AAIS FLOOR PLAN MERCHANDISE COVERAGE ANALYSIS

(August 2025)

INTRODUCTION

The American Association of Insurance Services (AAIS) Floor Plan Merchandise Coverage automatically insures dealers’ stock and other merchandise financed through banks or lenders. Dealers managing high-value items, such as mobile equipment and expensive household goods like refrigerators and appliances, often secure loans using their stock or specially designated items "on the floor" for sale as collateral.

This coverage is unique because items are automatically covered if they are stock or merchandise specifically encumbered to the bank or other lending institutions. This merchandise cannot be sold until the financial institution releases its encumbrance. This coverage form is very flexible and can be written as a single-interest contract, applying only to the named insured dealer or the lending institution, or as a dual-interest contract covering both.

ELIGIBILITY

Eligibility is both broad and conditional. If coverage is written on a single interest basis, either the dealer with the stock or the financial institution financing it can be covered. If coverage is written on a dual interest basis, the dealer with the stock is the named insured, and the financial institution is the secured lender. To qualify, the relationship between the dealer and the secured lender must ensure both maintain a financial interest in the stock until it is sold. However, the dealer may not be a manufacturer or a processor.

The Nationwide Inland Marine Definition clearly outlines the distinction between insuring owned inventory and providing floor plan coverage. For property to be covered under a floor plan, it must be encumbered by a financial institution. Additionally, the financial institution must release the property from the encumbrance before the named insured is allowed to sell it.

The Nationwide Inland Marine Definition also specifically states that Floor Plan coverage is NOT applicable to insuring automobiles and other motor vehicles.

POLICY CONSTRUCTION

AAIS Floor Plan Merchandise requires at least these four forms:

IM 7900–Inland Marine–Declarations

Related Article: AAIS Filed Inland Marine Coverage Forms Overview

CL 0100–Common Policy Conditions

Related Article: AAIS Filed Inland Marine Coverage Forms Overview

IM 1105–Schedule of Coverages–Floor Plan Merchandise
IM 1100–Floor Plan Merchandise Coverage

IM 1105–SCHEDULE OF COVERAGES–FLOOR PLAN MERCHANDISE

This Schedule of Coverages is used with IM 1100–Floor Plan Merchandise Coverage. IM 1105 contains the following information:

INTERESTS

A box must be checked to indicate whether coverage applies to a single interest or dual interests.

DESCRIBED MERCHANDISE

A description of the merchandise covered must be entered in the space provided.

NAME OF SECURED LENDER

The name of the secured lender must be entered in the space provided.

SCHEDULE OF LOCATIONS

The location number, address, description of the covered location, and the insurance limit are entered in the spaces provided.

Limits for the following coverages must be entered in the spaces provided if they are desired.:

Property at Premises Not Described
Property in Transit
Catastrophic Limit for all coverages across all locations in the event of a single occurrence.

NOTE: The Catastrophe Limit caps the limit for all coverages at all locations. It is essential to adjust this limit when changes are made to the other limits to prevent unintended capping following a catastrophe.

DEDUCTIBLE

This is the specific amount the insured must pay out-of-pocket for each covered loss.

OPTIONAL ENDORSEMENTS

Two optional endorsements are available, but only if the insured is a lending institution with coverage limited to its single interest. An entry on the schedule of coverages is necessary if they apply.

IM 1111–Limit of Loss–Single Interest for Lending Institutions

This endorsement amends How Much We Pay to pay losses only when the lender's interest is impaired.

IM 1112–Limit of Recovery–Single Interest for Lending Institutions

This endorsement modifies the Other Conditions regarding Subrogation. It prevents the insurance company from pursuing recovery from a dealer without prior consent from the insured’s lender.

RATES AND PREMIUM

This coverage is always written on a reporting basis. The deposit premium, minimum premium, and monthly reporting rate per $100 of property value are entered in the spaces provided.

Values must be reported for each location listed on the schedule of coverages. This section includes a provision that any additional premium developed after policy expiration, based on reports of value submitted, is due on the date on the billing invoice.

IM 1100–FLOOR PLAN MERCHANDISE COVERAGE FORM ANALYSIS

This analysis is of the 01 05 edition.

