Insurance Services Office’s (ISO’s) form and endorsement filing is actually quite fascinating. The commercial property changes presented in this filing begin taking effect on April 1, 2013 (effective dates differ by state). This presentation of this filing is split into two parts; this first part discusses changes to various policy forms. Part two of this article (expect to see it next Wednesday) introduces and discusses changes being made to various endorsements.
Policy Form Changes
Sixteen policy form changes are made in this most current filing. Eight relate to the various coverage forms, five alter the various cause of loss forms, and three filings affect both coverage forms and cause of loss forms. This article is split among these three categories of changes. Part one ends with a synopsis of the editorial changes ISO made to various forms.
Coverage Form Change Filings
Debris Removal. Debris removal additional coverage gets a makeover in 2013. ISO is making three major changes to this coverage.
- The additional limit for debris removal is increasing to $25,000 from $10,000. Currently the debris removal coverage is limited to 25 percent of the total loss (including deductible) plus an additional $10,000. The newly-filed form increases the additional limit (beyond the 25 percent) to $25,000.
- Coverage for debris removal currently excludes the removal of the debris of the property of others; the new filing includes coverage for removing the debris of the property of others, with certain limitations. Because of this coverage extension for property not covered by the policy, ISO added specific language to clarify and limit the breadth of this new coverage. New form language specifically excludes the cost to remove:
- Property owned by the policyholder that is not considered insured property in the policy. Wording also excludes property in the insured’s possession not qualifying as “covered property.”
- If the insured is a tenant, no coverage is extended to property owned by or leased to the landlord, unless the tenant is contractually obligated to provide coverage and the property is insured on the policy.
- Any property listed under Property Not Covered. This includes property referred to in the outdoor property coverage extension.
- Property of others that does not qualify as “covered property.”
- Mud or earth from the described premises deposited (or redeposited) on insured property.
If there is no damage to covered property owned by the insured, and the only debris to be removed is the property of others, payment is limited to $5,000.
3. The outdoor property coverage extension is broadened to cover the cost of removing the debris from trees, shrubs and plants not owned by the insured (unless the insured is a tenant and the trees, shrubs and plants are owned by the landlord).
These extended coverages apply only if the loss generating the debris is caused by a “covered” cause of loss for which the insured would be covered (based on the cause of loss form and endorsements attached).
Fire Department Service Charge Coverage. ISO states that no coverage change is created in the fire department service change coverage in the new policy form, only a clarification of coverage. The new wording clarifies that: 1) the coverage limit ($1,000 unless increased) applies per location; and 2) the basic or endorsed higher limit is an aggregate limit.
Business Personal Property in Described Structures. Essentially, the new wording allows that coverage for business personal property (BPP) and property of others (PPO) applies even when such property located in “structures” not just “buildings.” ISO reports that this creates no change in coverage, the revised wording simply removes any question regarding coverage for BPP or PPO located in a structure that might not be considered a building. But, the “structure” must still be listed in the declarations. This change also creates consistency in coverage language between real property coverage and business personal property coverage (the real property wording allows coverage for a “building or structure”).
Extended Business Income, Extended Period of Indemnity. In business income coverage, the period of restoration ends when the insured reaches operational capability (or should have reached operational capability) at the current location or at a new permanent location. Once operational capability is or should have been reached, “business income” payments cease and payments are picked up under the extended period of indemnity section of the policy. Currently, the automatic extended period of indemnification coverage is limited 30 days (of course, this limit can be extended by insured request, an increase in the coverage limit and the payment of additional premium). The revised policy wording increases the automatic coverage period to 60 days. But remember, extended period of indemnity coverage is not additional coverage; it is paid out of the limit purchased. A more detailed explanation of this coverage and business income in general is found in Business Income Insurance Demystified: The Simplified Guide to Time Element Coverages, Second Edition.
Coverage Radius. ISO’s commercial property policy extends protection to business personal property (BPP) and personal property of others (PPO) located within 100 feet of the described premises. This creates a potential gap in protection if the “described premises” is a unit within a multi-story building and the insured is a tenant on an upper floor (100 feet is still within the building). The new policy wording is revised to extend coverage to BPP and PPO within 100 feet of the described premises or the building, whichever is greater. The business income forms are also revised to align with this change in the property forms.
