Two terms require further clarification:
• Falling Objects
This coverage does not extend to personal
property stored outdoors. Additionally, it does not cover damage to the
interiors of buildings or personal property stored inside buildings unless a
falling object first breaches the building's exterior.
• Water Damage
This refers to the sudden or accidental
release or leakage of water or steam. However, it must directly result from a
crack or break in a part of the system or appliance that contains the water or
steam.
Terms
All provisions, limitations, exclusions, conditions, and
definitions relevant to the coverage provided.
Volcanic Action
An airborne volcanic blast or shock wave,
which also includes ash, dust, and particulate matter, as well as any lava
flow. The term does not include the expenses for removing dust, ash, or
particulate matter from the covered property unless there is direct
physical damage to the property.
PROPERTY COVERED
The insurance company covers the
property described below unless there are exclusions or limitations.
1. Scheduled Premises
a. Coverage
Coverage applies to direct
physical loss by a covered peril to accounts receivable within a building.
b. Coverage Limitation
Only accounts receivable located
inside buildings at a premises listed and/or described on the schedule of
coverages are covered.
c. Storage Limitation
After the business premises have
closed, coverage is limited to the accounts receivable records stored in the
containers specified on the schedule of coverages. The only exception to this
limitation is if the named insured or their employees are using the records at
the time of loss, coverage will still apply.
2. Transit and Premises Not Described
a. Coverage
Direct physical loss to accounts
receivable records is covered when in transit or at locations not listed on the
schedule of coverages.
b. Coverage Limitation
Coverage is provided for transit
when a limit is specified on the Schedule of Coverages. Similarly, coverage for
Premises Not Described applies when a limit is entered in the Premises Not
Described section on the schedule.
3. Sums, Charges, and Costs That We Cover
The following applies to property
covered under both item 1. Scheduled Premises and item 2. Unscheduled Premises
above.
a. Amounts the named insured cannot
recover from its customers after a loss, even if the amount is owed.
|
Example: Joe's
Antiques, Collectibles & Junk sustains
a covered loss, and many accounts receivable records are lost. His accounts
receivable limit is adequate, and he is not subject to a coinsurance penalty.
This coverage reimburses him based on How Much We Pay 2. Loss Settlement
Terms, if there is no other way to determine the amounts his customers owe. |
b. Interest charges on loans the
named insured acquires to cover amounts that cannot be collected until the loss
is settled and the insurer pays what it owes.
|
|
Example: Joe's
own accounts payable are coming due, and his creditors are not very
understanding of his situation, even though his insurance company is working
hard to adjust his loss. Joe takes out a loan to pay his creditors until the
accounts receivable loss is resolved and he is reimbursed. This coverage pays
the interest charges Joe must pay because of taking out the loan. |
c. When
collection costs are higher than usual, and the reason is related to the loss.
|
Example: Joe
hires a collection agency to locate some of his delinquent accounts, which
are aware of his loss and think they can avoid paying. Several accounts are
found across the country, but the costs of tracking them down are
significant. This provision covers Joe's extra collection expenses. |
d. All reasonable costs the named
insured incurs to reconstruct records of accounts receivable.
|
Example: Joe's
situation is unique, and it is difficult to reconstruct the records.
Fortunately, it is not so difficult that the insurance company simply gives
up and offers the policy limits instead of continuing to adjust the loss.
This coverage provision pays to completely reconstruct the records and give
Joe a "fresh start" on re-establishing and maintaining all his accounts
receivable records. |
PROPERTY NOT COVERED
There is no coverage for the
following property:
1. Contraband
2. Property in Storage
Accounts receivable records stored away from the
locations listed on the schedule of coverages are not covered.
COVERAGE EXTENSIONS
1. Emergency Removal
a. Coverage
This covers direct physical loss to
property removed from a scheduled location to prevent damage from an impending
covered peril. A loss can occur while the property is in transit between the
scheduled location and the sanctuary location. This coverage is unique because
the property being moved is not subject to any exclusions while in transit or
at the sanctuary location.
b. Time Limitations
The named insured must notify the
insurance company in writing within ten days after moving the property. Coverage does not extend beyond the expiration date.
c. Coverage Limitation
This coverage is part
of the applicable limit available for coverage as described under Property
Covered, not in addition to it.
