Business income, rental income, and limited extra expense coverage are integrated into the BOP as Coverage C. Nearly a whole page of the form is used to describe these coverages, which apply when a dollar limit for Coverage C is shown in the Declarations. If instead of a dollar limit the declarations show "included," or if the limit of liability is simply left blank, then coverage applies with no maximum dollar limit but subject to a time limit as described later. Business income coverage can be deleted by entering "BU 50 10″ in the Declarations; removing the business income coverage does not eliminate rental income or extra expense coverage. "Not applicable," or some similar entry, where a dollar limit might otherwise be shown, indicates that no business income, rental income, or extra expense coverage applies.

 Several conditions must exist for a business income loss to be covered. First, the named insured must suffer a business income/rental income/extra expense loss as the result of a direct covered loss. "Direct covered loss" is defined elsewhere in the policy as "fortuitous direct physical loss [by a covered cause of loss] which occurs at described premises occupied by you…which directly results in the subject covered Loss of Income." In short, the named insured must suffer a business income/rental income/extra expense loss as the result of fortuitous direct physical damage to, destruction of, or theft of property by a covered cause of loss. The loss must occur "at" the premises described in the declarations, and the named insured must occupy or rent out those premises, but the damaged, destroyed, or stolen property need not belong to the named insured. For example, the insured's store might need to suspend operations because the insured's electricity has been shut off due to a fire in an adjacent unit of a multiple-occupancy building where the insured is a tenant.

 Second, the direct covered loss must result in a "necessary" interruption of the named insured's business/operations described in the declarations or the untenantability of the premises. Disputes could conceivably arise, in some cases, as to whether an interruption was necessary.

 Subject to a fourteen-day limit, business income/extra expense coverage can also be triggered by an order of a civil authority that prohibits access to the premises described in the declarations because of damage to another party's property at other local premises by a covered cause of loss. For example, a tenant's store might not be damaged by a fire in another part of the shopping mall, but authorities might bar access to the entire mall until an investigation is complete and some of the damage has been cleared.

 The purpose of business income insurance is to do for the insured during a period of business interruption what the business would have done had no loss occurred. Loss of business earnings, the prime source of money for continuing operating expenses as well as profit (if any) is the subject of this coverage. The form covers loss of net income plus continuing normal operating expenses that a business would have earned or incurred if no direct damage loss occurred, as well as extraordinary expenses that permit the insured to continue operations.

 A landlord's income is derived from tenants' rents, and a landlord's business income loss involves a covered loss of rental income. Adjustment of rental income claims will depend upon proof of what is a reasonably anticipated rental income. It is not necessary that premises actually be rented at the time of the loss. Damage to property that is customarily held for rental to others but is temporarily vacant at the time of the loss can also result in a loss of rental income. For example, if the damaged apartment had gone unrented during the entire year prior to the loss, and the insured had no real prospects for its rental, it is not reasonable to anticipate rental income. If, however, the apartment had been rented consistently prior to the loss, and had only recently been vacated, or if the insured has verifiable prospects for a speedy re-rental, then it is appropriate to anticipate rental income.

 The rental income coverage also applies to continuing expenses that are normally paid by the tenant but become the landlord's responsibility because of the direct covered loss. For example, a tenant might normally pay the costs of lighting and heating a building. However, if the building cannot be occupied, the landlord must pay these expenses until the premises are repaired and re-rented.

 Continuing expenses are not covered if they do not actually continue or need to continue. For example, trash collection services might be discontinued while the business is not operating and is not producing any trash.

 The form provides coverage for extra expenses to the extent they exceed the named insured's normal operating expenses but only "to the extent such are necessary to continue your business/operations." Examples of extra expenses to continue business at a temporary or replacement location include costs to set up, rent, and move to the new location and the costs to obtain temporary equipment. If operations cannot be continued, the insured may incur extra expenses to shorten the interruption period or otherwise to reduce the loss, but these presumably are not covered.

 B. Coverage Period

 Analysis

 Curiously, MSO's BOP does not stipulate that a business income loss must begin during the policy period. However, it does indicate that the period of indemnity, known in this form as the "coverage period," may extend as long as 365 days after the onset of the covered loss. If a loss occurs just before the policy expires, the coverage period could extend for nearly a year after the policy expires.

 The coverage period begins on the date property is damaged by a covered peril—this form has no time deductible or waiting period—and ends on the earlier of two dates. First, the period ends with the time required to restore normal operations. Second, even if operations are not restored, the coverage period ends with the period required to restore the property so it is again ready for operations.

 Both provisions refer to the period required. This would presumably apply to the period actually required; it does not say the time that "should be required" or add a phrase like "with due diligence and dispatch."

 The BOP also provides for a thirty-day extended period of indemnity. For example, a retailer that endured a long closure for repairs may not see its customers return right away. The basic coverage, as shown in the form, covers continuing income loss for up to thirty consecutive days after the coverage period ends. However, this does not extend the fourteen-day time period that applies to civil authority losses. If the named insured is a tenant who has no control over its repair or restoration, coverage is extended for up to ninety days.

 C. Coverage Limitations

 Analysis

 The insurer will not pay for any rental income or extra expense loss that happens when a contract is canceled, lapsed, or suspended because of a covered interruption. However, business income losses that result from a lost or suspended contract are covered. The burden of proof is on the insured to demonstrate that the loss would not otherwise have been incurred.

 If loss to computer systems, media, or software causes a business interruption, coverage applies for a maximum of thirty days.

 Interference at the insured premises by strikers or others is specifically excluded. This exclusion does not apply to interference at other premises, such as a strike at the plant that supplies essential materials used to reconstruct the building or replenish the named insured's stock.

 The declarations can be used to exclude business income/rental income/extra expense coverage, to indicate a maximum limit for this coverage, or even to provide coverage with no dollar limit. Limitless business income coverage has long been a BOP characteristic that is justified by considering the nature of the businesses eligible for a BOP, the time limits that constrain the coverage period, and the assumption that the BOP's simplified rate structure generates a premium that adequately reflects the exposures.

 The supplemental coverages for loss of income from dependent property and loss of income from interruption of computer operations, discussed later in this analysis, provide limited amounts of additional business income coverage.

 Coverage D – Money and Securities – Expanded Coverage Extension

 Most property forms severely limit or exclude coverage on money and securities, and MSO's BOP is no exception. Elsewhere in the policy, money and securities are specifically listed among the types of property that are not covered except to the extent the policy otherwise specifically provides for coverage. Coverage D, the fourth and final main property coverage, specifically provides coverage for the named insured's money and securities under three conditions. First, the money and securities must be used in the named insured's business/operations. A personal coin collection kept in the office safe would not be covered. Second, a limit for this coverage must be shown in the declarations. Third, coverage applies only when personal property is covered on an open perils basis. If the policy does not cover business personal property, coverage D applies when "BU 50 01″ is listed in the declarations.

 Money and securities are broadly defined in the policy's glossary. Money includes more than cash. Since coverage D applies equally to both types of property, it is not important to determine whether a given instrument fits into the money or the securities category.

