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New Commercial Property Forms Update Eff Date 4-1-2013

New Commercial Property Forms Update

 Proposed Effective Date 4/1/13

Materials are copy written by ©Insurance Services Office, Inc., 2011

The ISO has submitted significant changes for the Commercial Property Forms that have an effective date of 10/2012. While the forms carry a 10/12 date the proposed effective date on the April 1, 20l3 is proposed by ISO in all jurisdictions where the ISO establishes dates.  This date places more importance on these significant changes as the companies begin to actually adopt the language.

This is the biggest change in forms that we have seen for many years.  The majority of the key forms are taking on some sort of change.  Some of the changes are minor but carry new edition dates of existing form numbers; forms that are being withdrawn and new forms that are being introduced. The information, upon which this article relies, is the ISO Circular dated January 3, 2012 and review of the forms within the 10/12 series.   This multi-state revision will be applicable to the following jurisdictions:

Alabama Kentucky Ohio
Alaska Maine Oklahoma
Arizona Maryland Oregon
Arkansas Massachusetts Pennsylvania
California Michigan Rhode Island
Colorado Minnesota South Carolina
Connecticut Missouri South Dakota
Delaware Montana Tennessee
District of Columbia Nebraska Texas
Florida Nevada Utah
Georgia New Hampshire Vermont
Guam New Jersey Virgin Islands
Illinois New Mexico Virginia
Indiana New York West Virginia
Iowa North Carolina Wisconsin
Kansas North Dakota Wyoming

Many of the ISO changes have already been adopted in insurance company forms while other changes represent clarification of the “intent” of the form.  We will include a listing of the forms that will be part of the 10/2012 edition date. Specifically we will highlight those changes that have any significant impact and new endorsements to the form series. This chart is a summary of the form changes and each form must be reviewed in its entirety to understand the impact of the changes. As you review the impact of the form changes you will note that there are many instances where there is no change in coverage.  What this means, typically, is that the language of the form has been modified by adding or removing a word or substituting a word that is clearer.  There is no change in the intent of the form.  Some changes result in a coverage increase typically in a sub-limit that is provided.  Some changes result in coverage being reduced for example removing am extension or sub-limit that appeared in a prior edition date.  Some changes will show coverage is broadened which typically means that form language has been added to make the coverage more comprehensive. There are some new endorsements that are being introduced that we will discuss in more detail as they are new to the form series.

COMMERCIAL PROPERTY FORMS COVERAGE FORMS AND CAUSES OF LOSS

CP 00 10 Building and Personal Property CP 00 50 Extra Expense Coverage
CP 00 17 Condominium Association Coverage CP 00 70 Mortgage holders Errors and Omissions
CP 00 18 Condominium Unity Owners CP 00 80 Tobacco Sales Warehouses Coverage
CP 00 20 Builders Risk CP 00 99 Standard Property Policy
CP 00 30 Business Income and Extra Expense CP 1010 Causes of Loss—Basic Form
CP 00 32 Business Income Without Extra Expense CP 10 20 Causes of Loss—Broad Form
CP 00 40 Legal Liability Coverage Form CP 10 30 Causes of Loss—Special Form

ENDORSEMENTS

CPDS 65 Flood Coverage Schedule CP 10 47 Suspension or Reinstatement of Coverage for Loss Caused by Breakdown of Certain Equipment
CP 03 21 Windstorm or Hail Percentage Deductible CP 10 66 Flood Coverage Endorsement
CP 03 29 Deductibles by Location CP 11 21 Builders Risk-Theft of Building Materials, Fixtures, Machinery, Equipment
CP 04 02 Increased Cost of Loss and Related Expenses for Green Upgrades CP 12 18 Loss Payable Changes
CP 04 04 Specified Business Personal Property Temporarily Away from Premises CP 14 30 Outdoor Trees , Shrubs and Plants
CP 04 05 Ordinance or Law CP 14 70 Building Glass Tenant’s Policy
C CP 04 08 Higher Limits CP 1501 Business Income From Dependent Properties Limited International Coverage
CP 04 09 Increase in Rebuilding Expenses Following Disaster (Additional Expense Coverage on Annual Aggregate Basis) CP 15 02 Extra Expense From Dependent Properties Limited International Coverage
CP 04 11 Protective Safeguards CP 15 15 Food Contamination Business Interruption and Extra Expense
CP 04 15 Debris Removal Additional Expense CP 15 08 Business Income From Dependent Properties Broad Form
CP 04 17 Utility Services Direct Damage CP 15 09 Business Income from Dependent Properties Limited Form
CP 04 18 Condominium Commercial Unit Owners Optional Coverages CP 15 10 Payroll Limitation or Exclusion
CP 04 38 Functional Building Valuation CP 15 15 Business Income Report/Worksheet
CP 04 60 Vacancy Changes CP 15 25 Business Income Changes Educational Institutions
CP 10 32 Water Exclusion Endorsement CP 15 21 Ordinance or Law Increased Period of Restoration
CP 10 33 Theft Exclusion CP 15 34 Extra Expense from Dependent Properties
CP 10 34 Exclusion of Loss Due to By Products of Production or Processing Operations (Rental Properties) CP 15 45 Utility Services Time Element
CP 10 36 Limitations on Coverage for Roof Surfacing CP 15 50 Radio or Television Antennas—Business Income or Extra Expense
CP 10 38 Discharge from Sewer, Drain or Sump (Not Flood-Related) CP l7 98 Condominium Commercial Unit Owners Changes Standard Property Policy
CP 10 40 Earthquake and Volcanic Eruption CP 17 99 Condominium Association Changes Standard Property Policy
CP 10 44 Theft of Building Materials and Supplies (Other than Builders Risk) IL 04 15 Protective Safeguards
CP 10 45 Earthquake and Volcanic Eruption Sub Limit Form  
CP 10 46 Equipment Breakdown Cause of Loss  

