new commercial property forms

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ISO New Commercial Property Forms 2012

Laurie Infantino, CIC, AFIS, CISC, ACSR, CISC, CRIS

President and Co-Founder of The Insurance Community

Center


Overview of Changes

Effective date of form change 10/2012. The changes include: New edition dates of existing form numbers; Forms that are being withdrawn New forms that are being introduced. The

information, upon which this article relies, is the ISO Circular dated January 3, 2012. This multistate revision will be applicable to the following jurisdictions:

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Alabama Kentucky OhioAlaska 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


Overview of Changes

Many of the ISO changes have already been adopted in insurance company forms while other changes represent clarification of the “intent” of the form.

There are many instances where there is no change in “intent” of 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.

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Overview of Changes

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 an extension or sub-limit that appeared in a prior edition date.

We MUST notify if a reduction has occurred

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Overview of Changes

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.

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Overview of Changes

Good News—This series form change, for the most part, improves and broadens Commercial Property Policies.

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Overview of changes to current forms

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Always Check the Edition Dates that your Insurance Company is Using. This may vary from Company to Company and State to State

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Building and Personal Property Form CP 00 10

Debris Removal: The additional limit provided is increased from $10,000 to $25,000.

Coverage is increased and expanded in definition

Building and Personal Property Form CP 00 10 (various)

The coverage provided for Business Personal Property is clarified to cover both in the building or structures covered in the policy.

No change in intent

Building and Personal Property Form CP 00 10 (various)

Property in Storage Units: 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.

New ExtensionsA higher limit can be indicated on the Declarations Page


Vegetated Roofs (Broadened)

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. (amount and perils—can endorse)

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.

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Vegetated Roof

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http://www.residencesatindianpoint.com/green_roofs.html

Additional benefits include:Reducing city "heat island effectReduce summer CO2 impactReduce summer air conditioning costReduce winter heat demandPotentially lengthen roof life 2 to 3 timesTreat nitrogen pollution in rainNegate acid rain effectHelp reduce volume and peak rates of stormwater

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Electronic Data in Building Equipment:

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.

CAUTION: Cause of Loss

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Business Income Form CP 00 30 and CP 00 32Extended Business Income, Extended Period of Indemnity:

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 Loss CP10 10, CP10 20, CP 10 30Earth Movement Exclusion:

The term “earthquake” now incorporates tremors and aftershocks. Clarifies Earth movement is excluded regardless of whether it is caused by an act of nature or is otherwise caused.

No change in coverage

Options for Increasing Specified Limits

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.


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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.

Coverage is broadened.Still need Debris Removal Coverage. Does not change BO requirement

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



Payroll Limitation or Exclusion Option CP 1510

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”.

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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.

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The following are subject to the provisions of this endorsement if so indicated in this Schedule 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

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All employees and job classifications (including officers, executives, management personnel and contract employees) except

Only the following job classifications and/or employees

CAUTION: Discretionary Payroll Endorsement

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Utility Services—Wastewater Removal (Time Element) CP 15 45

The Utility Service Time Element endorsement is adds 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 .

Coverage is broadenedTypes of Utilities are activations. Differ from form to form

Earthquake Sprinkler Leakage DeductibleCP 10 40; CP 10 45

Clarified that EQ Ded. does not apply to EQSL

No change in coverage--Clarification

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

Clarification

Overview of New Endorsements in the 2012 Series

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Not all Companies must adopt all of the forms within the form series


New Endorsements

Specified Property Away from the Premises Provides BPP coverage temporarily away from the

described premises in the course of daily business activities

Higher Limits An endorsement to increase limits as opposed to

entry on the Declarations PageProtective Safeguards (Fire)

This replaces the interline form IL 0415 and pertains only to Commercial Property

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New Endorsements

Suspension or Reinstatement of Coverage for Loss Caused by Breakdown of Certain Equipment is used with new equipment breakdown endorsement

Deductible by Location schedule

Limitation on Coverage for Roof Surfacing allows the company to ACV on roof surfacing for certain

perils

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Increase in Rebuilding Expenses Following Disaster CP 04 09

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. Buildings to be insured are indicated on the endorsement with a

% in the Additional Expense column Coverage will only apply as a result of an event that is declared a

disaster by federal or state authorities as well as damage resulting from an event which occurs in close proximity to the disaster

Coverage is on an annual aggregate basis

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Dependent Properties in the Supply Chain (Business Interruption)

Revises: Business Income from Dependent Properties—

Limited International Coverage Extra Expense from Dependent Properties—

Limited International Coverage Business Income Broad Form Business Income Limited Form Extra Expense from Dependent Properties

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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.

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The new option for covering secondary dependencies is focused on contributing and recipient locations as defined in the form. (List on 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.

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Equipment Breakdown CP 1046

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.

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Equipment Breakdown

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.

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Food Contamination (Business Interruption and Extra Expense

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.

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Exclusion of Loss due to By-Products of Production or Processing Operations (Rental Properties)

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.

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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.

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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.

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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.

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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.

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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.

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Summary

Most of the changes are editorialThere are some improved extensions and

clarified methods for showing/increasing coverage

There are new endorsements that add coverage and others that clarify coverage.

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