 As defined, "money" means "bank notes, bearer bonds, bullion, coins, currency, lottery tickets, money orders, prepaid phone cards, registered checks, stored value cards, and travelers checks held for sale to the public." "Securities" means "negotiable and non-negotiable contracts or instruments that represent obligations to pay money or pay other property and that are collectible at the time of loss: examples of such include—but are not limited to–accounts, bills, deeds, evidence of debt, notes; revenue and other stamps, tickets (not money), or tokens now in use."

 Coverage D applies to loss of the named insured's money and securities by any nonexcluded cause—including but not limited to theft—both on and away from the premises. Off-premises coverage applies only when the money or securities are in the custody of the named insured, his partners or an authorized officer, or an employee. Coverage would not apply to money and securities that have been entrusted to a messenger or to an armored car service.

 Finally, coverage D is subject to a minimum $200 deductible; a higher deductible may be shown in the declarations or elsewhere in the policy.

 Part I B – Supplemental Coverages

 These coverages do not extend or modify any provisions of this policy except to the extent specifically described in the following Items 1 through 21. The limits shown for the following Supplemental Coverages are additional amounts of insurance unless otherwise indicated.

 Analysis

 The twenty-one supplemental coverages printed in this form extend the four main coverages and add additional amounts of insurance as described under each supplement, but they do not otherwise modify the policy. As compared with other policies, this might seem like a large number of additional coverages or coverage extensions. However, many of the supplemental coverages in MSO's BOP appear in other policies as exceptions to exclusions.

 1.Accounts Receivable Coverage

 Analysis

 Accounts receivable coverage addresses situations in which the named insured cannot collect accounts receivable or credit card billings because of a covered loss to the accounts receivable records. The insurer will replace money that is uncollectible, reimburse the insured's increased collection expenses, and cover expenses necessary to restore or replace the missing or damaged records. Accounts receivable coverage applies when the insured's business personal property is covered. A landlord who has only building coverage would not be covered for a loss of his rent-receipt records.

 Loss must be caused by a covered peril that applies to Coverage B. Coverage does not apply to loss caused by accounting, billing, or bookkeeping mistakes or where proof of the loss depends on an audit or inventory computation. Most other limitations and exclusions do not apply to this coverage. However, the intentional loss and wear and tear exclusions do apply.

 A $10,000 limit is preprinted in the declarations supplement, but this limit may be changed by entering a different number. This is an additional amount of insurance, not a coverage B sublimit. No deductible applies to this coverage.

 2.Automatic Increase in Policy Limits

 Analysis

 MSO does not use the inflation guard label, but inflation guard coverage applies if a factor is shown in the declarations for coverage A and/or coverage B. The declarations show a default factor of 2 percent that applies if no other factor is shown in the declarations. A 2 percent factor for coverage A would increase the building limit by 2 percent per year. Since this increase is prorated across the policy year, the applicable building limit has automatically increased to 1 percent more than the dollar limit shown in the declarations after six months.

 Automatic peak season coverage has always been a characteristic of businessowners policies. Rather than require specific dates, the MSO BOP simply increases coverage on business personal property "during those periods of time during the year when it is your normal practice to increase the amount of business personal property at the described premises because of customary seasonal or holiday sales.'

 The BOP has no coinsurance clause. However the peak season coverage helps to encourage insurance to value. Coverage B limits automatically increase by 30 percent if the coverage B limit is 100 percent of the monthly average values for the twelve months preceding the date of the loss. The form does not say "100 percent or more," or "at least 100 percent," but it seems reasonable to assume that nobody would be penalized for exceeding this standard.

 Note that this requirement is based the year preceding the date of the loss, not the year preceding policy inception. A limit based on values during the previous policy year might not meet this criterion if the business grows during the policy term, or even if business shrinks and its inventory of unsold goods increases. If coverage B limits do not meet this 100 percent requirement, the coverage B limit is increased by only 10 percent during the peak season, compounding the possibility of an underinsured loss.

 Inflation guard and peak season increases apply only to coverages A and B, respectively, not \to any of the supplemental coverages.

 3.Building Code/Law Coverage

 Analysis

 This supplemental coverage applies when an ordinance or law regulating the construction or repair of buildings results in increased costs in order for the insured to comply with such ordinance or law. Codes requiring pollutant cleanup are not included. The insurer is not obligated to make any payments under this coverage unless or until the property is repaired as soon as possible.

 The amount that the insurer will pay under this supplemental coverage is limited to 10 percent of the building limit unless a different factor is entered in the declarations supplement. This amount is considered additional insurance, that is, not part of the limit of insurance set in the declarations page for covered buildings.

 There are two restrictions as to when the insurer will not pay for demolition and the increased cost of construction. Generally, the property must be repaired or rebuilt at the same premises, but the policy may permit or even require it to be rebuilt elsewhere. A loss settlement provision, analyzed later in more detail, permits the insurer to waive this "same location" requirement if building laws prohibit replacement at the described premises "or for other reasons acceptable to us." In other words, the "same location" requirement is negotiable.

 The second restriction is that repair or replacement must be made within the time frame required for replacement cost coverage to apply. This reinforces the fact that this supplemental coverage applies only to buildings insured on a replacement cost basis. Replacement cost coverage applies only when the property is actually repaired, replaced, or restored. An insured has the option of settling on an actual cash value basis and then 180 days to submit a claim for the difference between the actual cash value and the replacement cost of repairs that have actually been completed.

 4. Building Glass Coverage – Limited Coverage

 Analysis

 The main effect of this supplement is to limit vandalism coverage on building glass under coverage A and to provide limited building glass coverage under coverage B for a tenant who has no building coverage but is responsible for loss to building glass such as a store front window.

 Depending on the circumstances, glass breakage can be treated as a peril or as the result of another peril. Sometimes glass spontaneously breaks. Often, however, glass damage is the result of another peril such as vandalism or windstorm. The glass extension applies only when the glass in question is part of a building. Most glass display cases, for example, do not qualify as part of the building.

 The basic limits printed in the supplemental declarations are $1,000, with a sublimit of $100 per item. Other limits may be entered. Vandalism is subject to these limits. Otherwise, these limits do not apply for loss caused by any of the specified causes of loss; instead, the coverage A (or, for a tenant, coverage B) limit applies. As defined in Part I C, the "specified causes of loss" include fire; aircraft; explosion; falling objects; lightning; riot or civil commotion; sinkhole collapse; smoke; sprinkler leakage; vandalism; vehicles; volcanic eruption; water damage; weight of ice, sleet, or snow; and windstorm/hail.

 5.Business Property Coverages

 Analysis

 This Supplemental Coverage includes four separate coverage extensions, three of which expand the scope of covered property but do not add additional amounts of insurance.

 A landlord who purchases a BOP might insure the building but see no need for business personal property coverage. However, the landlord may still have some exposures. In ISO's building and personal property coverage form, the building definition includes personal property used to maintain or service the building. MSO accomplishes essentially the same thing with a Coverage A Extension that lists a nonexhaustive list of examples of property that is included under Coverage A, unless the building owner has also purchased Coverage B: air conditioners; cooking, dishwashing, laundering, refrigeration, and ventilating appliances; fire extinguishers; floor coverings; maintenance equipment, and outdoor furniture. Vehicles such as lawn care and snow removal equipment are not mentioned here because they are the subject of a separate supplemental coverage. A landlord's property in furnished apartments is also covered under Coverage A when there is no Coverage B.

