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
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, subject to any exclusions or limitations.
1. On Premises
a. Coverage
b. Coverage Limitation
·
Cameras,
photographic equipment, and related accessories and supplies
·
Musical
instruments and related accessories and supplies
2. Off Premises
a. Coverage
b. Coverage Limitation
Coverage is provided only when
the covered property is in one of the following situations:
·
In the
custody of the named insured or their employees, but away from the locations
listed on the Schedule of Coverages.
·
At locations
not specified on the Schedule of Coverages and not in the custody of the named
insured or their employees.
·
While in
transit.
PROPERTY NOT COVERED
There is no coverage for the
following property:
1. Contraband
Property illegal to possess is not
covered. Additionally, property legal to possess but used in
illegal trade or transported unlawfully is also excluded.
2. Furniture, Fixtures, and Other Property
NOTE: IM 1263–Personal Property
Coverage can be attached to this coverage form to insure most of this property, as well as other property not listed
here.
3. Manufactured Property
Property
being manufactured or assembled is not covered.
NOTE: After manufacturing is finished, it may become
classified as covered property.
|
Example: Francesco builds unique, one-of-a-kind drums. Some
are customized for specific customers, and many are built to be sold in his
shop. The stock of finished drums is considered covered property, but the raw
materials and partially constructed drums are not covered property. |
4. Money and Securities
Several types of property are not
covered under this item. These include accounts, bills, currency, food
stamps, evidence of debt, and lottery tickets not held for sale,
along with money, notes, or securities.
NOTE: This property is better covered
under commercial crime insurance forms.
Related
Article: Commercial Crime Coverage Analysis
5. Property Shipped By Mail
Property shipped by mail is
excluded.
However, there is an exception. Shipments
sent by registered mail or government insured mail are covered.
|
Example: Francesco
sold five small drums to an out-of-state customer. He packaged and mailed
them via first-class mail. Unfortunately, they never arrived. Francesco has
no coverage for the loss under this policy. |
6. Sold Property
Property
sold is covered until it leaves the custody of
the insured or a hired carrier. However, coverage ceases upon delivery, even if
the property has been sold under an installation agreement.
|
Example: Francesco
sold a drum set to Mary and Minettes.
Mary’s credit was not great, so Francesco agreed to accept three
installments. He delivered the drums to her when she made the first payment.
Unfortunately, before she made the second installment, the drums were
destroyed in a car accident. The drums are not covered under this policy, but
Mary is hoping to get coverage under her insurance policy. |
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
Coverage is available for up to
ten days after the property is moved, but will 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 beyond
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 will no longer apply.
|
|
Example: Mike owns Mike's Music, and he is aware of a
forecast predicting a massive summer storm for the next day that could
potentially damage his poorly maintained building. If his building is damaged
and he is unable to get there quickly after the storm, he worries about how
much of his stock might be stolen by looters. To protect his inventory,
Mike decides to pack as much of his stock as he can into a box truck and
drive it to a storage facility that he knows will be easily accessible until
the storm passes. Thanks to a coverage
extension and Mike's quick actions, his stock remains covered at the
temporary storage location until the storm has passed. |
2. Theft Damage to Building
a. Coverage
Coverage
applies to direct physical loss or damage caused by thieves to the part of the
building the named insured occupies, as well as damage to equipment used to
maintain or service the building.
b. Coverage Condition
This
coverage applies only if the named insured owns the building or is legally
responsible to the building owner for this type of damage. The covered property
must be located in a premises listed on the Schedule of Coverages.
c. We Do Not Cover
Damage
or loss caused by fire is not covered. Additionally,
damage to glass, glass lettering, or glass decorations is also not covered.
d. Coverage Limitation
This coverage is part of the
applicable limit available for coverage as described under Property Covered,
not in addition to it.
|
Example: Pauly has an original idea: he plans to wiggle
down the chimney and into Clyde’s Cameras. He successfully descends the
chimney but finds himself trapped in the basement. In his attempt to escape,
he kicks through the drywall, causing damage to the furnace room as he makes
a messy exit. Although he accomplishes his goal of stealing the camera
equipment, he still needs a way out. To avoid triggering the
perimeter alarm, he exits through the drywall that separates Clyde’s from the
neighboring business, which does not have an alarm system. While the stolen
merchandise is covered, so are the damages that Pauly caused to the building
and the furnace room. However, the total amount paid for the theft and
damages will not exceed the insurance limit for this property. |
OPTIONAL COVERAGE
This optional coverage applies
only if the required entries are on the Schedule of Coverages.