 

Highlights on some NEW ENDORSEMENTS:

Exclusion of Loss Due to By Products of Production or Processing Operations (Rental Properties) CP 10 34

This endorsement is as a result of the landlord/tenant business risks relating to the rental of the property.  While the landlord may enter into a lease that holds the tenant responsible for damages arising from a variety of causes, the insurance contract is not intended to compensate a landlord for the expected consequences of usage of the rental premises as intended. One example provided by the ISO in explanation would be when a premise is leased for use as a restaurant and there is damage from the residue of the cooking operation.  This is deemed a business risk innate to the occupancy not loss compensated by insurance.  This question becomes much more interesting and complex when the property is rented for illegal purposes such as the rental of premises that is used as a methamphetamine laboratory in which the damage from methamphetamine “cooking” operations can be likened to the residue from cooing operations in a restaurant.  Needless to say there are many issues at the heart of this discussion that goes beyond the coverage issue such as:  did the landlord know about the operation; should the landlord have known about the operation and so on.

A case in point that the ISO used in their circular was the Graff v. Allstate Insurance Company, 113 Wash, App.799; 54P.3d 1266 (Wash, Ct. App.2001).  In the case the insured filed a claim for cleanup expenses after a tenant’s methamphetamine laboratory damaged his rental house and the insurer denied the claim citing the policy’s contamination exclusion.  The insured sued and the trial court held in favor of the insured finding that his insurance policy covered the cleanup expenses.  The appellate court affirmed the lower court’s decision and stated that the operation of a methamphetamine laboratory is vandalism and therefore covered under the policy. Thus both the contamination and vandalism issues came into play.  The Insurance company,  (plaintiff),  contended that coverage is not intended to extend to the inevitable effect of a production operation which is emphasized in the language of the Special Form.  As a result of this case and similar claims, the ISO has introduced this endorsement to be attached to all polices issued to owners and tenants of rental property.

Equipment Breakdown Cause of Loss CP 10 46

Suspension or Reinstatement of Coverage for Loss Caused by Breakdown of Certain Equipment CP 1047

The ISO is introducing a new Cause of Loss form for Equipment Breakdown that is compatible with the Special Cause of Loss Form. Currently in the Special Cause of Loss Form there are three major categories of exclusions that relate to equipment breakdown:  artificially generated electrical current; mechanical breakdown; explosion of steam boilers…  By use of this new endorsement those exclusions are eliminated.  There are limitations specific to Equipment Breakdown coverage that is then added in the form language.   Ammonia Contamination and Hazardous Substance amounts of insurance can be scheduled on the form. Because of the introduction of the new Equipment Breakdown Form, the ISO has also introduced the Suspension or Reinstatement of Coverage for Loss Caused by Breakdown of Certain Equipment to allow the insurance companies to either suspend or reinstate coverage for certain pieces of equipment.

Increase in Rebuilding Expenses Following Disaster CP 04 09

This endorsement is introduced as a response to nationwide disasters and catastrophic events that have tested the limits of the policy as relates costs of labor; cost of materials due to demand and limited resources (demand surge). The ISO circular references Hurricanes Katrina and Rita wherein estimates per square footage of housing reconstruction quadrupled in the first six months after the events.

The new endorsement provides an option for insuring additional expenses when the costs of labor and/or building materials increase as a result of a disaster AND the total cost of repair or replacement exceeds the applicable limit of insurance.  Some significant sections of the endorsement include:

  1. Buildings to be insured are indicated on the endorsement
  2. Coverage will only apply as a result of an event that is declared a disaster as well as damage resulting from an event which occurs in close proximity to the disaster
  3. Coverage is on an annual aggregate basis
  4. The maximum amount of additional coverage is determined by applying a specified percentage to the limit of insurance for specific insurance.

Dependent Properties in the Supply Chain (Business Interruption)

Dependent Property Coverage is written by scheduling the business locations that the insured is “dependent upon” and have chosen to insure.  The new endorsement allows for secondary dependencies. An example provided by the ISO of a secondary dependency is a situation in which the insured’s supplier (a dependent property identified in the schedule of the current endorsement) is unable to deliver products/services due to interruption in the business of an entity (for example, a manufacturer) upon which the supplier depends but was NOT a supplier that the insured directly depended upon or was identified in the endorsement.