AGREEMENT

This section states that the insurance company provides the coverage described in return for the named insured paying the required premium. This agreement is subject to all the terms of the coverage form, the schedule of coverages, and any additional conditions that apply. Endorsements or additional schedules identified on the schedule of coverages also apply.

A statement that certain words and phrases identified in bold print or quotation marks in the coverage form are defined in the Definitions section that is immediately following this Agreement.

NOTE: The schedule of coverages does not have a clearly designated space to list endorsements or additional schedules that apply at inception.

DEFINITIONS

Defined words are used throughout the coverage form. When these terms are used in the coverage form, the meaning provided in this section must be applied.

You and Your

The parties specifically named on the declarations as insureds.

We, Us, and Our

The insurance company providing the insurance coverage.

Flood

A flood is defined as an overflow of water, including surface water, waves, tidal water, and other bodies of water. It may or may not be wind-driven. Spray from any of these is also flood, regardless of whether driven by wind or not.

Limit

The applicable coverage amount.

Pollutant

This term is broad and covers various contaminants and irritants, including solids, liquids, gases, or thermal or radioactive substances. It encompasses acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Waste includes materials meant for recycling, reclamation, reconditioning, or disposal. Additionally, visible and invisible electrical or magnetic emissions, along with sound emissions, are also classified as pollutants.

Schedule of Coverages

Any page labeled as such containing coverage information, including declarations or supplemental declarations.

Sinkhole Collapse

A sinkhole occurs when the earth’s surface suddenly sinks or collapses into an underground cavity formed by water erosion on limestone or other rock types. This definition of sinkhole collapse excludes considerations of the land value or expenses involved in filling sinkholes.

Specified Perils

The definition contains the following specifically named perils:

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. It is also ash, dust, and particulate matter, along with any lava flow. The term does not include the cost of 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 property listed below unless it is excluded or limited.

1. Single Interest

This applies when Single Interest is selected on the schedule of coverages.

Direct physical loss to the property listed on the schedule of coverages caused by a covered peril is only covered if both of these conditions are met:

The named insured has an interest in the property.
The property is at a premises listed on the schedule of coverage.

2. Dual Interest

This applies when Dual Interest is selected on the schedule of coverage. Direct physical loss to property listed on the schedule of coverages caused by a covered peril is covered only if the following conditions are met:

The property is encumbered to the secured lender listed on the schedule of coverages.
The property is at a premises listed on the schedule of coverage.
The named insured has an interest in the property.

3. Off Premises

Direct physical loss to property described on the schedule of coverages and caused by a covered peril is only covered if the following conditions are met:

A limit for off premises coverage is entered on the schedule of coverages.
The property is off premises, either in transit, or at a premises not shown on the schedule of coverages.

If the policy is canceled and property is in transit, coverage will still apply until the property reaches its destination. This is only valid if a Property In Transit limit is specified on the schedule of coverages.

Example: Harold's Home Furnishings' floor plan coverage is cancelled, effective May 6. At the time of cancellation, a truckload of product is in route to Harold’s from a supplier located at the far western end of the state. The truck is involved in a major collision 100 miles from its destination. The property is destroyed when the overturned truck catches fire. Although the coverage was canceled the day before, the goods in the truck remain protected because of this provision.

NOTE: This coverage form is unique and unusual because Property Covered does not specify particular types of property. Due to the very "open end" nature of this arrangement, any property involving a lender with a financial interest can be covered. This consideration can lead to both interesting selling opportunities and complicated and perplexing underwriting situations.

PROPERTY NOT COVERED

There is no coverage for the following property:

Contraband

Property illegal to possess is not covered. Additionally, property legal to possess but used as part of an illegal trade or transported illegally is also not covered.

Interest in Property Ends

As soon as the named insured’s interest in the property ceases, that property is no longer considered covered.

Property Sold, Delivered, or Disposed of

When property has been sold, delivered, or disposed of, it is no longer covered property.

NOTE: This wording is ambiguous because it does not explain what happens if the item is sold pending delivery. Does coverage end with the sale or with the delivery? It also does not explain what disposed of means.

COVERAGE EXTENSIONS

There are two coverage extensions. These limits are included within the applicable limit for covered property and not in addition to it unless specified otherwise. These limits do not combine with limits from any other coverage extension or supplemental coverage, and they are not subject to any coinsurance provisions that may apply in the coverage form.