 Debates can develop over what property is used "primarily to maintain or service covered buildings." The verb "to service" is virtually synonymous with "maintain," since its definition is "to repair or maintain." Thus, a literal interpretation of the provision eliminates all of the listed items—fire extinguishers, outdoor furniture, floor coverings, appliances—since none are among items generally used to repair or maintain a building or premises.

 The second business property supplemental coverage provides limited coverage for spoilage of covered business personal property, such as food in a freezer, when it is caused by certain perils. This supplemental coverage can be deleted by entering "BU 50 12″ in the Declarations. This supplemental coverage applies to spoilage that results from a disruption of power, cooling, heating, or refrigeration service that results from a loss of utility services or a mechanical breakdown.

 Spoilage resulting from an electrical outage or other loss of utility services is covered under this extension only when the loss results from damage by a covered peril to the utility's property (not the named insured's property). The basic limit in the Supplemental Declarations is $1,000; this can be changed by adding another entry. The dollar limits that apply to this coverage extension do not apply to spoilage resulting from damage by a covered peril to covered equipment on the described premises. So, if food in the insured's freezer spoils because of lightning damage to the utility company's power lines, coverage is limited to $1,000. If the food spoils because lightning damages the insured's fuse box, the full Coverage B limit applies. Unless another limit is shown, spoilage resulting from a mechanical breakdown is limited to $500, provided the cause of loss was not within the insured's control.

 The third business property supplemental coverage, which deals with personal property away from the described premises, begins by clarifying that on-premises status applies to property within 100 feet of the described premises. Separate limits apply to building property—including personal property such as landlord's furniture to which coverage A applies and business personal property under Coverage B. The basic limits shown in the declarations supplement ($5,000 for Coverage A and $10,000 for Coverage B) may be modified. In addition to the perils for which on-premises property is covered, property in transit is also covered against certain perils of transportation. This supplemental coverage makes no mention of a territorial limitation. However, the coverage territory common condition limits property coverage to damage or loss within the United States, including its possessions and territories, and Canada.

 Under the fourth coverage extension, unless a different limit is indicated in the Supplemental Declarations, $3,000 per occurrence is available for loss or damage to personal effects (i.e., items usually worn or carried on the person) owned by the insured, the insured's directors, officers, partners, employees, or volunteer workers. This coverage applies only if other insurance fails to cover the loss.

 6.Collapse Coverage

 Analysis

 Collapse is covered—not as a cause of loss—but as a supplemental coverage. Unlike most other supplemental coverages, this is not an additional amount of insurance, and there is no sublimit in the declarations supplement.

 The form's common glossary makes it clear that coverage applies only to collapses that are abrupt in nature. A building or any part of it that is in danger of collapsing does not qualify as a collapse for purposes of this supplemental coverage.

 Even when open perils coverage (Expanded Coverage) is otherwise provided, the collapse coverage applies on a specified perils basis. The covered causes of loss (the same perils that apply to personal property under the Basic Plus Coverage) are hostile fire; aircraft; explosion; falling objects; glass breakage; lightning; riot or civil commotion; sinkhole collapse; smoke; sprinkler leakage; vandalism; vehicle; volcanic eruption; weight of ice, sleet, or snow; and windstorm/hail. In addition, collapse coverage applies to losses that result from hidden decay or insect damage that an insured did not know of before the collapse; weight of contents, equipment, animals, or people; weight of rain on a roof; or the use of defective construction materials or methods.

 Coverage is not limited to the collapse of buildings or structures subject to Coverage A. However, the property damaged in the collapse must be covered under the policy, and the damage must be caused by the collapse of some building or the structural part of a building.

 The distinction between buildings and structures must be considered in analyzing this coverage. Both buildings and structures can be insured under coverage A; in fact, coverage A states that "buildings include related structures such as garages, storage and similar outdoor structures." However, the collapse supplemental coverage states that various specific types of nonbuilding structures listed in the supplemental coverage are not covered unless their loss directly results from the collapse of a building or a structural part of a building. Specifically excluded—unless resulting from the collapse of a building—is the collapse of antennas; awnings; beach or diving platforms; decks; docks, piers or wharves; downspouts or gutters; fences; outdoor swimming pools; paved surfaces; roads; retaining walls; and yard fixtures.

 Credit Card/Forgery/Counterfeit Money Coverage

 Analysis

 Subject to a basic (but modifiable) limit of $2,500, this supplemental coverage provides some protection against the unauthorized use of the named insured's credit cards, alteration or forgery of negotiable instruments, and counterfeit money accepted by the named insured. Although this is a property coverage, the insurer may choose to defend the insured against a suit concerning its obligations resulting from a credit card or forgery loss.

 An employee-dishonesty-type exclusion precludes coverage for losses caused by the company's employees, officers, or other representatives or by people entrusted with credit, debit, or ATM cards registered in the named insured's name. Unless otherwise indicated in the declarations supplement, this supplementary coverage is subject to a $100 deductible. This supplemental coverage stands on its own; it is not linked to coverage A or coverage B or to the perils that apply to those coverages.

 8.Debris Removal Coverage

 Analysis

 Because this coverage applies to the removal of "debris of a covered loss," it applies to the damage or destruction of covered property by a covered peril. However, coverage is not limited to debris of covered property. It would, therefore, include removing the debris of an airplane that has crashed into a covered building.

 The insurer agrees to apply up to 25 percent (the amount preprinted in the Supplementary Declarations) or another specified percentage of the limit on covered property toward debris removal expenses. This is not additional insurance. However, the insurer will also pay an additional amount of insurance, up to $10,000 (or other specified amount), if the debris removal expense exceeds this amount, or if the value of the direct property damage plus the cost of debris removal exceeds 125 percent (or other percentage) of the limit applicable to the covered property. The costs of removing downed trees, pollutants, or volcanic ash are not covered.

 Debris removal expenses must be reported to the insurer within 180 days of the covered loss.

 9.Electronic Data Coverage

 Analysis

 The policy promises to replace or restore data that has been damaged or corrupted by damage to covered property by a covered cause of loss. Damage done to data by a hacker or a computer virus is covered, as long as the virus was not introduced to the system by an employee or any entity hired by the insured to work on the computer system.

 The limit for this coverage is an annual aggregate of $10,000 that may be modified in the Declarations Supplement. If a loss begins in one policy period and extends into another, only the first policy period's limit applies.

 The loss of income from interruption of computer operations supplemental coverage, discussed later, provides limited coverage for business income and extra expense that results from the same incidents.

 10. Emergency Removal Coverage

 Analysis

 The policy covers loss by any direct physical cause to property that has been moved from the insured location because it was in imminent danger of loss or damage by a covered peril. This coverage applies for thirty days. The Supplemental Declarations do not impose a dollar limit or provide for a modification of the thirty-day coverage period.

 11. Employee Dishonesty Coverage

 Analysis

 This supplementary coverage covers loss or damage to business personal property, including money and securities, that results from dishonest or fraudulent acts of employees. The dishonesty or fraud does not necessarily involve theft. A $200 deductible normally applies.