The new option for covering secondary dependencies is focused on contributing and recipient locations as defined in the form.  Business Income losses arising out of physical loss or damage at the secondary location is subject to the same Limit of Insurance that applies to the scheduled dependent location and does not increase the coverage.  The coverage territory is reiterated on the form to avoid any confusion that the coverage goes beyond the stated territory of the policy for example for locations outside of the United States.

Form Change Impact

COVERAGE FORMS

Building and Personal Property FormCP 00 10 Debris Removal:  The additional limit provided is increased from $10,000 to $25,000. When no Covered Property sustains direct physical loss there is coverage in the amount of $5,000 provided for removal of debris of others’ property. Coverage is increased and expanded in definition
Building and Personal Property FormCP 00 10 Fire Department Service Charge:  The policy clarifies that the $1000.00 limit provided applies to each premises insured. No change in coverage
Building and Personal Property FormCP 00 10 (various) Business Personal Property in Described Structures:  The coverage provided for Business Personal Property is clarified to cover both in the building orstructures covered in the policy. No change in coverage
Building and Personal Property FormCP 00 10 (various) Coverage Radius:  The language is clarified as relates “where” coverage must occur for coverage to apply.  The form extends coverage to 100 feet from the building or 100 feet from the described premises, whichever distance is greater. The revision broadens coverage with respect to a tenant in a multiple-occupancy building in such situation where the premises are described in terms of the actual area (quarters) occupied by the tenant. Note:  many company forms already include this clarification.
Building and Personal Property FormCP 00 10 (various) Property in Storage Units:  A new coverage extension is introduced on the Commercial Property Form for Business Personal Property Temporarily in Portable Storage Units.  The coverage is for 90 days with a sub-limit of $10,000.  The property must be located within 100 feet of the described premises. A higher limit can be indicated on the Declarations Page. This can be considered an extension of coverage, however, if an insurer previously treated property in storage as property in the open then then coverage is decreased to the sub-limit.
Building and Personal Property FormCP 00 10 Newly Acquired Business Personal Property: Currently the Commercial Property forms provide $100,000 additional coverage at each building covering newly acquired business personal property.  This provision has been removed.  There is no change for newly acquired business personal property located at newly acquired locations.  If the insured has “newly acquired” property at their location, the coverage should be increased accordingly to reflect that limit. Coverage is reduced
Building and Personal Property FormCP 00 10 & Cause of Loss Forms Vegetated Roofs:  This is one of the new “green” extensions in Commercial Property. Currently the property form excludes trees, shrubs, plants and lawns and then sub-limits the coverage. The property form is revised to include lawns, trees shrubs and plants which are part of a vegetated roof and thereby treating such property as an insured part of the building so that an existing vegetated roof can be replaced with like kind in the event of a loss.  There are some exclusions that are revised to relate directly to a vegetated roof. Coverage is broadened.
Building and Personal Property FormCP 00 10 & Business Income Form (various) Electronic Data in Building Equipment:  Currently ISO Commercial Property forms limit coverage for electronic data to $2,500 on an annual aggregate basis. The form is revised to remove the $2,500 limitation with respect to loss or damage to electronic data which is integrated in and operates or controls the building’s elevator, lightning, heating, and ventilation, air conditioning or security systems.    Coverage is broadened
Building and Personal Property FormCP 00 10; Business Income Form  CP 00 30/00 32; Cause of Loss Forms(various) Ordinance or Law Exclusion:  The form is revised to include the word “compliance”.  The new form states the “enforcement of or compliance with any ordinance or law.  This is a clarification of language No change in coverage
Building and Personal Property FormCP 00 10; Business Income Form  CP 00 30/00 32; Cause of Loss Forms(various) Options for Increasing Specified Limits:  The coverage forms currently include the ability to increase coverage via an entry on the Declarations Page for certain categories of coverage.  This change allows for increased coverage via Declarations for the additional coverages of Electronic Data;  Newly Acquired Locations; Interruption of Computer Operations and Limitations for Theft. These changes are new coverage options
Business Income FormCP 00 30 and CP 00 32 Extended Business Income, Extended Period of Indemnity:  The Business Income forms provide automatic coverage for 30 days’ following the end of the period of restoration for residual loss of income. The form revises the 30 days to 60 days. Coverage is increased.  Note: Many insurance company forms automatically include more than 30 days.
Cause of LossCP10 10, CP10 20,CP 10 30 Earth Movement Exclusion:  The term “earthquake” now incorporates tremors and aftershocks. Language is added to the Earth Movement exclusion to reinforce that earth movement is excluded regardless of whether it is caused by an act of nature or is otherwise caused. No change in coverage
Cause of LossCP10 10, CP10 20,CP 10 30 Water Exclusion:  The Water Exclusion CP 1032 and is now incorporated in the base policy forms No change in coverage
Cause of LossCP 10 30 Entrusted Property:  The revision is included to distinguish between those who have a role in the insured’s business such as partners/employees and others to whom property may be entrusted such as bailees or tenants. Specifically there is an exclusion for loss or damage caused by…dishonest or criminal acts by…anyone to whom the insured entrusts the property. Coverage is broadened
Cause of LossCP 10 30 Wear and Tear Exclusion—Special Form:  The coverage is expanded to include coverage for water damage in the “specified causes of loss” to include accidental discharge or leakage of water or waterborne material as the direct result of the breaking apart or cracking of certain off-premises systems due to wear and tear. Coverage is broadened
Cause of LossCP 10 30 Covered Cause of Loss:  The term “risk of” is deleted.  This change has been done specifically to clarify the collapse exclusion but has a broader impact. This is modified for clarity purposes No change in coverage
Form Change Impact

