Includes copyrighted material of Insurance Services Office, Inc., with its permission.
April 2, 2018
This is the third section of the policy starting with loss conditions and ending with definitions, the final part of the policy.
Topics covered:
H. Loss Conditions – Property Insurance1. Deductibles
a. We will not pay that part of the loss that is attributable to the applicable deductible(s) shown in the Declarations of this Policy, in accordance with the provisions of 1.b. below.
b. Applicable deductibles by location are shown in the Declarations. If the Declarations show a deductible for a particular building, then that building is considered to be a separate location for the purpose of this Deductible clause. The deductible specified for a particular location applies to all property at that location. Therefore, if a building is shown in the Schedule as a separate location, all Covered Property at that location is subject to that deductible. The deductible will apply only once at that location in each occurrence of Flood.
If one occurrence results in loss or damage at more than one location, the applicable deductible will apply separately to loss or damage at each location that has sustained loss or damage, in accordance with the information shown in the Declarations for locations and deductibles. Therefore, for example, if Flood damages two buildings which are shown in the Declarations as separate locations, the applicable deductible will be applied separately to the loss at each location.
In any one occurrence of Flood, we will first reduce the amount of loss if required by the Coinsurance Condition. If the adjusted amount of loss is less than or equal to the deductible, we will not pay for that loss. If the adjusted amount of loss exceeds the deductible, we will then subtract the deductible from the adjusted amount of loss and will pay the resulting amount or the applicable Limit of Insurance, whichever is less.
2. Coinsurance
The following applies only if a Coinsurance percentage for Covered Property is shown in the Declarations:
a. We will not pay the full amount of any loss if the value of Covered Property at the time of loss times the Coinsurance percentage shown for it in the Declarations is greater than the applicable Limit of Insurance for the property.
Instead, we will determine the most we will pay using the following steps:
(1) Multiply the value of Covered Property at the time of loss by the Coinsurance
percentage;
(2) Divide the Limit of Insurance of the property by the figure determined in Step (1);
(3) Multiply the total amount of loss, before the application of any deductible, by the figure determined in Step (2); and
(4) Subtract the deductible from the figure determined in Step (3). We will pay the amount determined in Step (4) or the Limit of Insurance, whichever is less. For the remainder, you will either have to rely on other insurance or absorb the loss yourself.
Analysis
As with any policy, there are conditions that apply whenever there is a loss. The first condition is deductibles, and they are listed by location in the declarations. The deductible applies to all property at the specified location, and it applies only once per flood occurrence. However, if a flood affects multiple locations covered under the policy, then the deductible applies separately to each location.
Before the deductible is applied any coinsurance penalties will be applied, then the deductible. As always, losses below the deductible are not paid. If the adjusted amount of loss exceeds the deductible, the deductible is applied to the adjusted amount, and the resulting amount will be paid or the limit of insurance, whichever is less. For example, the deductible is $1,000. The loss is $50,000 but the property was not insured to value, so there is a coinsurance penalty since the property was only insured to 70 percent of value. The adjusted amount of the loss is then $35,000. The deductible is subtracted from this amount, leaving $34,000. As the limit of insurance is $250,000, $34,000 is what is paid for the loss.
The standard coinsurance clause for property coverage is in the policy. The result of the value of the property multipled by the coinsurance percentage is then divided into the limit of insurance. This result is then multiplied by the amount of the loss. From this amount the deductible is subtracted. While the wording is awkward, the familiar had/should x amount of loss is another way to phrase the calculation. The form includes three examples as follows:
Example 1 (Underinsurance)When: The value of the property is: $ 250,000
The Coinsurance percentage for it is: 80%
The Limit of Insurance for it is: $ 100,000
The Deductible is: $ 5,000
The amount of loss is: $ 40,000
Step (1): $250,000 x 80% = $200,000 (the minimum amount of insurance to meet your Coinsurance requirement)
Step (2): $100,000 ÷ $200,000 = .50
Step (3): $40,000 x .50 = $20,000
Step (4): $20,000 – $5,000 = $15,000
We will pay no more than $15,000. The remaining $25,000 is not covered.
Example 2 (Adequate Insurance)
When: The value of the property is: $ 250,000
The Coinsurance percentage for it is: 80%
The Limit of Insurance for it is: $ 200,000
The Deductible is: $ 5,000
The amount of loss is: $ 40,000
The minimum amount of insurance to meet your Coinsurance requirement is $200,000 ($250,000 x 80%). Therefore, the Limit of Insurance in this example is adequate, and no penalty applies. We will pay no more than $35,000 ($40,000 amount of loss minus the deductible of $5,000).
b. If one Limit of Insurance applies to two or more separate items, the Coinsurance requirement will apply to the total of all property to which the limit applies.
