Summary: The Insurance Services Office (ISO) has developed a market segments program that provides coverages for certain specialty insurance markets. The program offers wrap-around endorsements that are used to enhance the coverage provided by standard coverage forms, notably the commercial property and general liability forms.

Form MS HC 01 07 13 is used to insure health clubs and gyms. It modifies coverage under the commercial general liability form (CGL), the building and personal property coverage form, and the causes of loss special form. MS HC 01 contains broadened coverages as well as additional coverage not found in the basic standard forms. Equipment breakdown (boiler and machinery) coverage, hired auto and nonowned auto liability insurance, loss or damage to guests' autos (legal liability coverage), and professional liability coverage are more items that can be included in the scope of MS HC 01; these are added through endorsements.

This discussion gives highlights of MS HC 01 and a review of some of the endorsements used with MS HC 01.

Topics covered: Introduction Changes to the commercial property form Coverage extensions Changes to the special causes of loss form Changes to the commercial general liability coverage form Definitions Endorsements

Introduction

MS HC 01 is an endorsement that modifies CG 00 01, CP 00 10, and the causes of loss—special form, CP 10 30. The provisions of these forms apply to the risk except as otherwise revised by MS HC 01. The endorsement enhances the coverages provided by the standard forms by offering, among other things, additional property coverages, some crime coverages, and valuable papers and records and accounts receivable coverages. The limits of insurance offered by MS HC 01 are base limits that can be increased through the use of a supplemental schedule, MS HC DS.

Changes to the Commercial Property Form

The following coverages are added to the building and personal property coverage form.

Money and Securities. MS HC 01 will pay for loss of money and securities used in the business of the named insured while at a bank or savings institution, within the living quarters of the named insured or any employee having use and custody of the property, at the described premises, or in transit between any of these places. The coverage is for loss resulting directly from theft, disappearance, or destruction.

The insurer will not pay for loss resulting from accounting or arithmetical errors or omissions, loss due to the giving or surrendering of property in any exchange or purchase, or loss of property contained in any money-operated device.

Unless different limits are shown in the declarations for money and securities, the most the insurer will pay for loss in any one occurrence is: $10,000 for money and securities while in or on the described premises or within a bank or savings institution; or $5,000 for money and securities while anywhere else. The named insured must keep records of all money and securities so that the insurer can verify the amount of any loss or damage.

Fire Extinguishing Systems Expense. MS HC 01 will pay the cost of recharging or replacing (whichever is less) the fire extinguishers and fire extinguishing systems if they are discharged in or on the building described in the declarations, or within 100 feet of the described building or premises, whichever distance is greater. The form will also pay for loss or damage to covered property if such loss or damage is the result of an accidental discharge of chemicals from a fire extinguisher or system. No coverage will apply if the fire extinguishing system is discharged during installation or testing.

The most that will be paid under this coverage is $5,000 in any one occurrence. No deductible applies to this coverage.

Reward Payment. The insurer will reimburse the named insured for rewards up to $5,000 paid to an eligible person for information leading to the arrest and conviction of any person committing a crime resulting in loss or damage to covered property from a covered cause of loss. Also, up to $5,000 will be paid to an eligible person for the return of stolen covered property when the loss is caused by theft. No reward will be reimbursed unless and until the person committing the crime is convicted or the covered property is returned.

An eligible person is defined as that person designated by a law enforcement agency as being the first to voluntarily provide the information leading to an arrest and conviction or return of the stolen covered property. The named insured, family members, employees, any person who had custody of the covered property at the time of the theft, or any person involved in the crime cannot be eligible persons.

Computer Fraud. Loss or damage to money, securities, and other property resulting directly from the use of any computer to fraudulently cause a transfer of that property from inside a building at the described premise or from any bank to a person or place outside those premises is covered for up to $25,000 in any one occurrence. A different limit for computer fraud can be shown in the declarations.

The insurer will cover the loss or damage commencing during the policy period shown in the declarations and within the coverage territory. The coverage territory is anywhere in the world.

Money Orders and Counterfeit Money. MS HC 01 will pay for loss resulting directly from the named insured accepting in good faith, in exchange for merchandise, money or services, money orders issued by any post office, express company or bank that are not paid upon presentation. Loss resulting from acquiring counterfeit money during the regular course of business is also covered.

The most the insurer will pay for any loss in any one occurrence is $2,500 unless a different limit of insurance is shown in the declarations.

Forgery or Alteration. MS HC 01 will pay for loss resulting directly from forgery (a defined term) or alteration of checks, drafts, promissory notes, or similar written promises to pay a sum certain in money. This coverage exists when any of these items are made or drawn by or drawn upon the named insured or made or drawn by one acting as the named insured's agent. Also, if the named insured is sued for refusing to pay any of these instruments on the basis that they have been forged or altered, the insurer will pay for any reasonable legal expenses incurred by the named insured; the named insured must first get the written permission of the insurer to defend against the lawsuit.