ENDORSEMENTS

Business Income Report/Work Sheet:CP 15 15 The worksheet has been modified to 60 days rather than 30 days for the Extended Period of Indemnity as modified in the Business Income Form No change in coverage
Debris Removal and Outdoor Trees, Shrubs and PlantsCP 04 15 and CP 14 30 Debris Removal:The $10,000 additional limit for debris removal is increased to $25,000. Note: Many company forms automatically include this limit automatically.

Outdoor Trees, Shrubs and Plants:

This specifies that debris removal is included in the limit provided for this coverage

Coverage is broadened
Radio or Television Antennas—Business Income or Extra ExpenseCP 15 50 The endorsement removes a “reference” to the Cause of Loss Earthquake.  If the Earthquake Form were attached to the policy it’s terms and conditions are therein specified No change in coverage
Utility Services—Overhead Transmission LinesCP 04 17 (Direct) and CP 15 45 (Time Element) The endorsement clarifies that the term “transmission lines” also includes “distribution lines” which is the vernacular in the power industry for a system that provides electricity to residential and commercial users by reducing voltage through the use of substations, transformers and other devices.  The forms now reinforce the intent to cover both transmission and distribution systems which serve in the transmission of power or communication service. No change in coverage
Ordinance or LawCP 04 05; CP 04 38; CP 15 01; CP 15 02; CP 15 08; CP 15 09; CP15 25; CP 15 31; CP 15 34 Ordinance or Law:  The endorsement form is revised in the same manner as theexclusion in the Coverage Forms to include the word “compliance”.  The new form states the “enforcement of or compliance with any ordinance or law. This is a clarification of language No change in coverage
Condominium Commercial Unit-Owners Changes—Standard Property PolicyCP 17 98 The endorsement modifies three sections of the Condominium Unit Owners Policy: Coverage Radius; Business Personal Property in Described Structures; and Newly Acquired Property.

  1. Coverage Radius is modified to state 100 feet from the building or described premises whichever is greater
  2. Clarifying that coverage applies both in a building or structure

 

No change in coverage
Building Glass Tenants Policy EndorsementCP 14 70 This endorsement was first introduced in 2007 to facilitate writing coverage for building glass under a tenant’s policy that did not cover the building. This endorsement simply allows for the deductible for this coverage to be added on the endorsement rather than on the Declarations Page No change in coverage
Theft Exclusion EndorsementCP 10 33 The Theft Exclusion Endorsement currently does not contain a schedule.  The new edition date will display a schedule of locations so that there is clarity as to which location the exclusion applies No change in coverage
Flood Coverage Endorsement and ScheduleCP 10 65; CP DS 65 Currently the Flood Endorsement states there is no coverage for loss from any Flood that begins before or within 72 hours after the inception date of the endorsement.  The prior form did not make any distinction concerning renewal policies. The revised form provides that the 72 hour waiting period will not apply when the prior policy included flood coverage and the policy periods are consecutive without a break in coverage. Coverage is broadened
Payroll Limitation or Exclusion OptionCP 15 10 The payroll endorsement is being modified to provide a means of limiting or excluding the payroll expense of “any category of employees or individual employees” The term “ordinary payroll expense” and its definition are removed from the endorsement.  The title, also, will no longer refer to the word “ordinary” and the word “ordinary” will no longer appear in other sections such as the “coinsurance section”. The revised endorsement serves the same purpose as the prior one but can be used to address any category of employee on the insured’s payroll. No change in intent—clarification of definition
Condominium Commercial Unit-Owners Optional Coverage:  Loss AssessmentCP 04 18 Currently the endorsement places a $1,000 limitation on an assessment as a result of a deductible on the condominium association policy.  This endorsement provides a means for selecting a higher limit. Coverage is broadened
Utility Services—Wastewater Removal (Time Element)CP 15 45 The Utility Service Time Element endorsement is being revised to add a new category of utility service:  wastewater removal property. By definition, wastewater removal property is a utility system for removing wastewater and sewage from the described premises other than a system designed primarily for draining storm water. The utility property includes sewer mains, pumping stations and similar equipment for moving the effluent to a holding, treatment or disposal facility; and includes such facilities. Coverage is broadened
Earthquake Sprinkler Leakage DeductibleCP 10 40; CP 10 45 In 1999, the EQSL Endorsement CP 10 39 was withdrawn from the series and EQSL could be purchased by activating the EQSL ONLY option on the EQ endorsements CP 10 40 and CP 10 45. The revision in this form adds language providing that the EQ deductible provisions outlined in the EQ endorsement (that is, the percentage deductible) do not apply to the EQSL—Only coverage. Instead the Fire deductible applies. Coverage is clarified and broadened
Builders Risk—Theft of Building Materials, Fixtures, Machinery, EquipmentCP 11 21 This change relates back to the issue of “entrusted property” discussed above. Entrusted Property:  The revision is included to distinguish between those who have a role in the insured’s business such as partners/employees and others to whom property may be entrusted such as bailees or tenants. Specifically there is an exclusion for loss or damage caused by…dishonest or criminal acts by…anyone to whom the insured entrusts the property. There is no change in “intended coverage”
Green Upgrades Endorsement RevisionCP 04 02 The schedule on the form is revised to identify which property is subject to upgrade when not all personal property is not to be covered for Green Upgrades. No change in coverage
Form Change Impact