Example 3When: The value of the property is:
Building at Location 1: $ 75,000
Building at Location 2: $ 100,000
Personal Property at Location 2:$ 75,000
Total property: $ 250,000
The Coinsurance percentage for it is: 90%
The Limit of Insurance for Buildings and Personal Property at Locations 1 and 2 is: $ 180,000
The Deductible is: $ 5,000
The amount of loss is:
Building at Location 2: $ 30,000
Personal Property at Location 2: $ 20,000
Total property at location 2$ 50,000
Step (1): $250,000 x 90% = $225,000 (the minimum amount of insurance to meet your Coinsurance requirement and to avoid the penalty shown below)
Step (2): $180,000 ÷ $225,000 = .80
Step (3): $50,000 x .80 = $40,000
Step (4): $40,000 – $5,000 = $35,000
We will pay no more than $35,000. The remaining $15,000 is not covered.
3. Valuation
We will determine the value of Covered Property in the event of loss or damage as follows:
a. At actual cash value as of the time of loss or damage, except as provided in b., c., d. and e. below.
b. "Stock" you have sold but not delivered at the selling price less discounts and expenses you otherwise would have had.
c. Glass at the cost of replacement with safety-glazing material if required by law.
d. Antiques at their functional value.
e. Tenants' Improvements and Betterments at:
(1) Actual cash value of the lost or damaged property if you make repairs promptly.
(2) A proportion of your original cost if you do not make repairs promptly. We will determine the proportionate value as follows:
(a) Multiply the original cost by the number of days from the loss or damage to the expiration of the lease; and
(b) Divide the amount determined in (a) 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.
(3) Nothing if others pay for repairs or replacement.
4. Replacement Cost Valuation Option
If shown as applicable in the Declarations, this Valuation Option applies with respect to the Covered Property for which it is indicated, subject to the following provisions and limitations:
a. Replacement Cost (without deduction for depreciation) replaces Actual Cash Value in the Valuation Loss Condition of this Policy.
b. Replacement Cost does not apply to:
(1) Personal property of others;
(2) Contents of a residence;
(3) Works of art, antiques or rare articles, including etchings, pictures, statuary, marbles, bronzes, porcelains and bric-abrac; or
(4) "Stock", unless the Including "Stock" option is shown in the Declarations.
Under the terms of this Replacement Cost Valuation Option, tenants' improvements and betterments are not considered to be the personal property of others.
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 for the additional coverage this Optional Coverage provides 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:
(1) Until the lost or damaged property is actually repaired or replaced; and
(2) Unless the repair or replacement is made as soon as reasonably possible after the loss or damage.
With respect to tenants' improvements and betterments, the following also apply:
(3) If the conditions in d.(1) and d.(2) above are not met, the value of tenants' improvements and betterments will be determined as a proportion of your original cost as set forth in Paragraph H.3.e.(2); and
(4) We will not pay for loss or damage to tenants' improvements and betterments if others pay for repairs or replacement.
e. We will not pay more for loss or damage on a replacement cost basis than the least of (1), (2) or (3), subject to f. below:
(1) The Limit of Insurance applicable to the lost or damaged property;
(2) The cost to replace the lost or damaged property with other property of comparable material and quality and used for the same purpose; or
(3) The amount actually spent that is necessary to repair or replace the lost or damaged property.
If a building is rebuilt at a new premises, the cost described in e.(2) above is limited to the cost which would have been incurred if the building had been rebuilt at the original premises.
f. The cost of repair or replacement 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.
Analysis
How the property is valued is a critical component of insurance coverage. When property is damaged in a loss, the property is value at actual cash value except for three circumstances. The first is when the damaged property is "stock" the insured has sold but not delivered; this is valued at the selling price less discounts and expenses the insured would otherwise have had. Glass is valued at replacement cost with safety-glazing material if required by law. Antiques are valued at their functional value. Functional value is going to be much less than most insureds feel their antique is worth; but as many antiques may be one of a kind or one of a very few with particular craftsmanship, they are often irreplaceable. Therefore, they are valued at functional value.
Tenants improvements and betterment, such as installed, irremovable carpet, are valued at actual cash value if the property is promptly repaired. If the property is not promptly repaired, then the loss is valued proportionally. The ISO wording is confusing, and we asked for an explanation. The original cost of the improvements and betterments is multiplied by the result of:
the number of days from the loss or damage to the expiration of the lease
divided by
the number of days from the installation of the improvements to the expiration of the lease.
For example, the property is damaged June 1, 2017 and the loss is valued at $50,000. The lease runs from September 1 2016 to September 1 2017. Repairs are not made immediately, but are made August 1 and the lease expires September 1. The original improvements were installed when the insured rented the property. There are 92 days from June 1 to September 1. The number of days from the installation of improvements to the expiration of the lease is 365 days. Therefore, 92 is divided by 365, which results in .252. The $50,000 is multiplied by .252, which results in $12,600. Therefore, the insured receives $12,600 for his $50,000 loss.
Taking the same example but adding the improvements after the start of the lease, for example October 15, 2017, then the $50,000 would be multiplied by the result of 92 divided by 321, which results in .286. The $50,000 multiplied by .286 results in $14,300 being paid for the loss.