The most that the insurer will pay for any loss in any one occurrence, including legal expenses, is $2,500 unless a different limit of insurance is shown in the declarations.

Outdoor Signs. The insurer promises to pay for direct physical loss of or damage to all outdoor signs at the described premises. The signs must be owned by the named insured or owned by others but in the care, custody, or control of the named insured. The most the insurer will pay for this coverage in any one occurrence is $5,000 unless a different limit of insurance is shown in the declarations.

Employee Dishonesty. The insurer promises to pay for direct loss of or damage to the named insured's business personal property and money and securities resulting from dishonest acts committed by any employees. There must be a manifest intent on the part of the employee to cause the named insured to sustain loss or damage and to obtain financial benefit.

MS HC 01 will not pay for loss or damage resulting from any dishonest or criminal act committed by the named insured or its partners or members or managers, or directors or officers. Loss or damage that is an indirect result of any act covered by this insurance is also not covered. And, the coverage does not apply to loss caused by any employee after discovery by the named insured of any dishonest act committed by the employee before or after being hired by the named insured.

The most the insurer will pay for this coverage is $5,000 in any one occurrence unless a different limit of insurance is shown in the declarations. The insurer will pay only for loss or damage that the named insured sustains through acts committed or events occurring during the policy period. And, regardless of the number of years the policy remains in force, no limit of insurance cumulates from year to year or period to period.

Moreover, the insurer will pay only for covered loss or damage discovered no later than one year from the end of the policy period.

Ordinance or Law—Equipment Coverage. If a covered cause of loss occurs to equipment that is covered property, the insurer will pay the costs to repair or replace the equipment as required by law. The insurer will pay the cost to reclaim the refrigerant as required by law, the cost to retrofit the equipment to use a non-CFC refrigerant as required by law, and the increased cost to recharge the system with a non-CFC refrigerant. The terms of this coverage apply separately to each piece of covered equipment.

The insurer will not pay for the costs associated with the enforcement of or compliance with any ordinance or law that requires the insured to respond to or assess the effects of pollutants.

Lock Replacement. MS HC 01 will pay for the cost to repair or replace locks at the described premises due to theft or other loss to keys. The most that will be paid is $5,000 unless a different limit of insurance is shown in the declarations. No deductible applies to this coverage.

Artificially Generated Electrical Current. The insurer will pay for loss or damage to computers due to artificially generated electrical current if such loss is caused by an occurrence that took place within 1,000 feet of the described premises, or by an interruption of electric power supply, power surge, blackout or brownout if the cause of such occurrence took place within 1,000 feet of the described premises.

If such loss or damage exceeds in any one occurrence the applicable deductible shown in the declarations, the insurer will then pay the amount of loss or damage in excess of the deductible up to the applicable limit of insurance for the equipment.

Coverage Extensions

Under this section of MS HC 01, certain coverages in the commercial property form are amended and replaced by the following details.

Personal Effects and Property of Others. The named insured is allowed by MS HC 01 to extend the insurance that applies to business personal property to personal effects owned by the named insured, officers, partners or members, managers, and employees, and to personal property of others in the care, custody, or control of the named insured. The most that the insurer will pay under this extension for loss or damage in any one occurrence is $5,000 unless a different limit of insurance is shown in the declarations.

Note that the coverage for the personal effects of the named insured and its officers, partners and members and managers and employees does not apply to loss or damage by theft.

Valuable Papers and Records (Other Than Electronic Data). The named insured is allowed to extend its insurance that applies to business personal property to direct physical loss or damage to valuable papers and records owned by the named insured or in its care, custody, or control. The loss has to be caused by or result from a covered cause of loss. This extension of coverage includes the cost to research lost information on valuable papers and records for which duplicates do not exist. And, also covered is the cost of blank material for reproducing the records and the cost of labor to transcribe or copy records.

This extension does not apply to property held as samples or for delivery after sale, or to property in storage away from the premises shown in the declarations.

The most the insurer will pay for loss or damage in this coverage extension in any one occurrence at each described premises is $10,000 unless a different limit is shown in the declarations. For valuable papers and records not at a described premises, the most that will be paid is $5,000 in any one occurrence.

Outdoor Property. Fences and retaining walls that are not part of a building (but are located on the described premises) are covered for loss or damage up to $15,000 in any one occurrence. Outdoor radio, television, satellite or other antennas, are covered for up to $3,000 in any one occurrence. Trees, shrubs, and plants are covered for loss or damage (including debris removal expense) for up to $5,000 for any one occurrence, but not more than $1,000 for any one tree, shrub, or plant.

This coverage is for loss caused by fire, lightning, explosion, aircraft, and riot or civil commotion.