 Employers need to be aware that employee dishonesty coverage terminates automatically with respect to any employee whose dishonesty or fraud is discovered, whether or not a claim is made. Often employers let some small infraction go with a slap on the wrist and then find themselves with no dishonesty coverage when the dishonesty employee commits a larger infraction.

 12. Fire Expense Coverages

 Analysis

 The insured's contractual obligations to pay service charges assessed by a fire department are paid up to $2,500, but coverage does not apply to false alarms. The cost to recharge used fire extinguishers is covered up to $5,000. These limits are preprinted in the Supplemental Declarations, and higher limits may be purchased. No deductible applies.

 13. Loss of Income from Dependent Property Coverage

 Analysis

 This supplemental coverage deals with loss of business income due to the necessary suspension of the insured's operations as a result of loss to a dependent property. Dependent property is property not owned, operated, or controlled by the insured on which the insured depends in some way for continuation of the insured's normal business operation. Coverage is provided during the period of time it should take the dependent property to effect repairs or restoration with reasonable speed and for the same purpose. The insured is expected to reduce the loss by using alternative sources or outlets whenever possible.

 Dependent properties are locations that the insured relies on to (1) deliver materials or services to the insured or to others for the insured's account (a contributing location); (2) accept the insured's products or services (a recipient location); (3) manufacture products for delivery to customers of the insured under contract of sale (a manufacturing location); or (4) attract customers to the insured's business (a leader location). The definition of "dependent property" clearly states that services provided by a contributing location do not include utility services such as water, communications, or power supply. Communications services include services providing Internet or electronic network access.

 For purposes of this coverage extension, the covered causes of loss are the ones that would apply if the dependent property was a building or personal property that this policy covers. Coverage is subject to a limit ($5,000, subject to modification) in the Declarations Supplement. There is no requirement that the dependent property be scheduled. However, the supplement may show different limits at the insured's different locations when the locations have different dependent property exposures. For example, one of an insured's three stores might be located in a shopping mall that depends on a major retailer (a leader location) for most of its traffic, while the other stores are at freestanding locations.

 14. Loss of Income from Interruption of Computer Operations

 Analysis

 This supplemental coverage applies when business income is lost because operations must be suspended due to corruption or destruction of electronic data that makes it necessary to suspend computer operations. Coverage would apply, for example, if a hacker immobilizes a company's online ordering system.

 This coverage applies when data has been damaged or corrupted because covered property was damaged by a covered cause of loss. As defined in Part I C, the "specified causes of loss" include fire; aircraft; explosion; falling objects; lightning; riot or civil commotion; sinkhole collapse; smoke; sprinkler leakage; vandalism; vehicles; volcanic eruption; water damage; weight of ice, sleet, or snow; and windstorm/hail. Damage done to data by a hacker or a computer virus is also covered, as long as the virus was not introduced to the system by an employee or any entity hired by the insured to work on the computer system.

 The limit for this coverage is an annual aggregate of $10,000 that may be modified in the Declarations Supplement. If a loss begins in one policy period and extends into another, only the first policy period's limit applies.

 The electronic data coverage supplemental coverage, discussed earlier, provides limited coverage for the loss of data that results from the same incidents.

 15. Newly Acquired Property Coverages

 Analysis

 This supplemental coverage form includes newly acquired property coverage applicable to Coverage A (building), Coverage B (business personal property), and Coverage C (loss of income). Except as noted, coverage is automatically provided for up to forty-five days from the date acquisition or construction begins, but it does not extend past the end of the policy term. An additional premium for the values reported is charged from the date the location is acquired.

 Newly acquired buildings are covered for 25 percent of the Coverage A limit, and business personal property at acquired locations is insured for 25 percent of the Coverage B limit. If the BOP lists more than one location, then this percentage is applied to the location with the highest limit.

 As mentioned earlier, Coverage C can be deleted or written with either no limit or a specific dollar limit with respect to any listed location. With respect to newly acquired (and therefore unlisted) locations, the form says, "You may apply an amount equal to that applicable to Coverage A/Coverage B at the subject location." This sentence is intended to establish a limit on the exposure. The limit would be the greater of either the Coverage A or Coverage B limit at the subject location as determined in the preceding paragraphs.

 16.Outdoor (Exterior) Signs and Satellite Dish Coverage

 Analysis

 Whether they are attached to a building, outdoor signs and satellite dishes are covered subject to limits in the declarations supplement. The basic limit of $2,500 can be modified. This is an additional amount of insurance. Because it is not linked to Coverage A or Coverage B, this supplemental coverage would apply equally well to a landlord who insures only the building or to a tenant who insures only the contents. Also, the vandalism of signs exclusion that applies to personal property covered on a named perils (Basic Plus) basis does not apply to this coverage extension. Outdoor signs and satellite dishes are covered on an open perils-basis subject only to the intentional loss exclusion and the wear-and-tear exclusions. A $100 per-occurrence deductible is shown in the Supplement.

 "Arcade sign" is a term that appears in various municipalities' sign ordinances. An "arcade" is an arched covered passageway or avenue (as between shops) (Merriam-Webster's Collegiate Dictionary). As defined in one such ordinance, (the San Jose Municipal Code), an arcade sign is "a sign that is: (A) suspended from the ceiling of a covered pedestrian walkway, which covered walkway must be of at least six (6) feet in width and, attached to the building, and (B) oriented perpendicular to the building face to which the covered walkway is attached." In general, an arcade sign is a sign that is not inside the named insured's building or flush against the building, but it is not exactly outdoors either because it is under a roof of some sort. In this supplemental coverage, interior arcade signs have the same coverage as outdoor signs.

 17. Pollution Clean Up Cost Coverage

 Analysis

 An additional coverage—with a separate annual aggregate limit of $10,000 unless the Declarations Supplement shows a different limit—applies to extract pollutants from land or water on the described premises if the "discharge, dispersal, emission, escape, migration, release or seepage" of pollutants (other than nuclear or radioactive materials) resulted from a covered loss. Covered expenses must be reported to the insurer within 180 days of the date on which the covered loss occurs. The Declarations may show a specific deductible for this coverage.

 18.Trees, Shrubs, and Plants Coverage

 Analysis

 The building coverage applies if any covered peril other than hail, ice, sleet, snow, or wind causes damage to lawns and decorative trees, shrubs, and plants. Christmas trees held for sale, or nursery stock, would not qualify as decorative trees. The excluded weather-related perils are the ones to which these types of property are especially susceptible.

 Up to $2,000 applies to a loss, including debris removal expense (no other debris removal coverage is available for trees). As regards trees, shrubs, and plants, payment is restricted to $500 per item. Different limits may be entered in the Supplemental Declarations.

 19. Valuable Papers and Records Coverage

 Analysis

 Valuable papers coverage applies when business personal property is covered. The $10,000 limit that applies to expenses incurred in replacing or restoring the information that was in the papers, records, or electronic files is preprinted in the declarations supplement and may be changed. Unless otherwise indicated, no deductible applies to this coverage.

 Loss must be caused by a covered peril that applies to Coverage B. Most limitations and exclusions do not apply to this coverage, but the intentional loss and wear and tear exclusions do apply.

