Thirty-two endorsements are altered by or introduced in ISO’s upcoming commercial property filing. Some changes are made to assure the specific endorsement dovetails with changes in a coverage form (see last week’s email); other endorsements alter coverage grants; and some are new (and very important). Each endorsement is discussed in this article.
Changes to existing endorsements are presented first. New endorsements are presented in the second section of this article.
Altered Existing Endorsements
Ordinance or Law Coverage – CP 04 05. The ordinance or law exclusionary wording in the Cause of Loss – Special Form (CP 10 30) is altered in the new version of the cause of loss form to add the phrase, “or compliance with,” as it relates to building codes (see the explanation in last week’s article). Likewise, the Ordinance or Law Coverage endorsement (CP 04 05) is altered by removal of the term “enforcement of” in favor of terminology referring to the requirement to comply with an ordinance or law. As before, there is no change in coverage, only a modernization of terminology. The same wording change applies to: 1) the Functional Building Valuation endorsement (CP 04 38); and 2) seven business income endorsements: all five Dependent Property endorsements; the educational institutions endorsement; and the Ordinance or Law – Increased Period of Restoration (CP 15 31) endorsement.
Protective Safeguards – CP 04 11. This is merely a replacement endorsement. The interline protective safeguards endorsement (IL 04 15) is withdrawn and is replaced with the CP 04 11.
Debris Removal Additional Insurance – CP 04 15. This endorsement is simply revised to note the increase in coverage provided by the underlying property form to $25,000 from $10,000 (as discussed in the prior article). ISO made no other changes to this endorsement.
Utility Services – Direct Damage – CP 04 17. This endorsement is reworded to clarify the intent to include all lines that transmit power or communication service to the insured (when coverage for power and communications is covered) – this includes, what are termed by the power industry, “transmission lines” and “distribution lines.” No coverage change is created by this endorsement, only a clarification of previous intent.
Utility Services – Time Element – CP 15 45. ISO made two changes to this endorsement. The first mirrors the changes made to the Utility Services-Direct Damage endorsement above. The second change creates a new coverage option for the insured. The new version of this endorsement adds wastewater removal property as a new category of eligible utility service. Wastewater removal property includes: sewer mains, pumping stations and similar equipment used to move effluent to a holding, treatment or disposal facility (including the facility itself).
Condominium Commercial Unit-owners Optional Coverage – CP 04 18. The current CP 04 18 limits loss assessment coverage to $1,000 when the assessment relates to an association deductible (for example, the association carries a $25,000 deductible and assesses each of its 10 unit owners $2,500 following a covered loss – the current endorsement pays only $1,000 for this deductible-related assessment, leaving the insured to pay the remaining $1,500 out of pocket). The revised wording allows the insured to increase this deductible-related loss assessment sub-limit as necessary.
Theft Exclusion – CP 10 33. ISO has added a schedule of locations to the theft exclusion endorsement to facilitate easy display of the locations to which the exclusion applies. There is no change in coverage.
Earthquake and Volcanic Eruption Endorsement – CP 10 40 and Earthquake and Volcanic Eruption Endorsement (Sub-Limit Form) – CP 10 45. Wording regarding the applicable deductibles is revised to state that the percentage deductible applicable to damage caused by earthquake/volcanic eruption (EQ) does not apply to loss caused only by sprinkler leakage resulting from an earthquake or volcanic eruption (EQSL).
Flood Coverage Endorsement – CP 10 65. ISO introduces two changes to this endorsement; one for clarification purposes, and the second to broaden coverage:
- The newly worded endorsement specifies that the 72-hour “waiting period” does not apply to coverage requests and/or requests for increases in coverage limits made by the insured at policy inception if flood coverage was provided by another policy immediately prior to the effective date of the new policy (regardless whether it is a renewal policy or new carrier’s policy).
- The current endorsement includes coverage for damage caused sewer backup or overflow occurring within 72 hours after the flood recedes. The revised endorsement expands coverage to include not only the backup of sewers, but also drains or sumps.