Property in Storage Units. Coverage for BPP located in a temporary storage unit (such as PODS, Packrat, Door-to-Door, Big Blue Boxes, Mobile Mini, etc.) is not expressly provided by the current policy wording that extends coverage to BPP within 100 feet of the described premises. Currently only property in the open or in vehicles is expressly covered. The new wording specifically extends coverage to BPP temporarily located in portable storage units and is found under the title: Business Personal Property Temporarily in Portable Storage Units. There are limitations to this coverage extension: 1) coverage is provided for 90 days only; 2) the storage unit must be within 100 feet of the described premises; and 3) there is a $10,000 sublimit for all property stored in such units (regardless the number of storage units)(this sublimit can be increased). Whether or not this is broadens or restricts coverage is a function of the specific insurance carrier. If the carrier took the position that BPP in a temporary storage unit did not qualify for the coverage extension, this is a broadening of coverage. However, if the carrier’s position was that BPP in storage units did qualify for protection, this is a narrowing of coverage because of the conditions and limits.
Electronic Data in Building Equipment. Certain electronic data are integral to the operation of the building systems and ISO is revising the electronic data limitation to account for the necessity of such data which results in a broadening of coverage. Electronic data integrated into the operation of elevators, lighting, HVAC, and security systems shall no longer be subject to the $2,500 electronic data aggregate limit. This data shall be covered up to the limits of coverage. Both the CPP and BI forms are affected by this broadened wording.
Newly Acquired Property. ISO is removing the $100,000 extension for newly acquired business personal property at the described premises. According to ISO, any increase in BPP is more appropriately handled by an endorsement to the policy or by use of a value reporting form. This change may create a gap if a large shipment is received and cannot be or is not reported until sometime later. The insured must be educated to notify the agent/carrier immediately.
Cause of Loss Form Changes
Earth Movement Exclusion. According to ISO, the revised earth movement exclusion does not alter the breath of coverage currently provided. The reworded exclusion simply strengthens the intent of the form to reinforce that earth movement is excluded regardless of the cause of the earth movement. Also earthquake is redefined to include tremors and aftershocks to add clarification to the intent of the exclusion.
Water Exclusion. The exclusionary wording currently found in the CP 10 32 – Water Exclusion is incorporated into the cause of loss forms. This change makes the CP 10 32 unnecessary and the endorsement shall be withdrawn. Inclusion of this endorsement’s wording into the cause of loss forms creates no change in coverage as this was apparently an automatic endorsement. The new policy wording differs from the previous wording in the following ways:
- Water from tidal waves, tsunamis, and storm surge is specifically excluded;
- Damage caused by any water discharged from a sewer, drain, sump, sump pump, or related equipment is excluded;
- Damage caused by waterborne material carried or in any way moved by water or mudslide/mudflow is excluded; and
- The exclusion applies regardless of the cause of the water – whether it be caused by an act of nature or “otherwise caused.”
Entrusted Property. ISO actually broadens coverage with this revision to the special cause of loss form (CP 10 30). The current wording excludes loss caused by anyone to whom the insured entrusts insured property; as ISO points out in its filing, this could be used to exclude coverage for damage caused by tenants and bailees. The new wording differentiates between those persons who are part of the insured’s business (managers, officers, employees, etc.) and “others” not part of the business (such as the aforementioned tenants and bailees). 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 (although theft is still excluded).
Wear and Tear Exclusion – Special Form. Another broadening of coverage by ISO, this time by redefining water damage within the defined phrase “specified causes of loss” found in the special cause of loss form (CP 10 30). The new wording adds coverage for accidental discharge or leakage of water… as the direct result of the breaking or cracking of a municipal water or sewer system off the described premises. The breaking or cracking must be by wear and tear. The form clearly states that this broadened coverage does not extend to include losses excluded in the form’s water exclusion.