NEW ENDORSEMENTS

Exclusion of Loss Due to By-Products of Production or Processing Operations (Rental Properties)CP 10 34 New form introduced to be attached to policies issued to owners and tenants of rental premises.Discussion of the change is included above. There is no change in “intended coverage”
Specified Property Away from PremisesCP 04 04 New form introduced to provide coverage for business personal property temporarily away from the described premises in the course of daily business activities, while in the care, custody or control of the insured or an employee of the insured.  Coverage is broadened
Higher LimitsCP 04 08 Currently the insurance form has many options to increase coverage via the Declarations Page. This endorsement is an alternative to activating the coverages on the Declarations Page by using this multi-purpose endorsement No change in coverage but new coverage option
Equipment BreakdownCP 10 46 This is a new optional endorsement which is compatible with the Special Form Cause of Loss CP 00 13.Discussion of the change is included above New Coverage Option
Suspension or Reinstatement of Coverage for Loss Caused by Breakdown of Certain Equipment CP 10 47 Because of the introduction of the new Equipment Breakdown Form, the ISO has also introduced the Suspension or Reinstatement of Coverage for Loss Caused by Breakdown of Certain Equipment to allow the insurance companies to either suspend or reinstate coverage for certain pieces of equipment.Discussion of the change is included above New Coverage Option
Deductible By LocationCP 03 29 Currently there is a Multiple Deductible Form CP 03 20 adopted in most states which is designed to allow for the selection of different deductible by location and peril.  This schedule of endorsement shows separate locations and the deductible for each location. This is a new optional way to show deductibles but does not affect existing deductible options.
Limitations on Coverage for Roof SurfacingCP 10 36 This endorsement provides options for insuring roof surfacing on an ACV basis and for excluding cosmetic damage to roof surfacing. The cosmetic exclusion option applies only to the perils of wind and hail, and could be written without regard to the underlying valuation clause. New Coverage Option. This would be chosen by an insurer when they deem it necessary typically on an older building
Increase in Rebuilding Expenses Following Disaster CP 04 09 This is a new endorsement to add additional expenses following a disaster.Discussion of the change is included above New Coverage Option
Dependent Properties in the Supply Chain (Business Interruption)Endorsement to CP 15 01; CP 15 02; CP 15 08; CP 15 09; CP 15 34. Dependent Property Coverage is written by scheduling the business locations that the insured is “dependent upon” and have chosen to insure.  The new endorsement allows for secondary dependencies.Discussion of the change is included above New Coverage Option
Discharge From Sewer, Drain or SumpCP 10 38 This is a new endorsement to cover discharge from a sewer, drain or sump and pertains to physical damage and/or time element loss as indicated in the schedule. The amounts stated in the schedule are sub-limits and therefore do not increase the underlying limits of the insurance provided.  An annual aggregate limitation can be selected via the schedule on the endorsement. New Coverage Option
Theft of Building Materials and Supplies (Other Than Builders Risk)CP 10 44 Currently there is a limitation under the Special Cause of Loss form for theft coverage for building materials and supplies that are not part of the building or structure to that which is held for sale by the insured.  The new endorsement provides coverage for the theft of building materials and supplies that are located on or within 100 feet of the premises when such property is intended to become a permanent part of the building or structure. New Coverage Option
Protective Safeguards (Fire)CP 04 11 The new endorsement replaces the interline form IL 04 15.  This endorsement, therefore, only pertains to Commercial Property insurance and contains the same provisions as the current endorsement. No Change in Coverage
Food Contamination (Business Interruption and Extra Expense)CP 15 05 This new option covers extra expenses and business income loses arising out of food contamination and pertains to the Business Income And Extra Expense Coverage Form.  Coverage is limited to loss of income/extra expense due to the closure of the business. Covered expenses include: cost of cleaning equipment; cost of replacing food; medical testing and vaccination and advertising expense. New Coverage Option

Written by:
Laurie Infantino AFIS, CISC, CIC, CRIS, ACSR, CISR
President, Insurance Community Center

 

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Green Changes in the NEW Commercial Property


Green Changes in the NEW Commercial Property 10/12 Edition Date
:

Your Insured Needs to Know about this BEFORE they have a loss!!