 20. Vehicle Coverage

 Analysis

 Motor vehicles used in business are business personal property. However, they are not covered under Coverage B because one of the form's property exclusions eliminates coverage for motorized land vehicles. This supplemental coverage restores coverage for certain types of motor vehicles under Coverage B. If Coverage B does not apply, then Coverage A applies to vehicles that are used to service the premises. This coverage extension does not apply to vehicles that are licensed, usually kept off-premises, or covered by more specific property insurance.

 Covered vehicles are subject to Coverage A or B limits; this is not additional coverage, and no sublimit applies.

 21. Water Damage/Related Damage Repair Expense Coverage

 Analysis

 As described elsewhere in the policy, coverage under the sprinkler leakage and water damage perils applies to damage to covered property resulting from the abrupt discharge of water. For example, the water might damage a hardwood floor. This supplemental coverage expands coverage to include expenses associated with repairing the leak itself, but it does not provide any additional amount of insurance.

 Coverage applies to the cost of tearing out and replacing part of the building or structure to repair damage to the system or appliance. Coverage also applies to the cost to repair or replace the particular defective or damaged part of the appliance, equipment, or system that the water escaped from. Coverage is limited to the leaking or broken joint, pipe, valve, or item; the insurer will not pay under this coverage to repair the entire appliance, equipment, or system. If the pipes in a plumbing system are badly corroded and one suddenly springs a leak, the insurer will repair the leak but will not pay to replace the entire plumbing system.

 This supplemental coverage does not apply if another party—such as a landlord or a contractor that installed defective plumbing—is legally or contractually obligated to pay for such expenses.

Part I C – Losses Insured

 Analysis

 Nearly all of Part IC describes the causes of loss that apply to coverages A, B, and C. As respects coverages A, B, and C, covered loss must be fortuitous, direct, and physical in nature. Property that is stolen is not necessarily damaged; but it is no longer usable by its owner. The form makes it clear that theft can also result in a covered loss, provided that theft is a covered peril.

 The BOP's two causes-of-loss options are detailed in the following provisions. "Basic Plus Coverage" provides open perils coverage on the building and named perils coverage on business personal property. "Expanded Coverage" provides open perils coverage on both buildings and personal property.

 1.Basic Plus Coverage

 Analysis

 Basic Plus coverage provides open perils coverage on building property (Coverage A). The "fortuitous direct physical loss" terminology nicely evades the troublesome all-risk, risk-of-loss wording used in other policies while having the same intent.

Business personal property (Coverage B) is covered for fifteen named perils. Asterisks indicate that some of them are described in more detail later in the form and discussed later in this analysis.

 As to Coverage C, several conditions must exist for a business income loss to be covered. First, the named insured must suffer a business income/rental income/extra expense loss as the result of a direct covered loss. "Direct covered loss" is defined later in Part I C as "fortuitous direct physical loss [by a covered cause of loss] which occurs at described premises occupied by you…which directly results in the subject covered Loss of Income."

 In short, the named insured must suffer a business income/rental income/extra expense loss as the result of fortuitous direct physical damage to, destruction of, or theft of property by a covered cause of loss. The loss must occur at the premises described in the declarations, and the named insured must occupy or rent out those premises. However, the damaged, destroyed, or stolen property need not belong to the named insured. Second, the direct covered loss must result in a necessary interruption of the named insured's business/operations described in the declarations or the untenantability of the premises.

 2.Expanded Coverage

 Analysis

 Expanded Coverage provides open perils building and personal property coverage. Open perils coverage is invariably intended to be at least as broad as comparable named perils coverage with respect to the specified perils that are more explicitly described. However the BOP's coverage for falling objects, sinkhole collapse, and water damage to business personal property, is no broader than that of the broad coverage option.

 For tenants who have not purchased building coverage, the BOP explicitly covers damage—other than fire, explosion, or by glass breakage caused by burglars' breaking and entering. A Supplemental Coverage in Part II (liability) provides fire and explosion legal liability coverage, and a Part I Supplemental Coverage provides limited building glass coverage.

 3.Description of Causes of Loss

 Analysis

 Only the asterisked perils are specifically defined, and some of the definitions in this form are relatively brief when compared with other policies. One reason for the brevity is that MSO uses supplemental coverages to provide explicit coverage grants that other forms address as exceptions to exclusions.

 "Fire" is not defined here, but the peril itself is listed as "Fire (hostile fire)." The courts have long interpreted the standard fire policy as covering only hostile fire, which is a fire that is out of bounds. A fire within a furnace or stove fire box is considered friendly and loss arising from it typically has not been held to be covered. For example, personal property that is burned in a trash fire would not typically be considered covered for the fire damage to it. However, when the fire escapes its normal boundaries—such as when flames jump from a campfire to a forest or buildings—it is transformed into a hostile fire, and resulting damage to covered property typically is covered.

 Although "explosion" is also not defined, the coverage for damage caused by explosion is narrowed through the explosion of steam equipment exclusion discussed later.

 In addition to physical contact with an aircraft or a vehicle, including a spacecraft or a self-propelled missile, the aircraft cause of loss applies specifically to objects falling from aircraft.

 Loss or damage caused by falling objects to personal property outdoors is not covered. Another exception to the falling objects cause of loss precludes coverage for personal property within a structure or the interior of the structure itself unless the roof or an outside wall is first damaged by a falling object. Under this exception, there would be no coverage for damage to personal property located within a manufacturing plant if, for example, a piece of steel being lifted by an indoor crane were dropped and crushed the personal property. In that instance, even though the piece of steel can be considered a falling object, the steel did not pierce a hole in the roof or an outside wall on its way down.

 The glass breakage coverage applies to property other than the glass that is damaged by broken building glass. For example, shards from a broken window might cause gashes or cuts in furniture next to the broken window.

 Acts of striking employees occupying the described premises are covered under the riot or civil commotion cause of loss, as is looting at the time and place of a riot or civil commotion.

 The form clarifies that sinkhole collapse coverage does not include those instances where the ground sinks or collapses into manmade cavities in the earth. This exposure is more appropriately the subject of mine subsidence coverage. The cost of filling sinkholes is not covered.

 Abrupt accidental damage to covered property by smoke is covered. An abrupt event is instantaneous—"not gradual, ongoing, or repeated over time." Other property policies make it a point to exclude smoke damage from agricultural smudging or industrial operations. The MSO form accomplishes the same effect in a separate exclusion discussed later.

 When applicable, sprinkler leakage coverage is for damage caused by the leakage or discharge from an automatic sprinkler system, including the collapse of the system's tank if there is one. "Automatic sprinkler system" is defined in the form's common glossary. It refers to an "automatic fire protection or extinguishing system" and includes sprinklers, nozzles, ducts, pipes, valves, fittings, tanks, pumps, and private fire protection mains. It also includes nonautomatic systems, hydrants, standpipes, and outlets supplied from an automatic system.

 Vandalism involves willful and malicious damage to or destruction of the insured property. Building damage caused by the break-in or exit of burglars is covered, but breakage of building glass and other loss caused by or resulting from theft is excluded under this peril. The supplemental coverage for building glass provides limited coverage for glass broken by vandals.

 Damage caused by direct physical contact with a vehicle is covered, but loss caused by vehicles owned by the named insured or by vehicles operated in the course of the named insured's business is excluded. Because of this exception, damage caused to a pallet of personal property on an insured's premises when a customer backs into it would be covered. However, if an employee driving a company-owned delivery van has the same accident, the Basic Plus perils would provide no coverage.