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 within ten days after it moves the property. Coverage does not extend past the expiration date. However, there is no other time limitation.

c. Coverage Limitation

Coverage is available for up to ten days after the property is moved, but will not extend beyond the expiration date.

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.

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

Loss to covered property caused by a direct physical loss caused by the collapse of a building, structure, or any part thereof containing covered property.

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.

NOTE: There is no indication of where the people or personal property must be located.

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 failure or caving in of a building or structure, or any part of it, which renders the building 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

The first group of exclusions is essentially absolute. Subject to specific exceptions, loss or damage by each is entirely excluded, regardless of any other cause or event contributing to a loss, either concurrently or in any other sequence. The insurance company does not pay for any direct or indirect loss or damage caused by or resulting from any of the following events.

a. Civil Authority

There is no coverage for loss resulting from orders issued by any civil or government authority. Such orders may include seizure, confiscation, destruction, or quarantine of property. However, this exclusion is not limited to these specific actions. The only exception is when a civil authority destroys property as a means of controlling a fire, which causes the loss or damage. This exception applies only if the fire is caused by a covered peril.

b. Flood

The insurance company does not cover loss or damage caused by flooding.

However, there are two exceptions as follows:

· If fire, explosion, or sprinkler leakage results from a flood, the loss or damage as a result is covered, but not the flood damage.

· 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 unlisted premises.

c. Nuclear Hazard

The insurance company does not cover loss or damage from any nuclear reaction, radiation, or contamination, whether the incident was controlled or not, or caused by any means. Any loss caused by the nuclear hazard is not considered a fire, explosion, or smoke loss. However, coverage does include direct loss or damage caused by fire resulting from the nuclear hazard.

d. Sewer Backup and Water below the Surface

Coverage does not apply to loss or damage from any of the following causes:

· 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:

If fire, explosion, or sprinkler leakage occurs because of any of the above, the loss or damage is covered. However, other types of damage are not 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 unlisted premises.

e. War and Military Action

The insurance company does not cover loss or damage caused by any war act. 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 seizure of power, as well as any action taken by government authorities to prevent or defend against such 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

The second group of exclusions applies to loss or damage caused by or resulting from any of the following loss events. Some of these exclusions include exceptions, conditions, or limitations that should be carefully noted and reviewed. The insurance company does not pay for any loss or damage caused by or resulting from any of these events.

a. Acts or Decisions

There is no coverage for loss caused by or resulting from any acts or decisions by any person, organization, or government entity. This also includes failing to act or decide.

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. Bankruptcy or Foreclosure

Coverage does not apply to loss caused by bankruptcy, foreclosure, or related proceedings.

Example: Zachary finances his stock of appliances through a floor plan arrangement with a major appliance manufacturer. Unfortunately, that manufacturer’s appliances have a history of breakdowns, making them unpopular with Zachary’s customers. This leads to flat sales. Zachary believes his only option is to declare bankruptcy. His creditors seize the inventory as collateral for unpaid debts. Coverage does not cover Zachary’s monetary loss caused by this action.

c. Breakage, Marring, Scratching, or Exposure to Light

Loss or damage caused by the breaking of glass objects or items made mostly of glass is excluded. 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

Loss caused by collapse is not covered unless the collapse is included under Other Coverages - Collapse, in which case coverage applies. Additionally, if an excluded collapse results in a covered peril, coverage extends to the damage or loss caused by that peril.

e. Contamination or Deterioration

Loss or damage caused by contamination or deterioration is excluded. This applies to corrosion, decay, fungus, mildew, mold, rot, and rust. It also applies to any quality, fault, or weakness in covered property that leads to self-damage or destruction. This exclusion is not limited to just these particular causes.

However, if contamination or deterioration results in a covered peril, the resulting loss or damage from that peril is covered.

f. Criminal, Fraudulent, Dishonest, or Illegal Acts

Coverage does not apply to loss caused by or resulting from criminal, fraudulent, dishonest, or illegal acts committed by any of the following alone or in collusion with another:

· 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, depending on the type of business or organization of the named insured.

· 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. It does not apply if employees steal.