Peak Season
This coverage applies only when it is marked
on the Schedule of Coverages as applicable. A location number, Peak Season
Limit, and a Period of Coverage must be listed on the Schedule of Coverages.
The limit entered here replaces the limit listed on the Schedule of Locations
for the described premises, but it is only valid during the dates specified on
the Schedule of Coverages.
|
Example: Clyde operates in a tourist area, and 80% of his
sales are generated by tourists. He keeps minimal stock during the off-season
and increases it just before the season starts. His premises limit is
$50,000, but during the peak season, the limit is $150,000. He sets the dates
from October 1 to April 1 based on his experience and ordering pattern. |
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.
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 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
The
covered property limit does not increase for this coverage.
PERILS EXCLUDED
1. Primary Exclusions
a. Civil Authority
b. Earth Movement or Volcanic Eruption
Earth movement, volcanic eruptions,
explosions, or effusions are not covered. However, there are exceptions as
follows:
·
Eruption,
explosion, or effusion of a volcano may lead to volcanic action. While the
damage from the eruption, explosion, or effusion itself is not covered, the
policy includes coverage for loss or damage caused by volcanic action.
·
Damage or loss caused by a fire resulting
from earth movement is covered, but damage caused by earth movement itself
remains uncovered.
·
Damage or loss caused by an explosion
resulting from earth movement is covered, but damage from earth movement itself
remains excluded. This exception does not apply to volcanic activity.
·
Sinkhole collapse is covered.
·
Only property at a
premises described in the Schedule of Coverages is subject to this
exclusion.
NOTE: This means coverage could
apply to covered property in transit and at unscheduled locations.
c. Flood
The insurance company does not pay for
loss or damage caused by flood. However,
there are exceptions:
·
Only property at a
premises described in the Schedule of Coverages is subject to this
exclusion.
NOTE: This means coverage could
apply to covered property in transit and at unscheduled locations.
d. Nuclear Hazard
e. Sewer Backup and Water below the Surface
Coverage does not apply to loss or damage
caused by any of the following:
·
Water that backs up from a drain
or sewer.
·
Water below the ground’s surface. Examples
of such events are when the water flows, leaks, seeps through, or exerts pressure on or into a
covered building or structure.
However, there are exceptions:
·
Only property at a
premises described in the Schedule of Coverages is subject to this
exclusion.
NOTE: This means coverage could
apply to covered property in transit and at unscheduled locations.
f. War And Military Action
The insurance company does not cover loss or damage
caused by any act of war. This includes undeclared wars, civil wars, or warlike
actions by military forces, all of which are considered war. Additionally,
measures taken to hinder or defend against actual or expected attacks by any
government or sovereign authority using military personnel or agents are
also classified as war and are not covered.
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.
2. Secondary Exclusions
a. Acts or Decisions
b. Animal Nesting, Infestation, or Discharge
c. Breakage, Marring, Scratching, or Exposure to Light
Loss or damage caused by the
breaking of glass objects or items primarily made of glass is not covered.
Additionally, there is no coverage for loss or damage caused by property being
marred, scratched, or exposed to light.
However, this exclusion has exceptions.
·
Breakage of
lenses is not excluded.
·
If any of
the excluded events result in a specified peril, theft, or attempted theft, the
loss these perils cause is covered.
·
Covered
property damaged by one or more of these events is not excluded if it is in the
custody of a carrier for hire.
d. Collapse
e. Contamination or Deterioration
f. 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 does not apply to employees stealing.
However,
this exclusion does not apply to covered property in the care of a hired
carrier.
g. Electrical Currents
There
is no coverage for loss or damage due to artificially generated electrical
currents damaging electrical equipment or wiring inside the insured property.
This exclusion only applies to the property that generates the current artificiality.
However,
electrical currents can cause a fire or explosion. In such cases, the loss or
damage resulting from the fire or explosion is covered.
|
Example: Kasey’s Camera Shop has a plastic electric display
that overheats due to an electrical current, causing the plastic to begin
melting. Consequently, the melted plastic drips onto the cameras on the shelf
below the display. While the damage to the display itself is not covered, the
damage to the cameras is covered. |
h. Fault, Defect, or Error
i. Loss of Use
Coverage does not apply to losses from delays,
loss of use, or loss of market.
j. Mechanical Breakdown
Loss due to mechanical breakdown is excluded, but there
is an exception: if an excluded loss leads to a covered peril, then the
resulting loss from that covered peril is covered.
k. Missing Property
l. Pollutants
m. Process to Repair, Adjust, Service, or Maintain
|
Example: Clyde
knows his customers do not have time to wait for a damaged camera to be sent
to the manufacturer, so he offers to repair common minor problems with cameras,
provided they were purchased from him. Scenario 1: Clyde is repairing a customer’s camera when he is
startled and drops the camera. There is no coverage for the damage because it
occurred when Clyde was repairing it. Scenario 2: Clyde is working on a camera with a lithium
battery. The battery unexpectedly bursts into flames and destroys the camera.