Certain property may be replaced at replacement cost value, which is the cost to replace the property without deductions for depreciation. However, replacement cost does not apply to personal property of others, contents of a residence, works of art or rare articles including etchings, bric-a-brac, bronzes, marbles, porcelains, pictures and statuary, and "stock" unless it is shown in the declarations. Tenants improvements and betterments are not considered the personal property of others.
The insured has the option of selecting settlement on an actual cash value basis instead of replacement cost, with the option of changing his mind if he provides notice to the carrier within 180 days of the loss. Payment is not made on replacement cost until the property is actually repaired or replaced, and the repair or replacement is made as soon as possible after the loss. For tenants improvements and betterments, if the property is not repaired or replaced as soon as possible after the loss then the value is a proportion of the original cost as discussed above. If others pay for the repair or replacement of the improvements or betterments, than there is no payment under this policy.
Payments on a replacement cost basis are the lesser of the limit of insurance, the cost to repair or replace with like kind and quality, or the amount actually spent to repair or replace the property. If the building is rebuilt at a different site, then the most that is paid is the amount that would have been incurred had it been rebuilt at the original site. Increased ordinance or law costs are not included in the cost to repair or replace.
5. Optional Extension Of Replacement Cost To Personal Property Of Othersa. If the Replacement Cost Valuation Option is shown as applicable in the Declarations, then this Extension may also be shown as applicable. If the Declarations show this Extension as applicable, then Paragraph b.(1) of the Replacement Cost Valuation Option is deleted and all other provisions of the Replacement Cost Valuation Option apply to replacement cost on personal property of others.
b. With respect to replacement cost on the personal property of others, the following limitation applies:
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.
6. Loss Payment
a. In the event of loss or damage covered by this Policy, 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, subject to b. below;
(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 b. below.
We will determine the value of lost or damaged property, or the cost of its repair or replacement, in accordance with the terms of the applicable Valuation Condition in this Policy.
b. 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.
c. We will give notice of our intentions within 30 days after we receive the sworn proof of loss.
d. We will not pay you more than your financial interest in the Covered Property.
e. 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 60 days after we receive the sworn proof of loss, if 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, the Valuation and Coinsurance Conditions 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.
7. Appraisal
If we and you disagree on the value of the property or 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 value of the property and 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.
Analysis
If replacement cost valuation applies, then replacement cost may be applied to personal property of others. If a contract governs the insured's liability for loss or damage to the property, the valuation is then based on the amount to which the insured is liable. It will not exceed the replacement cost of the property or the limit of insurance.
The next section deals with how losses are settled. At the carrier's option, it will pay the value of the lost or damaged property, the cost to repair or replace the property without increasing payment due to ordinances or laws, or may repair, rebuild or replace the property with like kind and quality property. In addition, the carrier may take all or part of the property at an agreed or appraised value. Whatever the carrier decides it must let the insured know of its intentions within thirty days of receipt of the sworn proof of loss. No more than the insured's financial interest in the covered property is paid. If the limit of insurance is larger than the insured's interest in the property, the insured does not get to profit from the loss.
When property that is not owned by the insured is damaged, the carrier may settle with the owner of the property directly. Again, the owners do not receive more than their financial interest in the property.
The carrier may defend the insured against suits that arise from claims of owners of property. The carrier will do so at its expense.
If the insured has complied with all the terms of the policy and the carrier and insured have agreed on the amount of loss or an appraisal award has been made, then payment will be within sixty days of receipt of the proof of loss.
An insured premise may share a wall with an adjoining premises owned by other parties. When a loss includes such a wall, payment is based on the proportion of the wall that is the insured's interest in proportion to the interest of the other party. If the insured decides to repair or replace the wall and the adjoining owner does not opt to repair or replace it, the full value of the loss of the party wall is covered subject to all other policy conditions. The appraisal language is standard and identical to other property forms regarding appraisal procedures.
I. Loss Conditions – Time Element Insurance1. Coinsurance Applicable To Business Income
The following applies to Business Income only if a Coinsurance percentage for such coverage is shown in the Declarations. (Coinsurance does not apply to Extra Expense.)
We will not pay the full amount of any Business Income loss if the Limit of Insurance for Time Element Insurance is less than:
a. The Coinsurance percentage shown for Business Income in the Declarations; times
b. The sum of:
(1) The Net Income (Net Profit or Loss before income taxes), and
(2) Operating expenses, including payroll expenses; that would have been earned or incurred (had no loss occurred) by your "operations" at the described premises for the 12 months following the inception, or last previous anniversary date, of this Policy (whichever is later).
Instead, we will determine the most we will pay using the following steps:
Step (1): Multiply the Net Income and operating expense for the 12 months following the inception, or last previous anniversary date, of this Policy by the Coinsurance percentage;
Step (2): Divide the Limit of Insurance for the described premises by the figure determined in Step (1); and Step (3): Multiply the total amount of Business Income loss by the figure determined in Step (2).