However, this exclusion does not apply to covered property in the custody of a carrier for hire.

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 artificially. 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: Megan’s Appliances has fifteen refrigerators on the showroom floor. One of those refrigerators starts to sizzle and emit smoke before it erupts into flames. All the refrigerators and the rest of the store sustain smoke damage, but the two refrigerators on either side of the sizzling refrigerator sustain fire damage.

The sizzling refrigerator is not covered because the loss is due to artificially generated electrical current. However, the fire damage to the refrigerator is covered due to the exception.
The damage to all other refrigerators and the smoke damage throughout the store is covered because the exclusion only applies to the property that generates the current.

h. Fault, Defect, or Error

Loss or damage due to errors, faults, or defects in planning, zoning, surveying, site plans, grading, compacting, land use, or development is not covered. Additionally, loss or damage due to property related design, blueprint, specification, workmanship, building, maintaining, installing, renovating, remodeling, or the repairing errors, faults, or defects are also excluded. This exclusion applies whether or not the property is covered by this policy.

However, if loss or damage from one of the listed events results in a covered peril, then the loss or damage caused by that peril is covered.

i. Loss of Use

There is no coverage for loss resulting from delay, loss of use, or loss of market.

j. Mechanical Breakdown

Loss caused by mechanical failure is excluded. The only exception is when such an excluded loss results in a covered peril; in that case, the loss from the covered peril is covered.

k. Pollutants

There is no coverage for loss caused by or resulting from any release, discharge, seepage, migration, dispersal, or escape of pollutants. However, when a pollutant release results in a specified peril, the resulting loss from that specified peril to covered property is covered.

l. Rain, Sleet, Ice, or Snow

Loss or damage to covered property outside of the building or structure is not covered when the cause of the loss is rain, sleet, ice, or snow. However, this exclusion does not apply to property in transit.

m. Unauthorized Instructions

Coverage does not apply if a loss occurs due to the property being given to someone else or sent to a different location based on unauthorized instructions.

n. Voluntary Parting

There is no coverage for loss to covered property voluntarily given to others, even if the surrender was due to a fraudulent scheme, trick, or false pretense.

Example: Zachary is excited when Marked Down Appliances contacts him about purchasing some of his stock. They agree on terms and sign the contract. Marked Down provides a cashier’s check as a deposit and picks up the agreed items. A week later, Zachary learns that the cashier’s check was not honored. He then tries calling Marked Down’s cell phone, but it is disconnected. Zachary files a claim with his insurance, but it is denied because he voluntarily surrendered the property to Marked Down.

o. Wear and Tear

Loss or damage caused by wear and tear is excluded. However, if wear and tear leads to a covered peril, the resulting loss or damage from that peril is covered.

p. Weather

Loss or damage due to weather conditions is excluded, but only when the loss is caused by 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

The named insured must promptly inform the insurance company or its agent of any loss. The notice should describe the property lost or damaged. If a criminal act led to the loss, the relevant law enforcement agency must also be notified. The insurance company may specify the notice be provided in writing.

2. You Must Protect Property

During and after a loss, the named insured is required to take all reasonable steps to prevent further damage to covered property. The insurance company will cover reasonable costs incurred by the insured for this purpose, provided they keep accurate records to verify the costs. The expenses are part of the policy limits and not in addition to them.

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 named insured must complete and return the insurance company's required proof of loss forms within 60 days of the company requests. The information provided must be signed by the insured and include the time, place, and circumstances of the loss, as well as details on any other insurance coverage that may be applicable.

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.

VALUATION

1. Property Valuation

The valuation of covered property is as follows, subject to items 2. Pair or Set and 3. Loss to Parts below:

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. Property That Is Not Sold

Property not yet sold is valued at the purchase price, with transportation charges included if they were separate from the purchase price.

2. Pair or Set

The value of a loss involving damage or loss of one item from a pair or set is determined by a fair proportion of the total value of the entire pair or set. However, losing one part of a pair or set does not constitute a total loss.

NOTE: This recognizes the value of the whole is greater than the value of individual parts, but the remaining parts still have value as separates.

3. Loss to Parts

The value of a lost or damaged part, which comprises several parts, is determined by the cost to repair or replace just the lost or damaged part.

