the building is vacant.
Damage resulting from causes of loss other than those specifically listed occurring while a building is vacant will be settled, but the amount payable will be reduced by 15 percent.
F. Property General Conditions
1.Control Of Property
Any act or neglect of any person other than you beyond your direction or control will not affect this insurance.
The breach of any condition of this Coverage Form at any one or more locations will not affect coverage at any location where, at the time of loss or damage, the breach of condition does not exist.
Analysis
This policy condition recognizes that the named insured may not always be in full control of the insured premises. For example, the insured may own an office building and lease space to a tenant, who subsequently fails to maintain heat, and pipes freeze (exclusion e.). There is coverage for the loss. And, if the businessowner breaches a condition at one location, other locations remain unaffected if the breach has not occurred there.
2.Mortgageholders
a.The term “mortgageholder” includes trustee.
b.We will pay for covered loss of or damage to buildings or structures to each mortgageholder shown in the Declarations in their order of precedence, as interests may appear.
c.The mortgageholder has the right to receive loss payment even if the mortgageholder has started foreclosure or similar action on the building or structure.
d.If we deny your claim because of your acts or because you have failed to comply with the terms of this policy, the mortgageholder will still have the right to receive loss payment if the mortgageholder:
(1)Pays any premium due under this policy at our request if you have failed to do so;
(2)Submits a signed, sworn proof of loss within sixty days after receiving notice from us of your failure to do so; and
(3)Has notified us of any change in ownership, occupancy or substantial change in risk known to the mortgageholder.
All of the terms of this policy will then apply directly to the mortgageholder.
e.If we pay the mortgageholder for any loss or damage and deny payment to you because of your acts or because you have failed to comply with the terms of this policy:
(1)The mortgageholder's rights under the mortgage will be transferred to us to the extent of the amount we pay; and
(2)The mortgageholder's right to recover the full amount of the mortgageholder's claim will not be impaired.
At our option, we may pay to the mortgageholder the whole principal on the mortgage plus any accrued interest. In this event, your mortgage and note will be transferred to us and you will pay your remaining mortgage debt to us.
f.If we cancel this policy, we will give written notice to the mortgageholder at least:
(1)ten days before the effective date of cancellation if we cancel for your nonpayment of premium; or
(2)thirty days before the effective date of cancellation if we cancel for any other reason.
g.If we elect not to renew this policy, we will give written notice to the mortgageholder at least ten days before the expiration date of this policy.
Analysis
These conditions outline the duty of the insurer to the mortgagee (or a trustee) if an otherwise covered claim is denied due to the insured's actions.
3.No Benefit To Bailee
No person or organization, other than you, having custody of Covered Property will benefit from this insurance.
4.Policy Period, Coverage Territory
Under Section I – Property:
a.We cover loss or damage commencing:
(1)During the policy period shown in the Declarations; and
(2)Within the coverage territory or, with respect to property in transit, while it is between points in the coverage territory.
b.The coverage territory is:
(1)The United States of America (including its territories and possessions);
(2)Puerto Rico; and
(3)Canada.
Analysis
A bailee is someone having custody of another's property for some purpose; often to perform work on it in exchange for a fee. The only entity to benefit from the insurance, with regard to covered property, is the insured, so even under a bailment arrangement the insurance cannot be assigned to that bailee.
Property in transit is covered while it is between points in the coverage territory, defined as the United States, including possessions and territories, Puerto Rico, and Canada. Covered property being transported by ship from Puerto Rico to Florida is therefore considered to be within the coverage territory, since Puerto Rico and Florida are points in the coverage territory.
1.”Computer” means:
a.Programmable electronic equipment that is used to store, retrieve and process data; and
b.Associated peripheral equipment that provides communication, including input and output functions such as printing and auxiliary functions such as data transmission.
”Computer” does not include those used to operate production-type machinery or equipment.
2.”Counterfeit money” means an imitation of “money” that is intended to deceive and to be taken as genuine.
Analysis
The 2006 form changed the definition of counterfeit from the previous form to counterfeit money in the current form. The definition applies just to the imitation of money.
3.”Electronic data” means 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.
Analysis
The 2006 form replaced the definition of electronic media and records with the definition for electronic data. This definition describes the term computer programs and lists the media on which electronic data is stored.
4.”Fungi” means any type or form of fungus, including mold or mildew, and any mycotoxins, spores, scents or by-products produced or released by fungi.
Analysis
The 2006 edition added the definition of fungi, which was previously included in the Limited Fungi or Bacteria endorsement, BP 05 76.
5.”Manager” means a person serving in a directorial capacity for a limited liability company.
6.”Member” means an owner of a limited liability company represented by its membership interest, who also may serve as a “manager.”
Analysis
These definitions recognize the possible use of the businessowners forms to cover limited liability companies. The coverage extension for personal effects is extended for these entities.
7.”Money” means:
a.Currency, coins and bank notes in current use and having a face value; and
b.Travelers checks, register checks and money orders held for sale to the public.
Analysis
This definition makes it clear that the coverage for money and securities is intended to cover money in circulation, and not, for example, coin collections.