The amount determined in Step (3) is the most we will pay for Business Income loss, subject to the Limit of Insurance. But we will not pay more for the total of all loss sustained and expense incurred under the Optional Coverage – Time Element Insurance than the applicable Limit of Insurance.
In determining operating expenses for the purpose of applying the Coinsurance condition, the following expenses, if applicable, shall be deducted from the total of all operating expenses:
(1) Prepaid freight – outgoing;
(2) Returns and allowances;
(3) Discounts;
(4) Bad debts;
(5) Collection expenses;
(6) Cost of raw materials and factory supplies consumed (including transportation charges);
(7) Cost of merchandise sold (including transportation charges);
(8) Cost of other supplies consumed (including transportation charges);
(9) Cost of services purchased from outsiders (not employees) to resell, that do not continue under contract; and
(10) Special deductions for mining properties (royalties unless specifically included in coverage; actual depletion commonly known as unit or cost depletion – not percentage depletion; welfare and retirement fund charges based on tonnage; hired trucks).
Example 1 (Underinsurance)
When: The Net Income and operating expenses for the 12 months following the inception, or last previous anniversary date, of this Policy at the described premises would have been: $ 400,000
The Coinsurance percentage is: 50%
The Limit of Insurance is: $ 150,000
The amount of loss is: $ 80,000
Step (1): $400,000 x 50% = $200,000
(the minimum amount of insurance to meet your Coinsurance requirements)
Step (2): $150,000 ÷ $200,000 = .75
Step (3): $80,000 x .75 = $60,000
We will pay no more than $60,000. The remaining $20,000 is not covered.
Example 2 (Adequate Insurance)
When: The Net Income and operating expenses for the 12 months following the inception, or last previous anniversary date, of this Policy at the described premises would have been: $ 400,000
The Coinsurance percentage is: 50%
The Limit of Insurance is: $ 200,000
The amount of loss is: $ 80,000
The minimum amount of insurance to meet your Coinsurance requirement is $200,000 ($400,000 x 50%). Therefore, the Limit of Insurance in this example is adequate and no penalty applies. We will pay no more than $80,000 (amount of loss).
Analysis
When a coinsurance percentage is shown in the declarations, a different calculation is used to determine the amount of settlement. The full amount is not paid if the coverage limit is less than the coinsurance percentage multiplied by the sum of the net operating expenses and operating expenses including payroll that would have been earned had there been no loss. Instead, the net income and operating expenses for the twelve months after inception date is multiplied by the coinsurance percentage. Then the coverage limit is divided by the amount in the previous step, and the total of business income is multiplied by step 2. This final amount is the most that will be paid for business income subject to policy limits. An example is provided.
Certain expenses are deducted from operating expenses before the application of the coinsurance condition. These expenses are prepaid freight – outgoing, returns, allowances, discounts, bad debts, collection expenses, cost of raw materials and factory supplies, cost of merchandise sold including transportation charges, cost of other supplies consumed including transport, cost of services purchased from outsiders to resell that do not continue under contract and deductions for mining properties. The mining deductions include royalties unless specifically included in coverage, actual depletion known as unit or cost depletion, welfare and retirement fund changes based on tonnage and hired trucks.
2. Loss Determinationa. The amount of Business Income loss will be determined based on:
(1) The Net Income of the business before the direct physical loss or damage occurred;
(2) The likely Net Income of the business if no physical loss or damage had occurred, but not including any Net Income that would likely have been earned as a result of an increase in the volume of business due to favorable business conditions caused by the impact of the Flood on customers or on other businesses;
(3) The operating expenses, including payroll expenses, necessary to resume "operations" with the same quality of service that existed just before the direct physical loss or damage; and
(4) Other relevant sources of information, including:
(a) Your financial records and accounting procedures;
(b) Bills, invoices and other vouchers; and
(c) Deeds, liens or contracts.
b. The amount of Extra Expense will be determined based on:
(1) All expenses that exceed the normal operating expenses that would have been incurred by "operations" during the "period of restoration" if no direct physical loss or damage had occurred. We will deduct from the total of such expenses:
(a) The salvage value that remains of any property bought for temporary use during the "period of restoration", once "operations" are resumed; and
(b) Any Extra Expense that is paid for by other insurance, except for insurance that is written subject to the same plan, terms, conditions and provisions as this insurance; and
(2) Necessary expenses that reduce the Business Income loss that otherwise would have been incurred.
c. Resumption Of Operations
We will reduce the amount of your:
(1) 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.
(2) Extra Expense loss to the extent you can return "operations" to normal and discontinue such Extra Expense.
d. If you do not resume "operations", or do not resume "operations" as quickly as possible, we will pay based on the length of time it would have taken to resume "operations" as quickly as possible.
3. Loss Payment
a. We will give notice of our intentions within 30 days after we receive the sworn proof of loss.
b. We will pay for covered loss or damage within 60 days after we receive the sworn proof of loss, if 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.