HOW MUCH WE PAY

1. Insurable Interest

The insurance company does not pay more than the named insured's insurable interest in the covered property at the time of loss.

2. Deductible

The insurance company pays only the amount of loss exceeding the deductible amount shown on the schedule of coverages.

3. Loss Settlement Terms

a. The insurance company pays the least of the following

The following are all subject to items 1., 2., 4., and 5. 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 that applies to the damaged property.

b. Catastrophe Limit

This applies only if a catastrophe limit is entered on the schedule of coverages.

When a covered peril causes loss or damage at more than one premises listed on the schedule, the most paid in a single occurrence is the lowest of the following:

· The total of the limits for covered property at all locations where the loss occurred.

· The catastrophe limit.

NOTE: When a catastrophe limit is entered on the schedule of coverages, it is crucial to adjust it any time the other limits on the declarations are increased to prevent an inadvertent capping.

4. Insurance under More Than One Coverage

Multiple coverages in a coverage form can cover the same loss. In such cases, the insurance company will only pay up to the actual value of the claim, loss, or damage incurred.

5. Insurance under More Than One Policy

a. Proportional Share

The named insured may have other coverage subject to the same terms as this coverage form. In such cases, this coverage form will only pay its proportionate share of the covered loss. This share is determined by the ratio of its limit of insurance to the total limits of all insurance that covers the same event.

b. Excess Amount

There may be another policy available to cover the loss, aside from what is described in item 5.a. above. In such cases, this coverage will apply on an excess basis. It will only pay the amount of the covered loss that exceeds the amount provided by the other policy, regardless of whether that other coverage can be collected. Any payment made is subject to the applicable limit of insurance.

LOSS PAYMENT

1. Loss Payment Options

a. Our Options

The insurance company has 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.

· Take any part or all the property based on the value that has been agreed upon or determined through appraisal.

b. Notice of Our Intent to Rebuild, Repair, or Replace

The insurance company is required to inform the named insured of its intent to rebuild, repair, or replace within 30 days after receiving a properly completed proof of loss.

2. Your Losses

a. Adjustment and Payment of Loss

The insurance company settles all claims with the named insured. It will also only pay the named insured unless there is a loss payee listed on the policy.

b. 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.

3. Property of Others

a. Adjustment and Payment of Loss to Property of Others

The insurance company can adjust and pay losses involving others' property to either the named insured on behalf of the property owner or directly to the property owner.

b. We Do Not Have to Pay You if We Pay the Owner

The insurance company is not obligated to pay the named insured when it pays the property owner. Additionally, if the property owner sues the named insured, the company has the option to defend the named insured in that lawsuit.

REPORTING CONDITIONS

1. Reports

Reports must be submitted in writing and should detail the full amount of the named insured's interest in the property described as of the last day of the month. The full reported value may exceed the limit on the schedule.

NOTE: An unusual feature of this reporting form is the named insured reports its full amount of interest in the property instead of reporting values.

2. When Reports Are Due

Reports are due within 30 days following the end of the month.

NOTE: This means the February report is due on March 31, the March report is due on April 30, and so on.

3. The Reports Must Show

a. Reports for single interest coverage must provide the following:

· When the lender is the named insured, the reports should reflect the total unpaid balance.

· When the dealer is the named insured, the reports should reflect the total payments made to the lender.

b. When coverage is for dual interests, the report is to provide the total values of the insured property.

4. Coverage Limitation

When calculating earned premium, the total reported amount is used. However, in the event of a loss, the insurance company will pay only up to the limit listed on the schedule of coverage.

NOTE: The amounts reported are used to determine the premium earned. The limit on the schedule of coverages is the most paid, regardless of the amount reported. As a result, if the amounts reported exceed the limit, the named insured pays a premium based on the amounts reported but receives only the limit in case of loss or damage.

5. If Coverage Is Cancelled

If coverage is cancelled, the report must include the named insured’s full interest in all covered property as of the cancellation date. The reported amount does not change the limit shown on the schedule of coverages.

6. Premium Adjustment

The deposit premium listed on the schedule of coverages is an estimate and is subject to adjustment. The actual earned premium is calculated by multiplying the reported amount each month by the monthly rate. If the total premium determined exceeds the deposit premium, the named insured will pay the insurance company the difference. If the amount is less than the deposit, the insurance company refunds the difference to the named insured, subject to any applicable minimum premium.