Accounts Receivable. MS HC 01 will pay all amounts due from the named insured's customers that the named insured is unable to collect. This coverage also extends to: interest charges on any loan required to offset amounts that the named insured is unable to collect; collection expenses in excess of normal collection expenses; and other reasonable expenses that the named insured incurs to reestablish the records of accounts receivable. The coverage is based on direct physical loss or damage by any covered cause of loss to the named insured's records of accounts receivable.

The most that will be paid under this extension of coverage for loss or damage in any one occurrence at each described premises is $10,000. For accounts receivable not at a described premises, the most that will be paid is $1,500 in any one occurrence.

Changes to the Special Causes of Loss Form

The ordinance or law exclusion does not apply to the ordinance or law—equipment coverage additional coverage in section I of MS HC 01.

The mechanical breakdown exclusion does not apply to loss or damage to computers.

In the exclusions of certain causes of loss to personal property, the exclusion of dampness or dryness of atmosphere and the exclusion of changes in or extremes of temperature do not apply if such conditions result from physical damage caused by a covered cause of loss to an air conditioning unit or system that is part of or used with computers.

The following exclusions are added and apply only to coverage for computers.

The insurer will not pay for loss or damage caused directly or indirectly by errors or omissions in processing, recording, or storing electronic data on computers. However, the insurer will pay for direct loss or damage caused by resulting fire or explosion.

The insurer will not pay for loss caused by electrical disturbance or magnetic injury or reassure of electronic recordings. However, the insurer will pay for direct loss or damage caused by lightning.

The insurer will not pay for loss caused by the failure, malfunction, or inadequacy of computer hardware, application software, operating systems, networks, microprocessors, or any other computerized or electronic equipment or components.

Finally, the insurer will not pay for loss or damage caused by any computer advice or consultation provided by the named insured to determine, rectify, or test for any potential or actual problems in the computer system.

The next section of MS HC 01 deals with exclusions that are applicable to certain coverages found in the endorsement.

The only exclusions that apply to the employee dishonesty additional coverage granted in MS HC 01 are: the governmental action exclusion; nuclear hazard exclusion; and the war and military action exclusion.

The exclusions applying to the outdoor signs additional coverage are: governmental action; nuclear hazard; war and military action; wear and tear; rust or other corrosion, decay, or hidden or latent defect; mechanical breakdown.

The exclusions that apply to the valuable papers and records or the accounts receivable coverage extensions are: governmental action; nuclear hazard; war and military action; computer-related losses; computer advice or consultation; continuous or repeated seepage or leakage of water; water or other liquids leaking from plumbing, heating, air conditioning, or other equipment caused by freezing; weather conditions; acts or decisions of any person, group, or governmental body; and, faulty or defective planning, design, materials used in repair, or maintenance of part or all of any property on or off the described premises.

The following additional exclusions apply to the accounts receivable coverage extension: loss or damage caused by or resulting from alteration, falsification, concealment, or destruction of records of accounts receivable done to conceal the wrongful taking or withholding of money, securities, or other property; loss or damage caused by or resulting from bookkeeping, accounting, or billing errors or omissions; and any loss or damage that requires any audit or records or any inventory computation to prove its factual existence.

Changes to the Commercial General Liability Coverage Form

The following exclusion is added to the exclusions that appear in coverage A and coverage B of the CGL form.

The insurance does not apply to bodily injury, property damage, or personal and advertising injury arising out of: the actual or threatened abuse or molestation by anyone of any person while in the care, custody, or control of any insured; or, the negligent employment, investigation, supervision, reporting to the proper authorities or failure to report, or retention of a person for whom any insured is or ever was legally responsible and whose conduct would be excluded by such abuse or molestation.

The exclusion in the medical payments section of the CGL form relating to athletic activities is deleted by MS HC 01.

Definitions

There are nine definitions in the MS HC 01 endorsement.

Computer. This means the named insured's programmable electronic equipment that is used to store, retrieve, and process electronic data. The definition does not include electronic data and media.

Counterfeit Money. This is an imitation of money that is intended to deceive and to be taken as genuine.

Employee. An employee is any natural person while in the service of the named insured and for the first 30 days immediately after termination who the named insured compensates directly by salary, wages, or commissions, and who the named insured has the right to direct and control while performing services for the named insured. Temporary substitutes and leased workers are also considered as employees. Any natural person who is a former employee, partner, member, manager, director, or trustee retained as a consultant while performing service for the named insured is also considered to be an employee. Any natural person who is a guest student or intern pursuing studies or duties is also an employee.

Forgery. Forgery means the signing of the name of another person or organization with the intent to deceive.

Manager. A manager is a person serving in a directorial capacity for a limited liability company.

Member. A member is an owner of a limited liability company represented by its membership interest, who also may serve as a manager.