Builders Risk – Theft of Building Materials, Fixtures, Machinery, Equipment – CP 11 21. According to ISO, the revised wording of this endorsement creates no change in coverage. The revision assures consistency between this endorsement and the reworded provisions related to entrusted property in the Cause of Loss – Special Form (CP 10 30). This revision to the CP 10 30 was addressed last week (see below for reference):
Entrusted Property. The new exclusionary wording differentiates between those who are part of the insured’s business (managers, officers, employees, etc.) and others not part of the business. With respect to the “others” category, the exclusion is limited to loss caused by theft. Additionally, the exception to the exclusion is revised to extend coverage to damage caused by authorized representatives (theft is still excluded).
Outdoor Trees, Shrubs and Plants – CP 14 30. Coverage is broadened to include coverage for debris removal of damaged outdoor trees, shrubs and plants. Because of this coverage expansion, the endorsement now states that neither the outdoor property coverage extension (to avoid duplication of coverage) nor the debris removal additional coverage apply to property covered under the CP 14 30.
Building Glass – Tenant’s Policy – CP 14 70. The only change to this endorsement is the addition of a line item to include the deductible applicable to the building glass when the insured tenant is responsible for the glass coverage.
Dependent Properties in the Supply Chain (Business Interruption) – CP 15 01, CP 15 02, CP 15 08, CP 15 09, CP 15 34. Supply chain protection is not new, but the breadth of protection now provided by ISO’s five dependent property endorsements is new. Historically the business income dependent property endorsements have extended the full limit of coverage to only those dependent properties scheduled in the endorsement. The form did include a very small amount of coverage (0.03% (or .0003) of the limit for each day of suspension) for properties not scheduled (aka “miscellaneous” locations).
This limited coverage could be used to cover “secondary” dependent locations. A secondary dependent location is one that, for example, supplies the insured’s supplier but does not have a direct business relationship with the insured. The insured’s supplier cannot supply the insured if a loss to the supplier’s supplier ultimately causes an operational shutdown. The insured suffers an operational shutdown because its supplier suffers an operational shutdown as a result of a business-closing loss at the supplier’s supplier.
Imagine the supply “chain.” The insured (“A”) receives widgets directly from “Supplier” (“B”). The “Supplier” (B) needs a cog from its Sub-supplier (“C”) to make the widgets for “A.” If “C” suffers a business-closing loss, it cannot supply “B” with the cogs that “B” needs to manufacture the widgets for “A.”
This new optional coverage, now available within the wording of all five dependent property endorsements, allows the insured (“A”) to be more fully covered for its business income and/or extra expense loss due to a business-closing loss at “C’s” location (the “secondary dependency”).
Some features of this new option include:
- The option applies to contributing locations (“suppliers”) and recipient locations (“buyers”) only;
- “Secondary contributing locations” and “Secondary recipient locations” are limited to direct suppliers and/or buyers of the scheduled “primary” dependent property.
- In the Business Income from Dependent Properties – Limited International Coverage (CP 15 01) endorsement, coverage extension to a secondary location is limited to contributing (“supplier”) locations.
- Business income loss resulting from loss of or damage at a secondary location is limited to the amount of business income coverage applicable to a loss that occurs at a scheduled dependent property.
- Coverage for loss at secondary locations is not additional coverage; it is part of the limit of coverage available for the listed dependent property.
- Utilizing this option increases the dependent property rate by 50 percent (rate modifications to the international form (CP 15 01) are company specific).
Payroll Limitation or Exclusion – CP 15 10. This endorsement is currently titled the Ordinary Payroll Limitation or Exclusion, but the change in this endorsement is more than a simple name change. ISO has revised this endorsement to make it more customizable. The previous wording excluded all “ordinary payroll” (either completely or after a specified number of days). Remember, “Ordinary payroll” is essentially defined as the payroll of employees who are NOT classified as officers, executives, department managers, employees under contract, or any specifically listed employee or job description.
The new endorsement performs essentially the same function except that it can be used to limit or exclude the payroll of a specific category of employee rather than all “ordinary employees.” For example, if the insured wanted to keep all employees on the payroll except the inventory and shipping employees, this endorsement would be attached specifically listing these classes of employees. The endorsement actually offers several options for excluding payroll (following taken directly from the form):
- All employees and job classifications including officers, executives, management personnel, and contract employees.