NOTE: Coverage does not extend past the
expiration date. If the named insured has property at an emergency location
when coverage renews, the emergency location must be listed as a premises, or coverage no longer applies.
2. Branch Premises
a. Coverage
Coverage is
provided for direct physical loss to the insured's accounts receivable records
inside a building at a branch premises. Damage to this property while in
transit between a branch and a listed location on the schedule of coverages is
also covered.
b. Limit
The most paid for any loss is 10% of the
highest amount on the schedule of coverages for a described location.
|
Example:
Carver’s Deli operates 13 retail
locations throughout the city, but all accounts receivable invoicing and
collections are managed at the downtown location. The only premises listed on
the schedule of coverages is the downtown location, with a $1,250,000 limit. A $50,000 loss occurs when records sent from one of
the branches to the downtown location are lost because the driver left them
on the roof of the car and drove away. The available limit is $1,250,000 x .10% = $125,000,
which means the loss will be fully covered. |
c. Coverage Limitation
The coverage provided by this
extension does not increase the limit for accounts receivable within any of the
locations listed on the schedule of coverages.
d. Separate Limit
This coverage is part
of the applicable limit available for coverage as described under Property
Covered, not in addition to it.
PERILS COVERED
Coverage applies to risks of
direct physical loss, unless the loss is limited or caused by an excluded peril.
OTHER COVERAGES–COLLAPSE
1. Coverage
2. Covered Perils
Coverage for collapse is
provided when caused by one or more of
the following:
- One of the specified perils or breakage
of building glass, to the extent this coverage form insures against.
- Hidden decay. However, this does not
apply if the named insured was aware of the decay before the collapse.
- Hidden insect or vermin damage. However, this
does not apply if the named insured was aware of the damage before the
collapse.
- Weight of people or personal
property.
- Weight of rain. This is
limited to only rain that collects on a roof.
- Using defective materials or methods of
construction, remodeling, or renovation. This applies only if the
collapse occurs during any of these operations. However, if the collapse
occurs after the work is finished and it is partly due to defective
materials or methods used, coverage applies if any of the
factors mentioned above also contributed to the loss.
3. Collapse Means
Collapse refers to the
sudden and unexpected sinking or caving in of a building, structure, or parts
of it, making the structure unusable for its intended purpose.
4. Collapse Does Not Mean
The following buildings and
structures are not considered to be in a state of collapse:
- A building or structure, or part of it,
that remains upright even if it shows signs like bending, bulging,
cracking, expanding, leaning, sagging, settling, or shrinking.
- A building or structure is in danger of
falling or caving in.
- When a portion of a building or structure
is still standing but has separated from another portion of the building
or structure.
5. Coverage Limitation
This coverage does not provide any increase in the limit for covered property.
PERILS EXCLUDED
1. Primary Exclusions
a. Civil Authority
b. Nuclear Hazard
c. War and Military Action
In addition, acts of
insurrection, rebellion, revolution, or unlawful power seizure, along with any
government measures to prevent or defend against these acts, are
excluded. If any such action involves nuclear reactions, radiation, or
contamination, this exclusion overrides the nuclear hazard exclusion.
NOTE: This means the exception for fire resulting from a nuclear
hazard does not apply when it is caused by war.
2. Secondary Exclusions
a. Acts or Decisions
However, there is an exception to this exclusion.
If an act or decision, or a failure to act or decide, leads to a covered peril,
then the loss or damage caused by that peril is covered.
b. Collapse
c. Concealment
Coverage
does not apply to loss caused by the insured's acts of destruction, alteration,
falsification, or concealment of accounts receivable if done to hide criminal,
fraudulent, dishonest, or illegal activities involving money, securities, or
other property.