For many years insurance companies, such as Fireman’s Fund, has provided specialty coverages for constructing buildings in compliance with standards that make them more environmentally friendly; cost efficient; and self-sustaining. As the new construction standards have evolved and laws and regulations for building have emerged, the insurance forms have attempted to provide solutions of individuals who want to replace their structures according to green standards.  In the new series of forms, the first modification that has occurred is that existing forms have been modified.

  1. 1.      The Building and Personal Property Coverage Form CP 00 10 on page 2 modified the Property Not Covered.

(h) Land (including land on which the property is located) water, growing crops or lawns (other than laws which are part of a vegetated roof)

The following while outside the building

(q)fences, radio or television antennas (including satellite dishes) and their lead in wiring masts or towers, trees, shrubs or plants (other than trees, shrubs or plants which are “stock” or are part of a vegetated roof)

Outdoor Property

You may extend the insurance provided by this Coverage Form to apply to your outdoor fences, radio and television antennas (including satellite dishes) trees , shrubs and plants (other than trees shrubs or plants, which are stock or are part of a vegetated roof…… for specified causes of loss…..subject to limitation.

  1. 2.     Cause of Loss Special Form CP 1030 on Page 6

Limitations

g. Lawns, trees shrubs or plants which are part of a vegetated roof, caused by or resulting from

(1) Dampness or dryness of atmosphere or of soil supporting the vegetation

(2)Changes in or extremes of Temperature

(3) Disease,

(4) Frost or Hail….

Those are the forms that took on some changes specifically related to Vegetated Roofs.  In addition, the ISO has introduced a new endorsement for Green Upgrades.  The endorsement, while available, is fairly complex and sets difficult guidelines as to how limits are to be set and payment for a loss would be determined.  What follows is an overview of the endorsement.

CP 04 02 Increased Cost of Loss and Related Expenses for Green Upgrades

The Green Upgrades Endorsement modifies the Replace Cost Valuation clause on the forms to which this endorsement can be attached which include: the Building and Personal Property Form; Business Income with and without Extra Expense; Condominium Association and Unit Owner Form and the Extra Expense Form.

Prior to the ISO introducing Green Coverage, several insurance companies have written this coverage for many years. Fireman’s Fund was one of the first companies to come out with comprehensive green coverage and the Equipment Breakdown coverage forms have included limited amounts of the coverage for years responding to environmental upgrades.

There are several reasons that the endorsement is in place and that the prior forms changed language responding to buildings that currently exist with green upgrades such as roofing surfaces for those individuals/companies who would choose to repair/replace their buildings following a loss with more resource efficient construction.  This is still a fairly new concept to some and the endorsement will appear to be complex and confusing from both understanding the contract language; setting limit; and proving a loss.

When determining Replacement Cost for Green Upgrades the form will pay the additional costs to repair or replace damage property based on the materials and procedures set by the Green standard setter.  The form states the following as relates the standard:

2) Green standards-setter means an organization or governmental agency which produces and maintains guideline related to Green products and practices.  Green standards-setters include but are not limited to:

  1. The Leadership in Energy and Environment Design (LEED®) program of the U. S. Green Building Council
  2. ENERG STAR, a joint program of the U. S. Environmental Protection Agency and the U. S. Departement of Energy, and
  3. Green Globes ™, a program of the Green Building Initiative

3)  Green means enhanced energy efficiency or use of environmentally preferable sustainable materials, products or methods in design, construction, manufacture or operation, as recognized by a Green standard-setter.

The endorsement deals with green upgrades solely required for the purpose of satisfying the minimum requirements or recommended actions or standards of an ordinance or law by stating it will not disallow the cost of the Green Upgrade on the sole basis that such upgrade also falls under the provisions of the ordinance or law.  The endorsement will not pay, as respects green upgrades, if that cost is paid under another form.  I would caution anyone reading this language that it does appear more ambiguous then other sections of the new endorsement.

The first page of the form has a Schedule with seven columns:

  Green Upgrades Maximum Amount      
Premises Bldg # Building Your Business Personal Property Increased Cost of Loss % Related Expenses Number of Days for Extended Period of Restoration
  1. Schedule indicates maximum amount available for Building and Personal Property
  2. In the event of a loss the company will determine the amount payable by
    1. Determine amount of direct physical loss prior to deductible
    2. Multiply the amount determined by the appropriate increased cost of loss percentage shown in the schedule
    3. Unless the loss is less than the deductible, the company will pay the least of the amounts for the total of all costs attributable to Green Upgrades
      1.                                                   i.      The actual cost of covered Green Upgrades
      2.                                                 ii.      The amount determined by applying the percentage
      3.                                               iii.      The applicable amount show in the green upgrades in the schedule

Based on the aforementioned there are several steps the insured must take in first setting a limit which are difficult to quantify, at best.