 The volcanic action peril includes damage from the above-ground effects of a volcanic eruption—airborne blast and shock waves, ash, dust, particulate matter, and lava flow. It does not include the seismic effects of a volcanic eruption, as detailed in one of the form's common exclusions.

 All volcanic eruptions occurring within a seven day period (168 hours) are considered a single occurrence. No provision is made for modifying this time period.

 Coverage under the water damage peril applies to damage to covered property resulting from the abrupt discharge of water—including steam. For example, the water might damage a hardwood floor. A supplemental coverage discussed earlier expands coverage to include expenses associated with repairing the leak itself.

 4.Specified Causes of Loss

 Analysis

 A definition clarifies which perils are included in the "specified causes of loss" that apply to some of the form's supplemental coverages. The perils are merely named in this definition, but the preceding descriptions or definitions provide any necessary elaboration.

 5.Covered Loss

 Analysis

 The preceding cause-of-loss options involved direct damage to buildings, structures, and personal property covered under coverages A and B. As described elsewhere, coverage C provides indirect loss coverage when a business income and/or extra expense loss results as the consequence of a direct covered loss.

 Part I D – Property Exclusions/Limitations

 1.Property Not Covered

 Analysis

 Some types of property or losses excluded in this section of the policy are not covered at all. Others are excluded from the policy's full coverage because one of the form's supplemental coverages provides more limited or focused coverage.

 Certain types of property that might qualify as buildings or structures or components thereof are excluded from coverage because they are not especially susceptible to damage by most of the perils that the policy covers. Creatures other than stock (e.g., pets in a pet store) are also excluded.

 Property not described in this policy is not covered, and Coverage B does not apply to business personal property that is more specifically described and insured elsewhere. However, the building coverage (Coverage A) applies as excess over other more-specific insurance. For example, an expensive piece of specialized machinery is insured with the building if permanently installed. If the insured has purchased other insurance identifying the machine and insuring it separately, then the machine is "more specifically covered" by the other contract. This form will pick up the difference, if any, between the insured's loss and the recovery under the other contract.

 Money and securities are not covered property except to the extent that Coverage D—Money and Securities Expanded Coverage Extension may apply.

 Accounts receivable; building glass, outdoor signs and satellite dishes, electronic data, and valuable papers and records are not covered under Coverages A and B, but they can be covered to a limited extent by supplemental coverages. Coverage for trees, shrubs, plants, and lawns is also limited to a supplemental coverage, and growing crops are not covered at all. The growing crops exclusion would not reach harvested crops, such as a bin full of wheat or a storeroom full of apples. Vehicles and their equipment should generally be covered under an auto, watercraft, aircraft, or inland marine policy such as a business auto policy or a contractors equipment floater. However, a supplemental coverage extends Coverage B to apply to certain types of vehicles such as fork lifts and lawn mowers.

 The exclusion for gold, silver, and other precious metals is not as absolute as it might appear. Precious metals are explicitly covered on a limited basis subject to the property restrictions analyzed next.

 2.Property Restrictions – Coverage B

 Analysis

 A second set of exclusions and limitations applies only to business personal property and other property, such as a tenant's improvements and betterments, that are covered under coverage B; it does not, for example, apply to building glass unless the insured is a tenant and the building glass coverage—limited coverage extension brings building glass under coverage B, where it is subject to a sublimit except for damage by one of the specified causes of loss other than vandalism. (Exterior building glass can also be covered under one of the BOP's optional coverages, analyzed later.) Even when personal property is covered on an open perils basis, fragile items other than lenses or bottles are not covered for breakage.

 The limitations and restrictions listed here apply only when fragile articles, furs, or jewelry are lost or damaged by some peril other than a specified cause of loss. Many of these items are especially susceptible to theft, and the major effect of this provision is to limit coverage for theft that might otherwise be covered when such personal property items are covered on an open perils basis. The specified causes of loss—for which coverage is not limited—are fire; aircraft; explosion; falling objects; lightning; riot or civil commotion; sinkhole collapse; smoke; sprinkler leakage; vandalism; vehicles; volcanic eruption; water damage; weight of ice, sleet, or snow; and windstorm/hail. Including falling objects in this list seems like a loophole that would provide coverage for many breakage claims; however, this peril applies to property damaged by a falling object, not to the fallen object itself.

 There is no limit on coverage for damage by one of the specified causes. With respect to theft and other perils, furs are covered subject to a $3,000 per occurrence limit as indicated in the declarations supplement. The word "aggregate" is not used here in its usual sense. This is a per-occurrence limit, not a per-item limit or an annual aggregate limit.

 The jewelry category includes "gold, silver, and other precious metals in bullion or other form." Bullion, a term not defined in the policy, refers to precious metals in bulk form that can be traded on commodity markets, cast into ingots, or minted into coins. Unless the loss is caused by a specified peril, a $3,000 per loss limit applies as shown the Supplemental Declarations. This limit does not apply to individual items worth less than $100.

 In short, jewelry items and precious metals worth more than $100 per item are covered subject to Coverage B limits for loss by a specified cause of loss. Coverage for loss by theft and other covered perils not on the "specified cause of loss" list is limited to $3,000 per loss occurrence.

 Part I E – Losses Not Insured

 We do not insure loss consisting of, or directly or indirectly caused by, one or more of the following, except to the extent otherwise specifically provided for in this policy. Such loss is not insured whether or not an otherwise covered cause of loss contributes concurrently or otherwise to the loss.

 Analysis

 The preamble to the property exclusions includes concurrent causation language designed to make it clear that the exclusions in this section of the policy apply even if some nonexcluded or unmentioned peril contributes in some manner to the loss. Except for the intentional loss and wear-and-tear exclusions, this set of provisions—which is sequenced in alphabetical order—does not apply to the accounts receivable, outdoor signs and satellite dish, or valuable papers supplemental coverages.

 The previous section excluded certain types of property; this section excludes certain types of loss. Also, it adds a sentence that excludes concurrent losses. The provisions here apply "to the extent otherwise specifically provided for in this policy." Taken together, these differences suggest that the exclusions in this set of provisions describe losses that are not insured at all. However, that is not necessarily the case. Some of these exclusions do not apply to certain supplemental coverages, some relate to losses that are covered in some manner by a supplemental coverage, and others provide coverage for ensuing losses.

 The building law exclusion limits ordinance or law coverage to the building code/law supplemental coverage.

 The computer hacking or computer viruses exclusion deals with defined terms whose definitions contain no surprises. What is noteworthy is that this exclusion does not apply to the supplemental electronic data coverage or to the loss of income from interruption of computer operations supplemental coverage, both of which deal with loss that results because data has been damaged or corrupted. These supplemental coverages, each of which is subject to a dollar limit (typically $10,000), applies as long as the virus was not introduced to the system by an employee or any entity hired by the insured to work on the computer system.

 Insurance practitioners commonly use the term "mysterious disappearance" to apply to property that has disappeared when theft is suspected but cannot be proven. The "disappearance of property" limitation makes it clear that disappearance is not a covered cause of loss. As is customary with property insurance policies, this one also excludes employee dishonesty. That exposure is best covered under fidelity bonds or crime insurance forms specifically designed to cover theft by employees.