The damage from the fire is covered. |
n. Temperature or Humidity
Coverage
is excluded if loss or damage to covered property is caused by dryness,
dampness, humidity, or temperature extremes or fluctuations. However, if one of
these events causes a covered peril, the resulting loss or damage from that
peril is covered.
o. Theft from an Unattended Vehicle
Coverage does
not apply to theft of covered property from an unattended vehicle unless the
vehicle was locked, its windows were securely closed, and there was visible evidence of forced entry into the
vehicle. However, this exclusion does not apply to covered property in the
custody of carriers for hire.
|
Example: Tom
is delivering several drums to shops around town that sell his drums on a
consignment basis. He plans a quick stop at Harry’s but is delayed due to an
invoice issue. When he finally gets to his car, all the remaining drums have
disappeared. Since the vehicle was not locked at the time of the loss, Tom
has no coverage for the drums. |
p. Unauthorized Instructions
q. Voluntary Parting
r. Wear and Tear
Loss or
damage caused by wear and tear is not covered. However, if wear and tear leads
to a covered peril, the resulting loss or damage from that peril is covered.
s. 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
9. Cooperation
VALUATION
1. Property Valuation
The valuation of covered property
is outlined below and subject to 2. Pair or Set, and 3. Loss to Parts.
a. Property That Is Sold
Property sold but not yet
delivered is valued at the selling price. The selling price is subsequently
decreased by all discounts and allowances.
b. Films or Prints
Film and prints are valued based
on the cost of unexposed film or developing paper, plus the labor and materials
the insured added to produce the film and prints. This valuation applies to
negative and positive film and prints.
c. Property of Others
The value for property of others
(excluding film and prints) is determined by the following:
•
The amount
for which the named insured is liable to the owner.
•
The value of
the named insured’s labor and materials invested in the property.
These two amounts are then
combined.
The valuation is limited to the
property's actual cash value, which includes depreciation.
d. All Other Property
The value of all other
covered property is its actual cash value at the time of loss, which is
calculated as replacement cost new minus depreciation.
2. Pair or Set
NOTE: This recognizes the
value of the whole is greater than the value of individual parts, but the
remaining part still has value as a separate.
3. Loss to Parts
HOW MUCH WE PAY
1. Insurable Interest
2. Deductible
3. Earthquake Period
4. Loss Settlement Terms
a. The insurance company pays the least of the following:
All of the following are subject to items 1., 2., 3., 5., 6., and 7. in this section.
·
The amount
determined based on the Valuation section.
·
Costs to
repair, replace, or rebuild the damaged property.
- The material must be of
like kind and quality or as similar as practicable.
·
The limit
pertaining to the damaged property.
b. Catastrophe Limit
This applies
only if a catastrophe limit is entered on the Schedule of Coverages.
·
The total
limits for covered property at all locations where the loss occured.
·
The
catastrophe limit.
NOTE: When a catastrophe limit is entered, it is crucial
to adjust it any time other limits on the declarations are increased to avoid
unintentional capping.
5. Coinsurance
This provision applies only to
losses occurring at a covered premises listed on the Schedule of Coverages.
The insurance company does not
pay the full amount of any loss if, at the time of the loss, the value of all
covered property (subject to coinsurance) multiplied by 80% exceeds the limit
of insurance.
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 is applicable per premises. To
apply coinsurance across all premises, attach IM 1273–Coinsurance Provisions.
Coinsurance
can be waived entirely by attaching IM 1261–Coinsurance Waiver.
6. Insurance under More Than One Coverage
7. Insurance under More Than One Policy
a. Proportional Share
b. Excess Amount
LOSS PAYMENT
1. Loss Payment Options
a. Our Options
The insurance company has the following loss payment
options if a covered loss occurs.
·
Pay the value of the property that sustained loss or
damage.
·
Pay the cost to repair or replace the property that
sustained loss or damage.
·
Rebuild, repair, or replace the property with similar
property, to the extent possible, and it must be accomplished within a
reasonable period of time.