  1. Determine a “maximum” limit remembering that settlement will go back to the Green standards-setter.  This limit must be determined for each building and building amount/personal property amount
  2. Select percentage under the increased cost of loss column for each item.  The percentages do not appear in the form; however, other reference material refers to the percentages available as 10; 20; 30; 40; or 50%.
  3. The next column is “Related Expenses” which the form lists as:
    1. Waste Reduction and Recycling
    2. Design and Engineering Professionals Fees
    3. Certification Fees and Related Equipment Testing
    4. Building Air-out and Related Air Testing
    5. The last column, for which a limit could be selected, is titled “Number of Days for Extended Period of Indemnity”.  This column relates back to Business Income with or without Extra Expense and Extra Expense.  This extends the “period of restoration” to include the increased period of time to bring the building up to the green standard.

In conclusion, the issue of “green” is a major driver in the new form series.  It is important to talk with your clients about the desire to modify construction following a loss in compliance with green standards BEFORE the loss occurs.

A complete review of the Commercial Property Forms was presented on 1/29/13 and the archived webinar is available to all university members.

Written By:
Laurie Infantino AFIS, CISC, CIC, CRIS, ACSR, CISR
President, Insurance Community Center,
Insight Insurance Consulting

 

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Being “Nice” To Your Kids Can Get You in a Lot of Trouble

Family Portrait - Montreal 1963

 

The kids finally turned 18, out of the house off to school or their first real job and you have done what you have waited to do for years—re-decorate their room! But, this economy has changed that dream in a lot of different ways.  The kids are back, or if not physically moving back into “your” home they are back on the household payroll.  The good news is you talk to them more…th

 

 

e bad news is that they are calling for a transfer into their account.

 

I hear these stories all the time, and I, too, have become much closer to my kids! This economically driven dependence has created some very interesting insurance questions. The fact is that as the helpful parent we are creating some serious personal liability and taking insurance risk.  Here are a couple of true examples (fictitious names are used to save my friendships):

 

“Can you lease a car for me—I cannot qualify with my credit rating”

 

Sandy is a 40 year old who not a member of his mother’s household and needs to lease a new car.   He cannot qualify for the lease, so he asks his mother to lease the car in her name.

 

They have considered two ways to handle the insurance on the leased vehicle:

 

I.    Mom insures the car on her personal auto policy; give the car to him to drive; and, he will reimburse her for the payments and monthly insurance bill.  

 

When mom called her insurance agent, the agent told her that she could insure “Sandy’s Car” since she is the registered owner and the only person on the lease. The problem here is that it is just not right to do this. It is misrepresentation to the insurance company. While a small claim may not highlight this fraud to the company—when Sandy gets into a significant accident the truth will come out. The insurance company has the right to rescind coverage under such circumstances and their agent will face the consequences of bad advice. Even if they do get away with it, many insurance carriers have restrictive language in their policies regarding permissive use.

In particular, California law generally requires that automobile insurance policies cover permissive drivers under the owner’s liability policy [Insurance Code§11580.1(b)(4)] but the insurer can limit permissive user coverage by use of clear and conspicuous language to $15,000/$30,000/$5,000 [Vehicle Code §16056; Haynes v. Farmers Insurance Exchange (2004) 32 Cal.4th 1198, 1205 (finding that to be enforceable, a limitation of limits for permissive use must be conspicuous, plain and clear)].

However, if a motor vehicle owner gives express or implied permission to a person to use a motor vehicle, and that driver wrongfully (negligently or intentionally) causes injury or death to a person or damage to property, the vehicle owner is also vicariously liable [Vehicle Code §17150 ]. In fact, Owner liability under Vehicle Code §17150 generally has a maximum dollar limit of $15,000 per injured person but $30,000 per occurrence even if more than two people are injured, and $5,000 for property damage [Vehicle Code §17151; see also Vehicle Code§17155].

The permissive use statute does not limit the liability amount owed by the owner based on another viable legal theory (other than permissive use) such as, for examples, negligent entrustment to an “incompetent, reckless, or inexperienced driver” (Syah v. Johnson (1966) 247 Cal.App.2d 534, 538), and failure to properly maintain brakes (Fremont Compensation Ins. Co. v. Hartnett (1993) 19 Cal.App.4th 669). As such, an injured or damaged party will file suit against both the owner and driver for the permissive use statutes to apply [Vehicle Code§17152].

If we strictly interpret the PAP, we know that anyone can drive our vehicle with our permission and there is no time frame for the permissive use. The PAP does not say it MUST be garaged at the owner’s home although that was the address the insurance company used for rating purposes as well as the mom’s driving record.

So the first question to answer is if Sandy gets into an accident, will Mom’s policy provide her coverage for the occurrence?