This exclusion is
limited to the actual wrongful giving, taking, or withholding.
|
Example:
A break-in at Composite Industries
resulted in multiple acts of vandalism, the removal of several items, and the
loss of many accounts receivable records. The value of the lost accounts
receivable records is $75,000. The adjuster hired an investigator who found
the accounts receivable loss revealed that a bookkeeper had been embezzling
money and used the break-in to destroy evidence of her theft. The adjuster concluded the bookkeeper intentionally
destroyed all the records and denied all coverage. |
d. Criminal, Fraudulent, Dishonest, or Illegal Acts
·
The named
insured
·
Others with
an interest in the property
·
Others to
whom the property has been entrusted.
·
The named
insured's partners, officers, directors, trustees, joint venturers, members, or
managers, as applicable, based on the named insured’s type of business organization.
·
Employees of
any of the groups listed above. Employees are excluded even if the act occurs
when they are not considered to be working.
o
Coverage
applies if employees destroy property, but it does not apply to employees stealing.
However,
this exclusion does not apply to covered property in the care of a hired
carrier.
e. Disturbance, or Erasure of Electronic Data
No
coverage is provided for loss caused by electrical or magnetic damage,
disturbance, or erasure of electronic data or records, but only if it results
from any of the following causes:
·
Programming errors or incorrect equipment instructions.
·
Insufficient, faulty, or improper installation or maintenance of data
processing equipment.
·
Disturbances in the electrical power supply originating more than 100
feet from the covered location listed on the schedule of coverages. Examples
include blackouts, brownouts, and power surges.
However,
loss is covered if caused by lightning.
f. Discrepancy
A loss identified
solely through discrepancies in books or accounting records is excluded when
these discrepancies are the only evidence of a loss. However, such
discrepancies can be used to support a claim when there is other evidence a
loss occurred, but it cannot be the sole proof of a loss.
|
Example: Francis has been working on the books and cannot
get her accounts and collections to balance. She has tried everything, so she
concludes the reason it cannot balance is accounts receivable records have
been stolen. She notifies her boss, and they submit a loss report to the
insurance company. Because Francis cannot produce
any evidence other than the balancing problem, there is no coverage, and the
claim is denied. |
g. Errors and Omissions
Coverage
does not apply to losses caused by bookkeeping, arithmetic mistakes, accounting
errors, or errors and omissions in billing.
h. Fault, Defect, or Error
An
important provision is that this exclusion applies both on and off the
designated premises and regardless of negligence. However, if loss or damage
from one of these events results in a covered peril, then the loss or damage
caused by that peril is covered.
i. Loss of Use
Coverage does not include loss caused by delay, loss of use, or loss of
market.
j. Pollutants
k. Unauthorized Instructions
|
Example: Mary received a call instructing her to take the
account receivables to Marty. She did as instructed and then returned to the
office. Two days later, Mary tells her manager that Marty has not returned
the records. Her manager is perplexed because he has never heard of a man
named Marty. Any loss incurred because of this transfer is excluded. |
l. Voluntary Parting
There is no coverage for loss of covered property voluntarily
given to others, even if the surrender was due to a fraudulent scheme, trick,
or false pretense.
m. Weather
Loss or damage due to weather conditions is excluded, but only
when the loss results from a weather condition combined with a cause of loss
excluded in 1–Primary Exclusion above. However, if weather conditions lead to a
covered peril, then the loss caused by that peril is covered.
WHAT MUST BE DONE IN CASE OF LOSS
1. Notice
2. You Must Protect Property
Additionally,
there is no coverage for repairs or emergency measures taken for property not
already damaged by a covered peril.
NOTE: It
is important to realize that any such costs incurred will reduce the
amount available to pay the actual loss.
3. Proof of Loss
The proof of loss must also
specify the named insured’s interest and the interests of others in the
property involved, including liens and mortgages. Any changes to the title
of the property during the policy period must be disclosed, along with any
other reasonable information the company may need, such as inventories,
specifications, and estimates for settling the loss.