 Virtually all property insurance policies cover loss by lightning, a form of naturally generated electrical current. Loss by short circuits, brownouts, or electrical or electronic malfunction is not covered unless it leads to an ensuing fire.

 Although explosion is a covered peril, this policy excludes explosions caused by steam pressure but covers combustion explosions. Ensuing fire damage is also covered.

 6.Flood/Flooding Exclusion

 Analysis

 Although the provisions in this section of the policy appear in alphabetical order, the flood/flooding exclusion is best understood when it is read together with the water damage exclusion. Taken together, these provisions are designed to preclude coverage for flooding loss caused by surface waters and for underground, subsurface water or pressure it might cause, while preserving loss for ensuing fire, explosion, or theft (when the policy covers theft). The water damage exclusion also precludes coverage for sewer backups, but this exclusion can be eliminated by listing "BU 50 02″ in the Declarations, or $5,000 of limited coverage can be provided by entering "BU 50 03″ in the Declarations Supplement. The $5,000 limit may be revised if a different dollar amount is entered.

 Freezing resulting from the insured's negligence is excluded, as are losses intentionally caused by the named insured.

 Delay of market and consequential losses are not covered unless and to the extent business income coverage and the spoilage supplemental coverage apply.

 12.Wear, Tear and Other Specified Causes of Loss Exclusions

 Analysis

 Property insurance policies generally contain a group of exclusions typically referred to as wear-and-tear or maintenance exclusions. MSO's wear-and-tear exclusion is unusual in that pollution and mold exclusions are buried within the long list that begins with wear and tear. Pollution cleanup costs are available in a supplemental coverage.

 An earth movement exclusion is separately enumerated with a cross-reference to the common exclusion for earthquake/earth movement/volcanic action.

 The smoke peril definition, which applies to abrupt losses, is supplemented by a provision that specifically precludes coverage for smog and for smoke from agricultural or industrial activities.

 13. Weather/Related Exclusion

 Analysis

 As respects business personal property, the weather-related exclusions restrict—or further define—coverage for certain perils. Loss due to temperature or humidity changes is not covered at all. Other restrictions vary depending on the applicable causes of loss option.

 With open perils (Expanded) coverage on personal property, windstorm, hail, ice, rain, sleet, and snow losses to indoor property are covered without further definition or description. When named perils (Basic Plus) coverage applies, the weather-related exclusion restricts the hail cover by making it clear that weather-related damage to interior property is limited to instances in which the building's roof or walls have first been breached. Damage caused by the weight of hail, ice, sleet, or snow to personal property outdoors is not covered at all.

 Loss to both buildings and personal property is excluded if caused by drought or other weather condition concurrent with an excluded cause of loss. For example, a heavy rain that leads to flooding is not covered.

 And We Do Not Cover Loss to the Following Property

 Analysis

 A final set of exclusions applies to losses to certain types of property. These provisions are not limited to any particular property coverage(s), so they apply not only to direct damage to buildings and personal property but also to loss of use and to the form's supplemental coverages. In general, these exclusions relate to losses that can be minimized or mitigated with the use of sound loss control.

 The policy does not cover explosions that result from steam pressure. It does, however, cover the explosion of fuel or gas used to fire a steam boiler or a hot water heater or the explosion of a hot water heater or boiler.

 Voluntary parting with or transfer of property likewise is not covered, even if theft is involved.

Part I F – Optional Coverages

 These coverages do not extend or modify any provisions in this policy except to the extent specifically described as follows. Only those options designated as applicable in the Declarations or Declarations Supplement apply to this policy.

 Analysis

 An entry in either the Declarations or the Declarations Supplement may indicate that one of these two optional coverages applies.

 The MSO BOP does not include theft coverage when personal property is covered on a named perils basis (Basic Plus Coverage). The first optional coverage, if activated, adds on-premises and off-premises burglary and robbery coverage on money, securities, and other business personal property subject to a basic $200 deductible. This is similar to Coverage D, which is available only with open perils (Expanded Coverage), but it differs in two important respects. First, this option adds burglary and robbery coverage on other personal property, as well as money and securities. With Expanded Coverage, there is no need to add theft coverage on such other property; it's already included. Second, burglary and robbery coverage, available with this option, is somewhat more restrictive than Coverage D's open perils coverage. In any case, mysterious disappearance or employee dishonesty are not covered.

 The outdoor building glass coverage option modifies the policy to provide open perils coverage on exterior glass with no dollar sublimit or deductible. It is not uncommon for glass to be covered with no deductible; a plate of glass is either broken or unbroken, and even if it is scratched the entire plate must be replaced, so there is no such thing as a partial loss.

 This optional coverage is considerably broader than the coverage available "building glass coverage—limited coverage" supplemental coverage, which does not cover vandalism (a common cause of glass breakage) and imposes a sublimit—typically $1,000 per loss/$100 per pane—on covered glass breakage that is not attributable to one of the specified causes of loss.

 When the outdoor building glass coverage option is activated, the supplemental coverage on glass is redundant and can be eliminated if the insurer is willing to do so.

Part I G – Special Part I Conditions

 Analysis

 This form imposes the usual duties on parties who have suffered a property loss. These duties are not to be taken lightly, which is why this set of provisions concludes by stating in boldface print that failure to comply with these conditions can alter or void the insurer's obligations.

 The lead-in sentence makes it clear that these duties apply not only to the named insured but also to newly acquired entities and other coverage beneficiaries.

 2.How Losses Are Settled

 Analysis

 MSO's Businessowners Manual indicates that actual cash value coverage is available as an option for either Coverage A or B, in which case the Declarations will indicate which location(s) are covered on an actual cash value basis. Unless this option has been selected, the MSO BOP covers most building and personal property losses on a replacement cost basis, provided certain conditions are met. Otherwise, the insurer may pay the loss on an actual cash value basis after considering a number of factors including, but not limited to, the property's age, condition, repair or restoration cost, deterioration, economic value, market value, obsolescence, and use.

 The insurer will not pay more than the reasonable cost of repairing, restoring, or replacing damaged property. If the insured pays more than that reasonable cost or adds an upgrade, the insurer is not obligated to pay the extra amount. On the other hand, if the insured completes repairs for a lesser amount, the insurer will not pay more than the amount that the repairs actually cost. The insurer (not the insured) is entitled to benefit from any negotiations that reduce the ultimate repair cost.

 Of course, the insurer will not pay more than the amount of insurance applicable to the damaged property, nor will the insurer pay any amount that exceeds the extent of the named insured's insurable interest in the property unless a mortgagee with an insurable interest in the property is also named in the policy.

 A deductible applies to all loss in any occurrence. However, no dollar deductible applies to a business income loss.

 Generally, the property must be repaired or rebuilt at the same premises, but the policy may permit or even require it to be rebuilt elsewhere. The policy permits the insurer to waive this "same location" requirement if building laws prohibit replacement at the described premises "or for other reasons acceptable to us." In other words, the "same location" requirement is negotiable.