Mom’s AAA policy (insuring agreement) provides that the insurer “will pay damages for which any person insured is legally liable because of bodily injury or property damage caused by an occurrence arising out of the ownership, maintenance or use of an automobile…”

Further, Mom’s policy includes as an insured, “any person using an insured automobile with your permission…” So far, so good. Based upon the insuring agreement alone, it appears that Mom and Sandy will be covered. However, the policy also requires Mom to notify the carrier if there is a change in driver. The policy provides:
“You agree to pay the premium…resulting from changes made during the policy period. Changes include, but are not limited to…(c) a change in drivers…”

The policy also contains a “Misrepresentation or Fraud” section, which provides:
“This entire policy shall be void from its inception if any person insured has misrepresented or omitted any fact or circumstance which was material to our issuance or renewal of this policy. Any statements in the application or in any documents provided to us by any insured in connection with the issuance of renewal of the policy shall be deemed material to the acceptance of the risk assumed by us under this policy, and this policy is issued in reliance upon the truth of such representations. If any person insured intentionally makes a false statement or conceals or misrepresents a material fact or circumstance that relates to an accident, occurrence or loss, or to our investigation thereof, we may elect not to provide coverage for that accident, occurrence or loss. We also may elect to cancel or nonrenewal the entire policy as permitted by law.”

Based upon the initial and continued misrepresentation as to “who” is driving the car, the insurer has a clear basis to void Mom’s ENTIRE policy from its inception. Thereby jeopardizing not only coverage for “Sandy’s Car”, but for any other vehicles insured on the policy in question.

Assuming the insurer does not find out about the misrepresentation or agrees not to void the policy upon making that determination, the next question becomes:

Does Mom’s policy cover Sandy, if Sandy gets into an accident?
To qualify as an insured under the policy, with respect to an insured vehicle, a relative must be a resident of the same household in which the named insured resides. So, should Sandy get into an accident, he will not qualify as an insured on Mom’s policy.
If Sandy has his own auto policy of insurance (say for a different auto) will Mom’s car be considered an “Additional Insured Automobile”? To be an additional insured automobile, Sandy cannot own the car (check) and it cannot be “available for regular use” by Sandy. Under the strict definition, Sandy’s own policy won’t cover him.

II. Sandy is going to insure the car on his personal auto policy.

This approach is even worse than the first scheme. Mom may think this gets her off the hook but she, and she alone, is the registered owner and subject to liability as the owner. Mom has no insurance on the car because she did not add it to her policy.

Further, Sandy has no insurable interest in the car; he is neither the lessee nor co-lessee. There would be no coverage under his auto policy or her policy for the leased vehicle.

 

Advice to Mom
1. Have your 40 year old kid move back home because he will then be a member of the household and the PAP would have a better chance of extending coverage.
2. Do not lease a car for your children in your name whether they live at home or not but especially if they are not in residence.
3. Have them get a jalopy or take the bus.

Footnote [1] “Every owner of a motor vehicle is liable and responsible for death or injury to person or property resulting from a negligent or wrongful act or omission in the operation of the motor vehicle, in the business of the owner or otherwise, by any person using or operating the same with the permission, express or implied, of the owner.” California Vehicle Code § 17150.

Next case

 

I am moving home (with the kids) so that I can start my own business

Your perfect home, since you kicked out your husband has been infiltrated by your son, wife and two children under the age of 8.  We have some significant issues to resolve and I am not talking about the play dough in the carpeting here, which is a given. The bigger concern is the fact that your son is going to start his own internet company.  He was the victim of layoffs in the industry and is striking out on his own.

 

The Homeowners is clear in its definition that an “insured” means You and residents of your household who are your relatives…  Good so far, the family is all covered on the mom’s Homeowners Liability Policy.

 

The business takes a while to get going and as soon as the big break is becoming a reality, the son decides to file a DBA and form an LLC.  He has to buy a substantial amount of computer equipment through his new company all of which is kept in the home or more often in the detached garage.

 

The insurance problems are now mounting.  We have a business operating out of the home; the business is operating in a name other than the resident relative on the policy; and a lot of expensive equipment owned by the company maintained in residence.  Hopefully you are saying to yourself NO coverage or at best very limited coverage.  Mom’s Homeowners Liability policy had problems before the son formed a company—specifically all of the business exclusions.  When he formed the company, even the limited coverage that was part of the policy was removed.  In terms of all the computer equipment, it too is not owned by the relative in residence—it is owned now by his company.  Even if you could put a claim in for loss under the Homeowners policy it would be limited for both coverage on and off the premises.  The fact that it is stored primarily in the garage brings up the very strong language that a detached garage cannot be used in whole or in part of business purposes.

 

Advice to Mom:

 

1.    While you are now the proud mother of a budding entrepreneur, have him buy a business policy to cover his liability and property.
2.    Remove the play dough with hot water and salt

 

 

 

Written By:
Laurie Infantino AFIS, CISC, CIC, CRIS, ACSR, CISR
President, Insurance Community Center, Insight Insurance Consulting

 

 

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