- All employees and job classifications other than officers, executives, management personnel, and contract employees.
- All employees and job classifications (including officers, executives, management personnel and contract employees), except:
- Only the following job classifications and/or employees
Because of these changes in this endorsement, three other forms and endorsements required modification: 1) the Business Income Report/Worksheet (CP 15 15); 2) the Business Income (and Extra Expense) Coverage Form (CP 00 30); and 3) the Business Income (Without Extra Expense) Coverage Form (CP 00 32).
Business Income Report/Worksheet – CP 15 15. The endorsement is revised simply to reflect the increase in the automatic number of days extended business income (EBI) coverage is provided. Basic EBI was increase to 60 days from 30 days in the underlying form (as was reported last week).
Radio or Television Antennas – Business Income or Extra Expense – CP 15 50. Coverage is not altered by the endorsement’s revised wording. The new wording removes reference to the two earthquake forms that may be attached to the underlying policy because when they are attached they remove the earthquake exclusion in the underlying cause of loss form and at that point have no bearing on the business income form or its endorsements.
Condominium Commercial Unit-Owners Changes – Standard Property Policy – CP 17 98. Changes in this endorsement emanate from changes in underlying policy forms related to coverage radius; BPP in described structures; and newly acquired property. Each of these changes is highlighted in last week’s article; selected sections are copied below for ease of reference. The revised endorsement (CP 17 98) now specifies:
- Coverage Radius. The new wording extends coverage to BPP and personal property of others (PPO) within 100 feet of the described premises or the building, whichever is greater.
- Business Personal Property in Described Structures. Essentially, the new wording allows that coverage for business personal property and PPO includes such property located in “structures” as well as “buildings.”
- Newly Acquired Property. ISO removed the $100,000 extension for newly acquired business personal property at the described premises.
Deductibles by Location – CP 03 29. A new option introduced by ISO in this filing is the ability to have separate deductibles by location. Insured’s now have the option to specify deductibles by:
- Site (for insureds with multiple locations); or
- Building (for insureds with multiple buildings at one location or multiple buildings at multiple locations).
Deductibles apply separately per location even if the damage was caused by one occurrence. The deductible could be the same for each location or it could vary. The available options are somewhat flexible.
Specified Business Personal Property Temporarily Away from Premises – CP 04 04. This new optional endorsement extends coverage to business personal property (BPP) temporarily away from the described premises. Two requirements must be met for this coverage extension to apply: 1) the BPP must be away from the premises as part of the daily business activities; and 2) the BPP must be in the care, custody or control of the insured or an employee of the insured. Laptops and other like BPP are the main focus of this endorsement. Coverage under this endorsement is activated by: 1) describing the BPP in the schedule (either by item or by category); and 2) entering a limit of coverage in the schedule. Other provisions of this endorsement include:
- The endorsement does not cover BPP possessed by salespersons (except at a fair, trade show or exhibition);
- Coverage is not extended to stock or other business products (except at a fair, trade show or exhibition);
- Coverage is not extended to BPP in the care, custody or control of a common or contract carrier or a bailee for hire;
- Theft from a motor vehicle is covered if specified evidences of theft exist;
- The coverage territory specified in the underlying form applies to BPP covered by this endorsement; and
- When there is an overlap in coverage with another section of the underlying policy, the insured can elect payment under whichever provision provides the greatest amount of coverage.
Higher Limits – CP 04 08. This new endorsement allows the insured to increase limits for certain property by attachment of the endorsement in lieu of using the declarations to increase limits. Several coverage grants limited in the policy can be increased by noting such increase in the declaration; this new endorsement allows the insured to increase these limits by use of the endorsement rather than depending on a note/change in the declaration. This endorsement does NOT replace and shall not be used in place of specific limit-increasing endorsements (i.e. debris removal, newly acquired property, and others).