8.”Operations” means your business activities occurring at the described premises.
9.”Period of restoration”:
a.Means the period of time that:
(1)Begins:
(a) seventy-two hours after the time of direct physical loss or damage for Business Income coverage; or
(b)Immediately after the time of direct physical loss or damage for Extra Expense coverage;
caused by or resulting from any Covered Cause of Loss at the described premises; and
(2)Ends on the earlier of:
(a)The date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality; or
(b)The date when business is resumed at a new permanent location.
b.Does not include any increased period required due to the enforcement of or compliance with any ordinance or law that:
(1)Regulates the construction, use or repair, or requires the tearing down of any property; or
(2)Requires any insured or others to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize or in any way respond to or assess the effects of “pollutants”.
The expiration date of this policy will not cut short the “period of restoration”.
Analysis
For purposes of business income coverage, the period of restoration includes a seventy-two hour time deductible. (The waiting period may be eliminated by attaching Business Income Changes – Time Period endorsement, BP 04 41 01 10, which triggers coverage at the time of the direct physical loss or damage.) Immediately upon learning of a loss or damage, therefore, the insured should advise the insurer, thus making the insurer aware the time period has begun. No time deductible applies to extra expense coverage, though. Any extra expense costs incurred by the insured to restore the business are reimbursed beginning with the time of the direct physical loss.
The period of restoration is not indefinite, however. It ends on the earlier of the date when the property at the insured premises should be—not is, but should be—repaired or replaced with similar quality and at reasonable speed, or when the business is resumed at a new permanent location. The policy's expiration does not affect the period of restoration.
The period of restoration does not allow for any delay because of law and ordinance. Coverage for this business income exposure may be endorsed to the policy with Ordinance or Law Coverage, BP 04 46 01 06.
The period of restoration does not include any increased time because of any ordinance or law requiring testing, monitoring, or cleanup of pollutants.
10.”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.
Analysis
This is a standard definition of pollutants.
11.”Securities” means negotiable and non-negotiable instruments or contracts representing either “money” or other property and includes:
a.Tokens, tickets, revenue and other stamps (whether represented by actual stamps or unused value in a meter) in current use; and
b.Evidences of debt issued in connection with credit or charge cards, which cards are not issued by you;
but does not include “money”.
12.”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.
a.Sinkhole collapse means 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:
(1)The cost of filling sinkholes; or
(2)Sinking or collapse of land into manmade underground cavities.
b.Falling objects does not include loss of or damage to:
(1)Personal property in the open; or
(2)The interior of a building or structure, or property inside a building or structure, unless the roof or an outside wall of the building or structure is first damaged by a falling object.
c.Water damage means:
(1) 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.; and
(2) Accidental discharge or leakage of water or waterborne material as the
direct result of the breaking apart or cracking of a water or sewer pipe that is located off the described premises and is part of a municipal potable water supply system or municipal sanitary sewer system, if the breakage or cracking is caused by wear and tear.
But water damage does not include loss or damage otherwise excluded under the terms of the Water Exclusion. Therefore, for example, there is no coverage in the situation in which discharge or leakage of water results from the breaking apart or cracking of a pipe which was caused by or related to weather-induced flooding, even if wear and tear contributed to the breakage or cracking. As another example, and also in accordance with the terms of the Water Exclusion, there is no coverage for loss or damage caused by or related to weather-induced flooding which follows or is exacerbated by pipe breakage or cracking attributable to wear and tear.
To the extent that accidental discharge or leakage of water falls within the criteria set forth in c.(1) or c.(2) of this definition of “specified causes of loss”, such water is not subject to the provisions of the Water Exclusion which preclude coverage for surface water or water under the ground surface.
Analysis
The specified causes of loss limit coverage in several areas on the form, changing it in places from a special perils to a named perils basis. See, for example, the additional coverage for collapse. The policy provides coverage for collapse caused by one or more of the following: the specified causes of loss, hidden decay, or weight of people or personal property, among others. For example, the collapse could be caused by the weight of snow collecting on a roof but not by failure to properly shore up a newly constructed tunnel under the building.
The 2013 revision revamped the definition of “water damage,” by expanding coverage with respect to accidental discharge or leakage of water or waterborne material as a direct result of breaking apart or cracking of certain off-premises systems due to wear and tear. Coverage does not apply to loss or damage otherwise excluded under the policy's water exclusion.
13.”Stock” means merchandise held in storage or for sale, raw materials and in-process or finished goods, including supplies used in their packing or shipping.
14.”Valuable papers and records” means inscribed, printed, or written:
a.Documents;
b.Manuscripts; and
c.Records;
including abstracts, books, deeds, drawings, films, maps, or mortgages.
But “valuable papers and records” does not mean “money” or “securities”.
Analysis
The coverage extension for valuable papers and records has been expanded to provide coverage for loss of or damage to them as well as the cost to research them in event of a covered loss, and therefore a definition of “valuable papers and records” that incorporates electronic media and records has been added to the form.
The 2006 edition removed the reference to electronic media and records form the valuable papers and records definition. The change was made to accommodate the new definition of electronic data.