·
Take any part or all of the property based on the
value agreed upon or determined through appraisal.
b. Notice of Our Intent to Rebuild, Repair, or Replace
2. Your Losses
a. Adjustment and Payment of Loss
b. Conditions for Payment of Loss
3. Property of Others
a. Adjustment and Payment of Loss to Property of Others
b. We Do Not Have to Pay You if We Pay the Owner
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 request 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.
2. Benefit to Others
3. Conformity with Statute
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
NOTE: The named insured must deal with
the insurance company honestly. 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 simply having never existed, versus a
particular claim being denied.
7. Policy Period
Only covered losses occurring during the policy period are paid.
8. Recoveries
Payment of
the loss does not end the obligations of the named insured and the insurance
company toward each other. Additional provisions apply if the insurance company
pays a loss and the lost or damaged property is later recovered, or if the
responsible party for the loss reimburses
for the damage.
The
party that recovers property or payment must notify the other party. Expenses
related to recovery incurred by either party are reimbursed first. If the named
insured keeps the recovered property, they must repay the amount the insurance
company paid on the claim, unless the company agrees to a different amount.
If
the paid claim is less than the agreed loss because of a deductible or other
limit, any recovery is prorated between the named insured and the insurance
company based on each party's interest in the loss.
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
NOTE: It is common for a basic coverage form to be
modified by mandatory state-specific endorsements addressing issues related to
that state.
12. Territorial Limits
13. Business Records
The named insured must maintain
business records throughout the policy period and retain them for a minimum of
three years after the policy expires. An itemized inventory of stock, updated
annually through a physical inventory, is also required.
The business records the named
insured must maintain should include all of the following:
- Purchase invoices and sales
receipts.
- Detailed lists of property
belonging to others in the care, custody, or control of the named insured.
- Records of property located
away from the premises listed on the Schedule of Coverages.
The insurance company can request
access to business records and inventory at any time, and the insured must
comply, provided the requests are reasonable.
NOTE: This condition may seem unusual, as it requires the
named insured to maintain records in a specified manner. However, it is common
in Inland Marine dealer coverage forms, but not in commercial property coverage
forms.
ADDITIONAL COVERAGE LIMITATION
Premises Protection
The
protective devices in operation as of the policy's effective date must remain functional throughout
the policy period. If any device is not installed or
not working properly at the named premises, coverage will be automatically
suspended at that location.
Additionally,
failure to activate the device when the business is closed will automatically suspend coverage at the location where the device is not in
use. Coverage will automatically resume once the device is operational again.
|
Example: The local team won the state title, and all the
employees at Cameras R Us are heading to the town center for the parade.
Mandy thought Peter was turning on the alarm, and Peter thought Felix was
doing it, but Felix did not know he was responsible. Mandy arrives the next
morning to find the front door smashed open and most of the cameras gone. She
contacts her alarm company to find out why they had not responded and
discovers the alarm had not been set. Mandy becomes even more upset when she
learns that, because the alarm wasn't set, her loss was not covered. |
ENDORSEMENTS
AAIS has developed four
endorsements to use with Camera and Musical Instrument Dealers Coverage.
IM 1261–Coinsurance Waiver
This endorsement deletes the
coinsurance provisions from the How Much We Pay section.
IM 1263–Personal Property Coverage
IM 1264–Reporting Conditions
This endorsement adds reporting
requirements and conditions to Additional Conditions and removes the
coinsurance provisions under How Much We Pay. Entries must be made on the
schedule of coverages.
IM 1273–Coinsurance Provisions
This endorsement revises the
coinsurance clause to be based on all premises rather than just one. All other
terms and conditions stay unchanged.
UNDERWRITING CONSIDERATIONS
The primary risks faced by camera
and musical instrument dealers are fire and theft. Fire risk is particularly
significant due to the high value of individual items and their extreme
vulnerability to damage from fire or smoke. Even a small or brief fire can
cause substantial harm. Therefore, fire prevention measures, effective
suppression systems, and the segregation of high-value items are all crucial
considerations.
The types of merchandise sold and
their value primarily dictate the level and nature of security required to
protect against theft. It is essential to evaluate the effectiveness of the
security measures in place. Access to stock should be restricted and
controlled. If the insured relocates property to another location, it is also
important to assess the security arrangements at that site.
For property transported in motor vehicles,
the vehicles should be locked at all times when unattended, and alarms should
be activated whenever valuable items are inside. The potential for loss
increases if the insured provides repair and service.