Increase in Rebuilding Expense Following Disaster (Additional Expense Coverage on Annual Aggregate Basis) – CP 04 09. Finally, a commercial property endorsement addressing the increase in all building costs (materials, labor, etc.) following a communal disaster. This endorsement is triggered when all the following apply:
- The event causing the covered loss either: 1) results in the declaration of a state of disaster by federal or state authorities; or 2) occurs in close temporal proximity to the event that resulted in the declaration;
- Labor and/or building material costs increase as a result of the disaster causing the cost to repair or replace the insured building or structure to exceed the limit of insurance;
- The insured actually repairs or replaces the building; and
- During the policy term, the insured notifies the insurance carrier within 30 days of any improvements, alterations or additions to the building which increases the replacement cost by 5% or more (allowing the insurance carrier to adjust the limit).
Key features of this new coverage include:
- To be protected by this endorsement, the building must be scheduled on the endorsement;
- The maximum amount of additional coverage is determined by applying a specific percentage to the limit of insurance for specific insurance or to the value of the building (adjusted for coinsurance) when insurance is written on a blanket basis. If the damage is caused by a peril with a sub-limit, the percentage is applied to the sub-limit;
- The additional coverage is reduced proportionally if the property is underinsured;
- A portion of the endorsement’s limit can be used to cover debris removal;
- If ordinance or law coverage (CP 04 05) is included in the underlying policy, a portion of this additional coverage can be applied towards the increased cost of compliance (Coverage Part C);
- A separate amount of coverage applies to newly acquired or constructed buildings based on the highest percentage listed in the schedule;
- The coverage limit is an annual aggregate limit; and
- Any expenses payable under this endorsement are reduced by expenses covered under any business income or extra expense coverage form that is part of the policy.
Exclusion of Loss Due to By-Products of Production or Processing Operations (Rental Properties) – CP 10 34. This new endorsement is to be attached to policies issued to owners and tenants of rental premises. Property damage caused by the tenant’s business operation is excluded by this endorsement; essentially, this is a business risk exclusion. ISO’s restaurant example follows: Damage caused by the long-term presence of grease released by the tenant restaurant’s cooking operations as the presence and “distribution” of grease is a part of the business operations and is not accidental and unexpected and is thus excluded from coverage. According to ISO, the endorsement’s genesis is a Washington State Court of Appeals finding: Graff v. Allstate Insurance Company. The case involved a methamphetamine lab and the damage the “cooking” caused the rental property over a period of time. The insurer denied the claim, the court disagreed. This new endorsement acts to exclude all such damage caused by the “by-products” of the tenant’s operations. Again, it is attached to both the tenant’s and the landlord’s policy so that neither can be called upon to pay for the “expected” damage.
Limitations on Coverage for Roof Surfacing – CP 10 36. This new coverage option allows insurance carriers to limit the valuation on “roof surfacing” to actual cash value (ACV), even when the remainder of the building applies replacement cost as the valuation method. Additionally, the endorsement excludes “cosmetic” damage to the “roof surfacing” caused by wind and/or hail.
- “Roof surfacing” means: shingles, tiles, cladding, metal or synthetic sheeting or similar materials covering the roof. The definition includes all materials used to secure the roof surface and all materials applied to or under the roof surface for moisture protection (this includes roof flashing).
- “Cosmetic” means: marring, pitting or other superficial damage that alters the appearance of the roof surface but does not prevent the roof from functioning normally.
Discharge from Sewer, Drain or Sump (Not Flood-Related) – CP 10 38. This newly available endorsement provides coverage for damage and business-shut down loss (business income loss) caused by the discharge of a sewer, drain or sump. Key features of this endorsement include:
- Coverage is provided for physical damage to covered property caused by the discharge of water or waterborne material from a sewer, drain or sump ON the described premises.
- If the insured carries any time element coverage (business income and/or extra expense), this endorsement adds the discharge from sewer, drain or sump on the described premises to the list of covered causes of loss.
- The limits for this new cause of loss are sub-limits indicated in the endorsement. Separate sub-limits can be chosen for direct physical damage and time element coverage. The insured also has the option to use the total of the sub-limits as the annual aggregate limit.
- The endorsement does not extend coverage to the discharge from a sewer, drain or sump caused by flood (these are included in the newly worded flood endorsement CP 10 65).
- There is no coverage if the sump pump failure is caused by a power failure, unless the policy is endorsed to cover power failure.