4. Appraisal
If we and you disagree on the amount of Net Income and operating expense or 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 Net Income and operating expense or 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.
Analysis
The determination of a business income loss amount is based on the net income before the loss or damage occurred, the likely net income had no loss occurred but not income that increased due to damage to other businesses, the operating expenses including payroll necessary to resume operations as were present before the loss, and other relevant sources of information including financial records, bills, invoices, accounting procedures and deeds, liens or contracts.
Extra expense is determined based on expenses that exceed normal operating expenses that would have been incurred by operations during the restoration period had there been no direct loss. The salvage value of property bought to use temporarily during the restoration period and extra expense paid by other insurance unless it is written subject to the same plan and provisions of this policy are excluded. Necessary expenses that reduce the business income loss that otherwise would have been incurred are also included in the determination of extra expense.
When the insured can resume operations in whole or part by using undamaged property, then the amount of business income loss will be reduced. Extra expense loss will be discontinued when the insured can return operations to normal. A loss may damage only part of the property but not all of it. If the insured can still function at least in part, then the amount of business income paid out will be reduced. Extra expenses to keep the organization functioning will be discontinued when the operations return to normal. However, if the insured does not restore operations at all, or does not restore them as quickly as possible, payment will be based on the amount of time it would have taken to restore the operations to normal.
After receipt of the proof of loss the carrier will provide the insured with its intentions within thirty days of receipt of the proof of loss notice. Payment will be issued within sixty days after receipt of the proof of loss if the insured has complied with all policy terms and the insured and carrier have either reached an agreement on the amount of loss or the insured and insurer have gone through the appraisal process and come to an amount. Again, the standard appraisal process is listed in this policy form. Either party may request an appraisal, two appraisers are hired, they review the loss, if they cannot agree it goes to an umpire and agreement by two of the three sets the amount of the loss. Each party pays its own appraiser and remaining costs are split.
J. General Conditions1. Concealment, Misrepresentation Or Fraud
This Policy is void in any case of fraud by you as it relates to this Policy at any time. It is also void if you or any other insured, at any time, intentionally conceal or misrepresent a material fact concerning:
a. This Policy;
b. The Covered Property;
c. Your interest in the Covered Property; or
d. A claim under this Policy.
2. 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 Policy 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.
3. Insurance Under Two Or More Coverages
If two or more of this policy's coverages apply to the same loss or damage, we will not pay more than the actual amount of the loss or damage.
4. Legal Action Against Us
No one may bring a legal action against us under this Policy unless:
a. There has been full compliance with all of the terms of this Policy; and
b. The action is brought within two years after the date on which the direct physical loss or damage occurred.
5. Liberalization
If we adopt any revision that would broaden the coverage under this Policy without additional premium within 45 days prior to or during the policy period, the broadened coverage will immediately apply to this Policy.
6. No Benefit To Bailee
No person or organization, other than you, having custody of Covered Property will benefit from this insurance.
7. Policy Period
Under this Policy, we cover loss or damage commencing during the policy period shown in the Declarations, except as otherwise provided in Exclusion C.2.a.
8. Coverage Territory
The location of the described premises must be within the Coverage Territory. Further, with respect to any off-premises coverage as explicitly granted under this Policy, loss or damage must occur within the Coverage Territory.
The Coverage Territory is:
a. The United States of America (including its territories and possessions);
b. Puerto Rico; and
c. Canada.
9. Transfer Of Rights Of Recovery Against Others To Us
If any person or organization to or for whom we make payment under this Policy has rights to recover damages from another, those rights are transferred to us to the extent of our payment. That person or organization must do everything necessary to secure our rights and must do nothing after loss to impair them. But you may waive your rights against another party in writing:
a. Prior to a loss.
b. After a loss only if, at time of loss, that party is one of the following:
(1) Someone insured by this insurance;
(2) A business firm:
(a) Owned or controlled by you; or
(b) That owns or controls you; or
(3) Your tenant.
This will not restrict your insurance.
10. Cancellation
a. The first Named Insured shown in the Declarations may cancel this Policy by mailing or delivering to us advance written notice of cancellation.
b. We may cancel this Policy by mailing or delivering to the first Named Insured written
notice of cancellation at least:
(1) 10 days before the effective date of cancellation if we cancel for nonpayment of premium; or
(2) 45 days before the effective date of cancellation if we cancel for any other reason permissible under applicable law.
c. We will mail or deliver our notice to the first Named Insured's last mailing address known to us.
d. Notice of cancellation will state the effective date of cancellation. The policy period will end on that date.
e. If this Policy is cancelled, we will send the first Named Insured any premium refund due. If we cancel, the refund will be pro rata. If the first Named Insured cancels, the refund may be less than pro rata. The cancellation will be effective even if we have not made or offered a refund.
f. If notice is mailed, proof of mailing will be sufficient proof of notice.