4. Examination
5. Records
6. Damaged Property
7. Volunteer Payments
8. Abandonment
The insurance company determines when and if it will assume
ownership of the property belonging to the named insured. As a result, the
named insured is not permitted to
abandon damaged property to the insurance company unless they receive written
approval to do so.
9. Cooperation
HOW MUCH WE PAY
1. Insurable Interest
2. Loss Settlement Terms
a. The Insurance Company Pays The Least Of The Following:
All of the following are subject
to items 1., 3., 4., and 5. in this section:
·
The limit on
the schedule of coverages
·
Reasonable
costs to reconstruct records of accounts receivable
·
The total
amount of all accounts receivable due is reduced by the following:
o
Amounts not
lost or damaged.
o
Amounts the
named insured collected from lost records.
o
Amounts
established by another means.
o
Amounts
allowed for probable bad debts.
o
Interest and
service charges not earned.
b. If the Insured Cannot Establish The Amount Due
It may not be possible to
determine the exact outstanding amount of accounts receivable at the time of
loss. In such cases, the total is calculated using the average monthly amounts
for the 12 months prior to the month when the loss occurred. This total is then
adjusted for any normal fluctuations or other proven variances in accounts
receivable during the month when the loss occurred.
3. Coinsurance
This provision applies only to
losses occurring at a covered premises listed on the Schedule of Coverages.
The
following items are not subject to coinsurance:
- Records
of accounts receivable in transit
- Interest
charges
- Excess
collection expenses
- Expenses
necessarily incurred to re-establish records of accounts receivable.
The insurance company will not
cover the full loss amount if, at the time of the loss, the total of all
accounts receivable (subject to coinsurance) at the covered location,
multiplied by .80, exceeds the coverage limit for that location.
The following are the steps the
insurance company takes to determine the amount it pays:
Step 1: Determine the value of items, at
the time of the loss, of all covered property at the loss premises subject to
coinsurance.
Step 2: Multiply Step 1 by the
coinsurance percentage of 80.
Step 3. Divide the limit for the
covered property at the premises subject to coinsurance by the result
determined in Step 2.
NOTE: Stop here if the
result is 1.00 or higher because no coinsurance penalty applies. Go to Step 4
only if the result is less than 1.00.
Step 4. Multiply the total amount of
loss, prior to the application of a deductible, by the percentage determined in
Step 3.
Step 5. Subtract the applicable
deductible from Step 4.
The insurance company does not pay more than the
amount determined in Step 5. or the limit of insurance, whichever is less. It
does not pay any part of the remaining loss.
NOTE: This
coinsurance applies per premises value. If coinsurance is to apply over all premises value, attach IM
1015–Coinsurance Provisions – Accounts Receivable.
4. Insurance under More Than One Coverage
5. Insurance under More Than One Policy
a. Proportional Share
b. Excess Amount
LOSS PAYMENT
1. Adjustment and Payment of Loss
2. Conditions for Payment of Loss
The insurance company settles a
covered loss within 30 days of receiving a properly prepared proof of loss, and
the loss amount is confirmed. The amount is determined either through a written
agreement with the insured or after an appraisal award is filed with the
company.
OTHER CONDITIONS
1. Appraisal
The insurance company and the insured may not always agree on the
value of a covered claim. This condition provides a way to resolve disputed
claims.
Either party can request an appraisal to determine the value of the
disputed claim. Once a request is made, both parties have 20 days to choose
their own independent appraisers and notify the other party of their
appraiser's name. The two appraisers then have 15 days to select a competent
and impartial umpire. If they cannot agree on an umpire within that time,
either party can ask a judge in the court of record in the state where the
property is located to appoint one.
The appraisers will then determine the
value of the claim and submit any differences to the umpire. Once any two of
the three parties (the two appraisers and the umpire) agree, the amount of loss
is finalized.
Each party is responsible for paying
their own appraiser, while the costs associated with the umpire and other
shared expenses are divided equally between both parties.
