Community Webinars ISO New Commercial Property Forms 2012 Laurie Infantino, CIC, AFIS, CISC, ACSR, CISC, CRIS President and Co-Founder of The Insurance Community Center

 Presents Monthly Webinars Free to Community Members  Community webinars are archived on the Community homepage under the right hand tab titled: Webinar Archive 2

 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 The changes include:  New edition dates of existing form numbers;  Forms that are being withdrawn  New forms that are being introduced.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, This multistate revision will be applicable to the following jurisdictions: 3

4 AlabamaKentuckyOhio AlaskaMaineOklahoma ArizonaMarylandOregon ArkansasMassachusettsPennsylvania CaliforniaMichiganRhode Island ColoradoMinnesotaSouth Carolina ConnecticutMissouriSouth Dakota DelawareMontanaTennessee District of ColumbiaNebraskaTexas FloridaNevadaUtah GeorgiaNew HampshireVermont GuamNew JerseyVirgin Islands IllinoisNew MexicoVirginia IndianaNew YorkWest Virginia IowaNorth CarolinaWisconsin KansasNorth DakotaWyoming

 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. 5

 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 6

 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. 7

 Good News—This series form change, for the most part, improves and broadens Commercial Property Policies. 8

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

10 Building and Personal Property Form CP 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 (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 (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 Extensions A higher limit can be indicated on the Declarations Page

 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. 11

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 Additional benefits include:  Reducing city "heat island effect  Reduce summer CO2 impact  Reduce summer air conditioning cost  Reduce winter heat demand  Potentially lengthen roof life 2 to 3 times  Treat nitrogen pollution in rain  Negate acid rain effect  Help reduce volume and peak rates of stormwater 13

 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 14

15 Business Income Form CP and CP Extended 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 Earth 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. No change in coverage

16 Debris Removal and Outdoor Trees, Shrubs and Plants CP and CP 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 Endorsement CP 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

 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”. 17

 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. 18

 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 19

 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 20

21 Utility Services— Wastewater Removal (Time Element) CP 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 broadened Types of Utilities are activations. Differ from form to form Earthquake Sprinkler Leakage Deductible CP 10 40; CP Clarified that EQ Ded. does not apply to EQSL No change in coverage-- Clarification Green Upgrades Endorsement Revision CP 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

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

 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 Page  Protective Safeguards (Fire)  This replaces the interline form IL 0415 and pertains only to Commercial Property 23

 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 24

 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 25

 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 26

 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. 27

 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. 28

 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. 29

 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. 30

 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. 31

 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. 32

 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. 33

 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. 34

 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. 35

 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. 36

 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. 37

 Most of the changes are editorial  There are some improved extensions and clarified methods for showing/increasing coverage  There are new endorsements that add coverage and others that clarify coverage. 38

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