Analysis
The next section addresses general conditions, and these are familiar. Any act of concealment, misrepresentation or fraud will void the policy. Acts of people other than the insured beyond his direction or control will not affect this coverage. This applies to any location listed on the policy. The insured cannot be held responsible for acts of others not on this policy. A breach of condition at one location on the policy does not breach coverage at other locations where a breach has not occurred.
When there are two or more policies in force, this policy does not pay more than the actual amount of loss or damage. Legal action cannot be brought against the carrier unless an insured has complied with all policy conditions. Any action must be brought within two years.
Revisions that broaden coverage without an increase in premium are automatically added to the policy. If the insured's property is in the custody of another, this policy does not provide coverage to the bailee. Coverage applies during the policy period except during the waiting period. The coverage territory is the United States including territories and possessions, Puerto Rico and Canada.
As always once payment has been made the rights to recover damages from another are transferred to the company. The rights against another may be waived by the insured prior to a loss, or after a loss if the other party is insured by this carrier or is a business firm owned or controlled by the insured or that the insured is owned or controlled by, or is the insured's tenant.
Both the insured and the carrier have the right to cancel the policy. When the insured cancels, he needs to mail written notice to the carrier in advance of the cancellation date. When the carrier cancels, notice must be mailed or delivered to the insured ten days before the cancellation date if the cancellation is due to nonpayment of premium. Notice of cancellation must be forty-five days in advance for any other reason for cancellation. Notice must go to the first named insured and will state the effective date of the cancellation. Refunds are sent to the first named insured. If the carrier cancels, the refund is pro rata. If the insured cancels, the refund is less than prorate. Proof of mailing is proof of notice. States require proof of notice for cancellation and nonrenewal notices.
11. Nonrenewala. If we decide not to renew this Policy, for any reason permissible under applicable law, we will mail or deliver written notice of nonrenewal to the first Named Insured at least 45 days before an anniversary date or the expiration date of this Policy.
b. We will mail or deliver our notice to the first Named Insured's last mailing address known to us.
c. If notice is mailed, proof of mailing will be sufficient proof of notice.
12. Changes
This Policy contains all the agreements between you and us concerning the insurance afforded. The first Named Insured shown in the Declarations is authorized to make changes in the terms of this Policy with our consent. This Policy's terms can be amended or waived only by endorsement issued by us and made a part of this Policy.
13. Examination Of Your Books And Records We may examine and audit your books and records as they relate to this Policy at any time during the policy period and up to three years afterward.
14. Inspections And Surveys
a. We have the right to:
(1) Make inspections and surveys at any time;
(2) Give you reports on the conditions we find; and
(3) Recommend changes.
b. We are not obligated to make any inspections, surveys, reports or recommendations and any such actions we do undertake relate only to insurability and the premiums to be charged. We do not make safety inspections. We do not undertake to perform the duty of any person or organization to provide for the health or safety of workers or the public. And we do not warrant that conditions:
(1) Are safe or healthful; or
(2) Comply with laws, regulations, codes or standards.
c. Paragraphs a. and b. of this condition apply not only to us, but also to any rating, advisory, rate service or similar organization which makes insurance inspections, surveys, reports or recommendations.
d. Paragraph b. of this condition does not apply to any inspections, surveys, reports or recommendations we may make relative to certification, under state or municipal statutes, ordinances or regulations, of boilers, pressure vessels or elevators.
15. Premiums
The first Named Insured shown in the Declarations:
a. Is responsible for the payment of all premiums; and
b. Will be the payee for any return premiums we pay.
16. Transfer Of Your Rights And Duties Under This Policy
Your rights and duties under this Policy may not be transferred without our written consent except in the case of death of an individual named insured.
If you die, your rights and duties will be transferred to your legal representative but only while acting within the scope of duties as your legal representative. Until your legal representative is appointed, anyone having proper temporary custody of your property will have your rights and duties but only with respect to that property.
17. Other Insurance
a. If the loss is also covered under a National Flood Insurance Program (NFIP) policy, or if the property is eligible to be written under an NFIP policy but there is no such policy in effect, then we will pay only for the amount of loss in excess of the maximum limit that can be insured under that policy. This provision applies whether or not the maximum NFIP limit was obtained or maintained, and whether or not you can collect on the NFIP policy. We will not, under any circumstances, pay more than the applicable Limit of Insurance as stated in the Declarations of this Policy.
However, this Paragraph 17.a. does not apply under the following circumstances:
(1) At the time of loss, the property is eligible to be written under an NFIP policy but such policy is not in effect due solely to ineligibility of the property at the time this Policy was written; or
(2) An NFIP policy is not in effect because we have agreed to write the property under this Policy without requiring underlying NFIP coverage. There is such an agreement only if the Declarations of this Policy indicate that the Underlying Insurance Waiver applies.
b. If there is other insurance covering the loss, other than that described in Paragraph 17.a. above, we will pay our share of the loss. Our share is the proportion that the applicable Limit of Insurance under this Policy bears to the total of the applicable Limits of Insurance under all other such insurance. But we will not pay more than the applicable Limit Of Insurance stated in the Declarations of this Policy.
c. We will not pay any part of a loss attributable to the deductible in any other insurance covering the loss.