- No coverage is provided if the discharge results from the insured’s failure to properly maintain or repair the equipment.
- The endorsement does not cover the cost to repair the sewer, drain or sump; only the cost to repair the damage caused by the release (or the income lost) up to the chosen sub-limits.
Theft of Building Materials and Supplies (Other than Builders Risk) – CP 10 44. This new cause-of-loss endorsement introduced by ISO allows the insured to extend theft coverage to building materials or supplies on or within 100 feet of the premises. The endorsement applies when these materials are intended to become a permanent part of the covered building or structure. It can be used only when the Cause of Loss – Special Form (CP 10 30) is used without a theft exclusion. The endorsement is not intended to be used with the builders risk forms.
Equipment Breakdown Cause of Loss – CP 10 46. ISO’s new coverage option/cause of loss – equipment breakdown is available only when the insured is protected by the special cause of loss form. Equipment breakdown becomes an additional covered peril when this endorsement is attached. Provisions found in this endorsement include:
- “Breakdown” means: Failure of pressure or vacuum equipment; mechanical failure (which includes rupture or bursting caused by centrifugal force; or electrical failure including arcing; (the definition is subject to limitations));
- “Covered equipment” means: Equipment built to operate under internal pressure or vacuum; electrical or mechanical equipment used to generate, transmit or use energy; communication equipment; and computer equipment (this is programmable electronic equipment used to store, retrieve and process data and associated equipment providing communication input and output functions). (There are limitations that apply.);
- Coverage for direct damage is subject to the limit of insurance applicable to the equipment;
- The covered equipment is considered part of “covered property;”
- When business income or extra expense coverage is included, the loss is limited to time element limit of coverage in the form; this endorsement does not offer any additional coverage;
- Coverage for ammonia contamination and hazardous substance is limited to the lesser of: 10% of the limit or $25,000; and
- The insurer has the option to suspend coverage.
When this endorsement is used, the equipment breakdown coverage is subject to the same coverage terms, conditions and limitations applicable to every other covered cause of loss.
Suspension or Reinstatement of Coverage for Loss Caused by Breakdown of Certain Equipment – CP 10 47. In concert with the CP 10 46, ISO introduces the CP 10 47 to allow the insurance carrier to suspend and/or reinstate equipment breakdown coverage as per the conditions found in the CP 10 46 endorsement.
Food Contamination (Business Interruption and Extra Expense) – CP 15 05. Business income and extra expense losses resulting solely from food contamination have been excluded in the past; but ISO now gives insureds the option to purchase coverage to protect against business income and/or extra expense losses resulting from such food contamination. This is an important new coverage option. Key provisions of this endorsement include:
- Coverage is triggered when: 1) the insured is ordered closed by the applicable governmental authority (i.e. the board of health); and 2) the closure is the result of the discovery of or suspicion of “food contamination.”
- “Food contamination” means: An outbreak of food poisoning or food-related illness arising out of: 1) tainted food distributed or purchased by the insured; 2) food improperly processed, stored, handled or prepared by the insured; or 3) food contaminated by virus or bacteria transmitted by one or more employees of the insured.
- The policy pays: 1) the insured’s expense to clean equipment (as required by the governmental authority); 2) the cost to replace food actually or suspected to be contaminated; 3) the costs of employee medical tests and vaccinations (this does not pay what would be paid by workers’ compensation; 4) the loss of business income beginning 24 hours after the insured receives the notice of closure; and 5) additional advertising expenses incurred to restore the insured’s reputation.
- A specific limit is chosen and entered into the endorsement. This limit is an annual aggregate limit. A separate limit is required for advertising expense if the coverage is desired.
- The policy does not cover the costs of fines or penalties imposed by the regulatory authority (these are business risk expenses).
Four other endorsements receive updating or editorial changes in the upcoming filing, but none of these alterations result in any coverage change. These endorsements include:
- Increased Cost of Loss and Related Expenses for Green Upgrades (CP 04 02);
- Windstorm or Hail Percentage Deductible – CP 03 21;
- Vacancy Changes – CP 04 60; and
- Loss Payable Provisions – CP 12 18.
Next week we bring you the first of two articles discussing ISO’s commercial general liability filing.