Money. Money means currency, coins, and bank notes in current use and having a face value, and travelers checks, register checks, and money orders.

Occurrence. An occurrence is an individual act, the combined total of all separate acts whether related or not, or a series of acts whether or not related committed by a person acting alone or in collusion with other persons during the policy period shown in the declarations.

Securities. This means negotiable and nonnegotiable instruments or contracts representing either money or other property. This includes tokens, tickets, revenue and other stamps in current use, and evidences of debt issued in connection with credit or charge cards. A security is not considered to be money.

Endorsements

There are several endorsements that are used to modify the provisions in MS HC 01. The following are examples.

MS HC DS. This is the supplemental schedule for the health clubs and gyms coverage. It offers space for the insured to choose higher limits of insurance per occurrence for several items of coverage. If the insured wants hired and nonowned auto liability insurance, MS HC DS provides an area for the insured to set its limits of insurance per occurrence. If the insured chooses to have legal liability coverage for loss or damage to guests' autos, MS HC DS offers a schedule wherein the insured can set the limit of insurance per event and the deductibles for collision and other than collision losses. This supplemental schedule also has a space for the insured to check if it wants spoilage coverage, food contamination coverage, and business income and extra expense from dependent properties coverage. The limit of insurance for these coverages per occurrence is also to be listed. Equipment breakdown protection coverage can also be noted on MS HC DS with the insured depicting the premises where coverage is to be, the deductible, and the waiting period in hours.

MS HC 11. This endorsement excludes coverage for bodily injury, property damage, or personal and advertising injury caused by the rendering of or failure to render medical, surgical, dental, x-ray, or nursing service or treatment. It also excludes coverage for injury or damage caused by any health or therapeutic service, treatment, advice, or instruction. Furnishing or dispensing of drugs or medical, dental or surgical supplies or appliances is also an activity excluded by MS HC 11. This endorsement applies if the health club or gym owns, operates, or has an affiliation with a clinic or hospital.

MS HC 06. This endorsement allows the insured to buy abuse or molestation coverage. An aggregate limit of insurance and an each occurrence limit are scheduled on this endorsement. And, while the endorsement does provide some coverage for abuse or molestation claims, the following exclusions limit that coverage. The insurance does not apply to: any insured who perpetrates or takes part in abuse or molestation; any claim for abuse or molestation that was known to the named insured and for which no action was taken in notifying the insurer or the proper authorities; and abuse or molestation expected or intended from the standpoint of the insured.

MS HC 05. This endorsement offers professional liability coverage for the insured. MS HC 05 offers coverage for bodily injury, property damage, and personal and advertising injury or other injury arising out of the rendering of or failure to render professional services in connection with the insured's health club or gym described in the schedule of this endorsement. The exclusion referencing personal property in the care, custody, or control of the insured is deleted. The damage to your work exclusion is stated to not apply with respect to the rendering of or failure to render professional services as specified in the schedule. This insurance does not apply to bodily injury, property damage, or other injury arising out of a criminal act, including but not limited to, fraud committed by the insured or any person for whom the insured is legally responsible.

MS HC 03. This endorsement provides that the insurer will pay all sums that the named insured legally must pay as damages for direct physical loss of or damage to (including any resulting loss of use) to autos or auto equipment of guests or other invitees while the autos are at a premises shown in the declarations. Such loss or damage must be caused by or result from a covered cause of loss. This insurance does not apply to any of the following: liability resulting from any agreement by which the named insured accepts responsibility for direct physical loss of or damage to autos left in the care of the named insured; loss or damage due to theft or conversion caused in any way by the named insured or any other insured.

MS HC 02. This endorsement provides hired auto and nonowned auto liability insurance for the insured. MS HC 02 provides coverage for bodily injury or property damage arising out of the maintenance or use of a hired auto by the named insured or employees in the course of business. It also provides coverage for bodily injury or property damage arising out of the use of a nonowned auto by any person in the course of the named insured's business. This insurance is excess over any primary insurance covering the hired auto or nonowned auto.

A hired auto is defined as any auto the named insured leases, hires, rents, or borrows and does not include any auto the named insured leases, hires, rents, or borrows from any employee, partner, executive officer, or members of their households.

A nonowned auto means any auto the named insured does not own, lease, hire, rent, or borrow that is used in connection with the business of the named insured.

MS HC 09. This endorsement adds an exclusion to the liability coverages provided by MS HC 01. Coverage does not apply to bodily injury, property damage, or personal and advertising injury to any person while practicing for or actively participating in the sports or athletic contest or exhibition (other than spectators) including coaches, trainers or those serving in a similar function with respect to the participants, that the named insured organizes, sponsors, or otherwise facilitates. However, this exclusion does not apply to any sports or athletic contest or exhibition shown in the schedule of this endorsement.