Analysis
Nonrenewal is the next section in conditions, and like cancellations notice must be given in advance in mailing to the first named insured. The first named insured may make changes to the policy with the consent of the carrier by endorsements issued by the carrier and made part of the policy.
The carrier has a right to inspect the insured's books and records as they relate to the policy and for up to three years from the policy date. The carrier also has the right to conduct inspections and surveys, and provide the insured with reports and recommendations on the conditions of the property. These inspections are not safety, compliance or health inspections, and only look at the insurability of the property. The carrier may not make any inspections; it is at the carrier's discretion. The same applies to any other services that makes insurance inspections as carriers may hire outside inspectors to review the property.
The first named insured is responsible for paying the premium and receives any returned premiums. While the insured may transfer the rights and duties under the policy, it may only be done with the carrier's explicit written permission unless the named insured dies. Upon the death of the named insured rights and duties are transferred to the legal representative, and before a legal representative is appointed to anyone having proper temporary custody of the property.
The other insurance provision dictates that if there is an NFIP policy in place or the property was eligible for such a policy that only the amount in excess of the maximum limit that could be insured under that policy is covered. However, if the property was ineligible for NFIP when the policy was written, but is eligible at the time of the loss, this procedure is not used. Likewise if the policy was eligible for NFIP coverage but an agreement was made that this did not need to have the underlying NFIP policy, then coverage would apply. When other insurance is present, then this policy pays in proportion to this policy's proportion to the total amount of coverage. This policy will not pay the deductible of other policies covering the loss.
18. AbandonmentThere can be no abandonment of any property to us.
19. 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) Give us prompt notice of the loss or damage. Include a description of the property involved.
(2) As soon as possible, give us a description of how, when and where the loss or damage occurred.
(3) 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 applicable Limit of Insurance. However, we will not pay for any subsequent loss or damage resulting from a cause of loss other than Flood. Also, if feasible, set the damaged property aside and in the best possible order for examination.
(4) At our request, give us complete inventories of the damaged and undamaged property, including evidence that prior Flood damage has been repaired. Include quantities, costs, values and amount of loss claimed.
(5) 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.
(6) Send us a signed, sworn proof of loss containing the information we request to investigate the claim. You must do this within 60 days after our request. We will supply you with the necessary forms.
(7) Cooperate with us in the investigation or settlement of the claim.
(8) If you intend to continue your business, you must resume all or part of your "operations" as quickly as possible. This duty applies only with respect to Time Element Insurance.
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.
20. Recovered Property
If either you or we recover any property after loss settlement, that party must give the other prompt notice. At your option, the property will be returned to you. You must then return to us the amount we paid to you for the property. We will pay recovery expenses and the expenses to repair the recovered property, subject to the applicable Limit of Insurance.
21. Mortgage holders
a. The term mortgage holder includes trustee.
b. We will pay for covered loss of or damage to buildings or structures to each mortgage holder shown in the Declarations and any other mortgage holder determined to exist at the time of loss, in their order of precedence, as interests may appear.
c. The mortgage holder has the right to receive loss payment even if the mortgage holder 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 mortgage holder will still have the right to receive loss payment if the mortgage holder:
(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 60 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 mortgage holder.
All of the terms of this Policy will then apply directly to the mortgage holder.
e. If we pay the mortgage holder 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 mortgage holder's rights under the mortgage will be transferred to us to the extent of the amount we pay; and
(2) The mortgage holder's right to recover the full amount of the mortgage holder's claim will not be impaired.
At our option, we may pay to the mortgage holder 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 mortgage holder at least:
(1) 10 days before the effective date of cancellation if we cancel for your nonpayment of premium; or
(2) 45 days before the effective date of cancellation if we cancel for any other reason permissible under applicable law.
g. If we elect not to renew this Policy, for any reason permissible under applicable law, we will give written notice to the mortgage holder at least 45 days before an anniversary date or the expiration date of this Policy.
Analysis
The insured cannot abandon property to the carrier. The standard duties after a loss are listed. The insured must give prompt notice of loss with a description of what happened, protect the property from further damage, and provide inventories of damaged and undamaged property. The insured must also allow inspection of the property, submit a signed, sworn proof of loss within sixty days of request, cooperate with the investigation, and resume operations as quickly as possible if the insured intends to continue the business. The carrier may examine an insured under oath and those answers must be signed.
If property is recovered after loss settlement, the insured may keep the property and return the settlement to the carrier. The carrier will pay recovery and repair expenses subject to the policy limit.