Covered Causes of Loss. A quick history lesson: Prior to 1983, ISO used the term “all risks” to indicate the cause of loss form we know today as the “special form.” Courts did not interpret the term as the insurance industry intended, courts said that “all risk” meant just that – all risks of loss were covered. In the 10 83 edition of the special cause of loss form the word “all” was deleted and the industry began using the term (within the policy language) “risk of direct physical loss.”
Well, the courts relatively recently jumped on this phrase as well. A 2005 case decided by the Pennsylvania Supreme Court interpreted the meaning of the phrase, as it related to a collapse claim, broader than the industry intended and industry professionals understand it.
ISO has reworded the form to delete the word “risk” (how funny, “all” and “risk” are now gone). The new CP 10 30 Cause of Loss - Special Form simply states that the policy’s meaning of “Covered cause of loss” is “direct physical loss unless the loss is excluded or limited in this policy.”
Effectively, there is no change in coverage. This appears to simply be the most current attempt to avoid over-extension of coverage by the courts.
Changes Affecting Both Coverage Forms and Cause of Loss Forms
Vegetated Roofs. Because of the “growing” trend in green building construction methods, vegetated roofs are becoming more accepted, though not necessarily common. ISO is revising the Property Not Covered wording to make an exception for lawns, trees, shrubs and plants which are part of vegetated roofs. The exception serves to make vegetated roofs covered property. However, there are limitations; the special cause of loss form (CP 10 30) specifies that there is no coverage for loss to the vegetation caused by: 1) Dampness or dryness of atmosphere or soil; 2) Changes in or extremes of temperature; 3) Disease; 4) Frost; 5) Hail; 6) Rail; 7) Snow; 8) Ice; or 9) Sleet. Also, the Additional Coverage – Mold will not apply to the vegetation on vegetated roofs (it still applies to the support system).
Ordinance or Law Exclusion. No change in coverage is created by the new ordinance or law exclusionary wording; the new wording is simply a policy modernization stating that the exclusion applies to the enforcement of “or compliance with” (added wording) any ordinance or law…. The term “compliance” seems to indicate that the insured is voluntarily complying with the current ordinance or law – which is a requirement of the permitting process anyway. So, punitive “enforcement” is not required for the exclusion to apply – and it never did. A second change to the provisions related to ordinance or law is found in the increased cost of construction wording (“e.” under Additional Coverages). The phrase “enforcement of” is replaced with “the minimum standards of….” Again, there is no change in coverage or intent, simply recognition of the “required voluntary” nature of complying with a jurisdiction’s building codes. Thirteen coverage forms are altered by this modernization.
Options for Increasing Specified Limits. Four types of property subject to sub-limits now have a new option for increasing the limit of coverage. Previously the only method for increasing coverage was by entry on the declarations page. These property types are:
- Electronic Data ($2,500 basic aggregate limit)
- Newly Acquired Locations (for Business Income coverage) ($100,000 per location basic limit)
- Interruption of Computer Operations (in Business Income forms) ($2,500 basic aggregate limit)
- Limitations for Theft (allows an increase for all theft sub-limits in the form)
Editorial Changes to Policy Forms
Several forms contain editorial changes only. These create no change in coverage and generally serve to clarify the intent of the current policy wording. Some of the editorial changes in the upcoming commercial property filing include:
- “Stock” is a defined term in the Condominium Association Coverage Form (CP 00 17) however the word is not defined in the policy (the form depends on the Building and Personal Property Coverage Form (CP 00 10) for the definition). ISO is inserting the definition onto the CP 00 17.
- The term “policy” replaces the term “Coverage” in the Standard Property Policy’s (CP 00 99) Concealment, Misrepresentation or Fraud Additional Coverage. This change is made for consistency purposes.
- Both the Cause of Loss - Basic Form (CP 10 10) and the Cause of Loss – Broad Form (CP 10 20) add wording below the form title to state that words and phrases appearing in quotation marks have special meaning and refer the reader to the definitions section to read the definitions of the terms.
ISO’s 28 endorsement changes found in the upcoming filing are introduced and discussed in next week’s email. You do not want to miss it; some changes are very important.