 Replacement cost coverage applies only when the property is actually repaired, replaced, or restored. An insured has the option of settling on an actual cash value basis and then 180 days to submit a claim for the difference between the actual cash value and the replacement cost of repairs that have actually been completed. As discussed earlier, the same limitation applies to additional ordinance or law costs incurred under Supplemental Coverage 3. The policy is silent as to what happens if repairs take longer than 180 days. In contrast, the ISO building and personal property coverage form policy provides 180 days for the insured to notify the insurer of its intent to make a replacement cost claim once restoration is completed, but it does not limit payment to work that is completed within 180 days.

 As is commonly done in forms that cover buildings, the form also specifies that smaller losses to building property are to be settled on a replacement cost basis. In this case, the cut-off point for smaller losses is the "replacement threshold limit" stated in the Supplemental Declarations. The standard replacement threshold limit is $2,000.

 Special valuation provisions apply to some types of property, even though they may be components of the building or tangible personal property. Securities are valued at the lesser of their actual cash value at the time of the loss or their replacement cost at the time of settlement. Because the value of securities fluctuates, their market value on the date of the loss can be higher or lower than the value as of the subsequent date when the claim is settled. The insurer will benefit from any decline in the securities' market value, and the insured will not benefit from any increase in their market value.

 The valuation of tenants' improvements and betterments was discussed earlier in connection with Coverage B. A tenant's use interest exists as long as any lease is in force. If the tenant does not promptly repair damage to improvements and betterments, the insurer will discount its loss payment taking into account both the age of the improvements and betterments and the amount of time remaining on the lease. However, if the named insured promptly repairs the damage, the loss will be settled on the same basis as other covered property.

 D. Abandonment of Property

 Analysis

 The insured may not simply abandon damaged property to the insurance company.

 The described appraisal process may be used in settling disputes over the amount of any loss (but not whether coverage applies) under either the main coverages or the supplemental coverages. The appraisal condition provides that if either the insurance company or the insured submits a written demand for an appraisal after a property loss, each has thirty days to choose an appraiser and the two appraisers, in turn, have fifteen days in which to select an umpire. In the event the appraisers fail to agree on both the value of the property and the amount of loss, the issue is given to the umpire (previously selected by the two appraisers or appointed by a judge from any court having jurisdiction). When an agreement is reached by any two of these parties (among the appraisers and umpire), the decision stands. Any expenses beyond the cost of each party's appraiser are divided equally between the insurance company and the insured. It is stated within the appraisal provision that the insurance company may still deny a claim even if an appraisal has been agreed to. The statement prevents a legal argument that the insurer's participation in the appraisal process carries an implied agreement to pay that prevents subsequent denial.

 Loss to one item that is part of a pair or set of related items (for example, Volume II of a three-volume book) often disproportionately affects the value of the remaining items (for example, Volumes I and III). This form's pair or set clause makes it clear that loss of one component does not automatically create a total loss but, if the insurer agrees to pay for a total loss, the insurer is entitled to take possession of the remaining parts.

 It should go without saying, but the form makes it clear that the insured is on its own to the extent any loss is not covered by this policy. The insurer has no obligation to pursue other sources of recovery.

 H. Our Options in Settling Losses – Coverages A and B

 Analysis

 Following a covered building or personal property loss, the insurance company has four options. First—and most commonly—the insurer will simply provide money to pay the loss. Second, the insurer may repair or replace the property. For example, the insurer might arrange to have a glass contractor, with whom it has an arrangement, replace damaged glass. Third, the company may take the property and pay the insured an agreed or appraised price. The insurer promises to notify the insured within thirty days of receipt of the sworn statement of loss if it intends to pursue this option. Finally, the company may settle the claim with the named insured, any named loss payee, or any other party legally entitled to payment—such as the owner of "personal property of others."

 Claims involving a loss payee or personal property of others in the insured's custody occasionally give rise to a legal action against the insured. When this happens, the insurer has a right to conduct and control a defense, at the insurer's expense, but defense costs are within applicable limits.

 The recovery of covered property condition provides a method for loss readjustment in case damaged or stolen property is recovered after the insurer has paid a claim. The insured has the option to return the amount of any claim payment in return for the original item, in which case the insurer is to be compensated. Alternatively, the insured may keep the claims payment, but the recovered property then belongs to the insurer.

 The insurer must pay the claim within thirty days after reaching an agreement with the involved parties. The insurer has a right to decide whether the claim draft is payable to the insured, or it may be payable jointly to all interested parties. This is normally done by naming the various parties and adding "as their interests may appear." The insured may assign claims proceeds to another party, but the insurer will not pay the other party without the insured's consent. The insurer may settle a claim with a trustee who represents other interested parties.

 The policy's property limits are not aggregate limits, so payment of any claim does not reduce the amount that is still available to pay future claims.

 The mortgage clause spells out the rights and duties of any mortgagees or trustees (here referred to as mortgageholders) that are named on the declaration and comply with certain conditions. The mortgageholder is required to notify the insurance company of any known change in ownership or occupancy, as well as any foreclosure proceeding or increase of hazard. On the insurer's demand, the mortgageholder is also required to pay any required premium that the insured has not paid and to furnish a proof of loss, within sixty days, if the insured has not.

 If claim payment is made to a mortgageholder, the insurance company inherits the mortgageholder's rights of recovery against a third party who may be responsible for the loss, but the mortgageholder still retains a right to recover the full amount of the claim. At the insurance company's option, the mortgageholder may be paid the full payment of the principal and interest on the mortgage in exchange for transfer of the mortgage to the insurance company. The insured continues mortgage payments, but to the insurance company instead of the original mortgageholder.

 If payment for a claim is denied to an insured (due to the insured's actions or lack of compliance with the terms for coverage) a mortgage holder is still entitled to loss payment as long as any obligations concerning premium or proof of loss due to the company are taken care of by the mortgageholder.

 B. No Benefit to Bailee

 Analysis

 Like many other property insurance forms, the BOP will not cover a bailee's liability for property that is in the bailee's possession.

 An increase in hazard condition was a standard fixture in the 1943 Standard Fire Policy that once formed as the foundation document for commercial property insurance. However, insurers have found it difficult to enforce this condition. Today, few other policies include an increase in hazard condition per se.

 Because anything that increases the likelihood of a loss qualifies as a hazard, it is almost tautological to say that most losses involve an increase in hazard. Exclusions for failure to maintain alarms, sprinkler systems, or other protective mechanisms are common and logical, especially when the protective device has earned a rate credit. But to the extent it can be enforced, the MSO BOP's increase-in-hazard could give the insurer grounds to deny many other ——claims. As defined, an increase in hazard includes changes in the use of the premises and ——————————changes in the insurer's rates and underwriting criteria, which are not even within the insured's control!

 Vacancy and unoccupancy represent one type of increase in hazard. A vacant building does not contain the contents that are customary to its occupancy, but a building under construction is not considered vacant. Coverage is suspended completely when a building is vacant or unoccupied for more than sixty consecutive days. However, this condition does not apply to a seasonal building that is normally closed during part of a year.

 Because it completely suspends coverage, this condition is harsher than the vacancy condition in the ISO building and personal property coverage form, which eliminates coverage for certain perils and reduces the amount of recovery for loss by other perils when a building is vacant for more than sixty days.