2. Benefit to Others
3. Conformity with Statute
Any condition in this coverage form conflicting with
any applicable law is amended to conform to that law.
4. Estates
This condition is applicable only when the insured is an individual
a. Your Death
b. Policy Period is not Extended
This coverage does
not extend past the policy’s expiration date.
5. Liberalization
6. Misrepresentation, Concealment, or Fraud
Coverage is void if any insured knowingly conceals or
misrepresents a material fact related to the insurance, the covered property,
or their interest in the property at any time. It is also void if any insured
commits fraud or false swearing concerning the insurance or the covered
property.
NOTE: The named insured must be honest with
the insurance company. Its rights of recovery may be voided if it intentionally
misrepresents or conceals a material fact or information. This means the
insurance is treated as if it had never existed, rather than a particular claim
being denied.
7. Policy Period
Only covered losses occurring during the policy
period are paid.
8. Recoveries
The named insured pays the
insurance company the total recovery they receive for a loss the company paid.
Any recoveries exceeding the amount paid by the company belong to the named
insured.
NOTE: No statement is provided as to who pays the
recovery expenses.
9. Restoration of Limits
Payment of a claim does not reduce the limit
available for future claims.
10. Subrogation
The named insured can agree in writing to waive recovery
rights from any party, but only if this is done before a loss occurs.
11. Suit against Us
The insurance company cannot be sued by anyone for
any coverage until all the terms of the coverage form have been met. Suits must
be brought within two years after the named insured first became aware of a
loss. If a state law invalidates this condition, any suit brought must comply
with that law’s provisions and begin within the shortest period allowed by law.
NOTE: It is normal for a
basic coverage form to be modified by mandatory state-specific endorsements
that address issues related to that state.
12. Territorial Limits
Coverage applies only if the covered
property is located in the United States, its territories and possessions,
Canada, or Puerto Rico.
ENDORSEMENTS
AAIS has developed four endorsements
to use with Accounts Receivable Coverage.
IM 1012–Duplicate Records
This endorsement requires the
named insured to duplicate at least the specified percentage of accounts
receivable outlined in the schedule of coverages. These duplicated records must
be accurately maintained and secured for a minimum of six months after duplication.
This ensures compliance and safeguards the insured's financial documentation
for efficient management and verification.
IM 1013–Accounts Receivable Reporting Conditions
This endorsement supersedes the
coinsurance provision and offers coverage that can be reported monthly,
quarterly, or yearly. If desired, the reporting period and premium adjustment
period can vary. Values are required to be reported for each location listed on
the schedule of coverages.
IM 1014–Named Customer Exclusion
When this endorsement is
attached, an entry must be made on the schedule of coverages listing the names
of customers whose accounts are not included as
covered property. When this endorsement is used, the insurance limit can be
reduced by the value of those accounts without incurring a coinsurance penalty.
Additionally, this means that no coverage will apply if those records are lost
and cannot be collected.
IM 1015–Coinsurance Provisions–Accounts Receivable
This endorsement revises the
coinsurance provision to be based on all premises instead of only one. All
other terms and conditions remain the same.
IM 1275–Calendar Date or Time Failure Exclusion
This endorsement does not cover
losses resulting from any electronic data processing equipment, computer
programs, software, media, or data that fail to correctly recognize, interpret,
or process any encoded, abbreviated, or encrypted date or time. This endorsement
is included only when it is selected on the schedule of coverages.
UNDERWRITING CONSIDERATIONS
The key element in accounts
receivable coverage is duplication. The named insured should create at least
partial duplicate records and keep them for the usual duration recommended by
common practices in the relevant business. Storage arrangements are also
important. Approved and rated storage receptacles offer greater protection
against loss. Both duplication and the use of acceptable receptacles result in
rate credits that can lower the premium costs for this coverage.
Underwriting issues important in
personal property coverage are also important considerations for this coverage.
These include the construction of the building the named insured occupies, the
level and extent of private and public protection, other occupancies within the
building, and the nature of outside exposures.
Related Article: ISO Commercial Property Program Underwriting Considerations