Mortgage holders are paid in order of precedence as their interests may appear, and even if foreclosure proceedings have started mortgage holders may be paid. If the claim is denied to the insured due to his actions or failure to comply with the policy terms, the mortgage holder still has the right to receive payment. The mortgage holder must pay any premiums due, submit a proof of loss, and have notified the carrier of any changes in ownership, occupancy or substantial change in the premises that the mortgage holder is aware of. Upon settlement the mortgage holders rights are transferred to the carrier to the extent of the amount paid. The right to recover the full amount of the mortgage holder's claim is not impaired. The carrier has the option to pay the entire principal and interest, and the mortgage and note will transfer to the carrier and the insured will pay the remaining mortgage debt to the carrier. Cancellation and nonrenewal provisions apply to the mortgage holder the same way they do to the insured.
K. Definitions1. "Finished stock" means stock you have manufactured.
"Finished stock" also includes whiskey and alcoholic products being aged, unless a Coinsurance percentage is shown for Business Income in the Declarations.
"Finished stock" does not include stock you have manufactured that is held for sale on the premises of any retail outlet insured under this Policy.
2. "Fungus" means any type or form of fungus, including mold or mildew, and any mycotoxins, spores, scents or by-products produced or released by fungi.
3. "Operations" means:
a. Your business activities occurring at the described premises; and
b. The tenantability of the described premises, if coverage for Business Income Including "Rental Value" or "Rental Value" applies.
4. "Period of restoration" means the period of time that:
a. Begins:
(1) 72 hours after the time of direct physical loss or damage for Business Income
Coverage; or
(2) Immediately after the time of direct physical loss or damage for Extra Expense Coverage; caused by or resulting from Flood at the described premises; and
b. Ends on the earlier of:
(1) The date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality; or
(2) The date when business is resumed at a new permanent location.
"Period of restoration" 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".
5. "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.
6. "Rental Value" means Business Income that consists of:
a. Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred as rental income from tenant occupancy of the premises described in the Declarations as furnished and equipped by you, including fair rental value of any portion of the described premises which is occupied by you; and
b. Continuing normal operating expenses incurred in connection with that premises, including:
(1) Payroll; and
(2) The amount of charges which are the legal obligation of the tenant(s) but would otherwise be your obligations.
7. "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.
8. "Suspension" means:
a. The slowdown or cessation of your business activities; or
b. That a part or all of the described premises is rendered untenantable, if coverage for Business Income Including "Rental Value" or "Rental Value" applies.
Analysis
Eight terms are defined in the commercial flood policy. The first is "finished stock" which is stock manufactured by the insured as well as whiskey and alcoholic products being aged unless a coinsurance percentage is shown for business income in the declarations. Products manufactured by the insured that are held for sale at any retail outlet insured on this policy are not considered finished stock. If the insured has a store next to the manufacturing building and both are covered under this policy, then stock in the store is not covered.
"Fungus" is any type or form of fungus including mold, mildew, or any mycotoxins, spores, scents or by-products produced or released by fungus. Fungus is often present as a result of water damage.
"Operations" are defined as business activities that occur on premises and the tenantability of the premises if coverage for business income includes ""rental value" or "rental value" applies. A property could be rented as a shop or housing, and in order for the space to be rentable it must be such that someone could live or occupy it.
The "period of restoration" begins 72 hours after a loss has occurred that would apply to business income coverage. The period can also apply immediately after the time of a loss where extra expense coverage applies. The cause of loss for both must be flood at the described location. The period ends on the earlier of the date when property should be repaired, rebuilt or replaced with reasonable speed and similar quality or when business is resumed at a new location. An insured may decide to relocate operations and relocating may be faster than it would have been to repair the existing property. Not included in the period of restoration is increased period of repair or rebuilding due to the enforcement of ordinances or law regulating the construction, use or repair of the property, or requires testing, monitoring or otherwise dealing with pollutants. The period of restoration may extend beyond the expiration of the policy period. If the policy terminates May 1 but the property is not repaired completely, repairs will continue. The loss occurred when the property was in force, so the repairs must be completed, regardless of when the policy expires.
"Pollutants" are defined as usual. Any solid, liquid gaseous or thermal irritant or contaminant including smoke, acids, alkalis and other such products. It is the standard pollutant definition.
"Rental Value" is business income that consists of net income that would have been earned from tenant occupancy of the premises described in the declarations as furnished and equipped by the insured, including fair rental value of any portion of the premises occupied by the insured. Net income is net profit or loss before taxes. Rental value also includes continuing normal operating expenses in connection with the premises including payroll and the amount of charges that are the legal obligations of the tenant but would otherwise be obligations of the insured. Utilities, for example, are obligations of the tenant when there is one, but when there is no tenant occupying the space, payment of utilities falls to the insured.
"Stock" is merchandise held in storage or for sale, and raw materials and in-process or finished goods, including supplies used for packing or shipping. This is not "finished stock" which is property manufactured by the insured; this is products that are in the process of being made or is in storage before being made available for sale.
"Suspension" is the slowdown or cessation of the business activities or the part of the premises that is untenantable if business income includes rental value. The insured may not be able to manufacture cat toys due to the loss; this is a suspension of business.