7. Limitations on the Amount We Will Pay

a. Full Reporting Requirement

The named insured must report the full amount of their interest in all described property to the insurance company. If they do not report the full amount, the company will only pay a portion of the loss. That portion is calculated by dividing the amount last reported by the named insured's actual full interest in the property at the time the report was made. This percentage is then applied to the adjusted loss to determine the amount paid.

b. Late Reports

A report might be late or not received on time. In such cases, the insurance company will only pay up to the amount stated in the most recent report received before the loss. If the loss occurs before the first report is filed, the company will only pay up to 90% of the amount otherwise covered.

OTHER CONDITIONS

1. Appraisal

The insurance company and the insured may not always agree on the value of a covered claim. This condition provides one method to resolve disputed claims.

Either party can request an appraisal to determine the value of the disputed claim. Once requested, the parties have 20 days to obtain their own independent and competent appraisers and provide the other party with the name of their appraiser. The two appraisers then have 15 days to select a competent impartial umpire. If they cannot agree on an umpire within that time period, either party can request a judge in the court of record, in the state where the property is located, to appoint one.

The appraisers then determine the claim’s value and submit any disagreements to the umpire. Once any two of the three parties agree, the loss amount is final.

Each party is responsible for paying its own appraiser. Both parties equally share the cost of the umpire and other expenses.

2. Benefit to Others

The insurance provided does not directly or indirectly benefit any party with custody of the named insured's property.

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

When the named insured passes away, the individual in custody of the insured's property remains an insured for that property until a qualified legal representative is appointed. After the appointment of the legal representative, that person becomes an insured, but only for the property covered under this policy.

b. Policy Period is not Extended

This coverage does not extend past the policy’s expiration date.

5. Liberalization

Any revisions to this coverage form or applicable endorsements that become effective during the policy period or within six months of the coverage effective date that broadens coverage without an additional premium will apply to this policy.

6. Misrepresentation, Concealment, or Fraud

This coverage is void if any insured at any time willfully concealed or misrepresented a material fact related to the insurance provided, the property covered, or their interest in the property. It is also void if any insured engaged in fraud or false swearing with respect to the insurance provided or the property covered.

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 party responsible for the loss reimburses for the damage.

Either party that recovers property or payment must notify the other. Recovery expenses incurred 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 the company's respective interests in the loss.

9. Restoration of Limits

Payment of a claim does not reduce the limit available for future claims.

10. Subrogation

The insurance company gains the right of recovery from third parties on behalf of the named insured after paying a loss. The named insured is required to assist the company in securing these rights. The company is not required to pay the loss if the named insured obstructs or weakens its subrogation rights.

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 the loss. If 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 common for a basic coverage form to be modified by required state-specific endorsements that address issues related to that state.

12. Territorial Limits

Coverage is only valid if the covered property is located in the United States, its territories and possessions, Canada, or Puerto Rico.

13. Dual Interest

When this policy is issued on a dual interest basis, all interested parties are subject to the conditions of this policy. However, there is an exception: the secured lender’s interest is not impaired if the dealer or any other party fails to comply with coverage provisions, provided the lender attempts to comply with those provisions.

NOTE: This is an especially important condition. The secured lender’s interest is protected similarly to mortgagees under commercial property coverage forms. If the dealer fails to comply with one or more policy conditions that affect a loss, then the lender's interest in the property is negatively impacted. Of course, this protection only applies as long as the lender either did not know or did know and then took proactive steps to comply with those conditions.

Example: Zachary and First Friends are covered under a dual interest coverage form. Zachary submits a claim but refuses to cooperate or undergo an examination. First Friends is willing to do both and attempts to use their influence with Zachary to comply. The insurance carrier refuses to pay Zachary, but due to First Friends efforts, First Friends receives payment for its interest; however, Zachary is denied coverage for his interest.

14. Business Records

The named insured must keep business records throughout the policy period and retain them for at least 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 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 since it requires the named insured to keep records in a specified manner. However, it is common in Inland Marine dealer coverage forms, but not in commercial property coverage forms.

ENDORSEMENTS

AAIS has developed two endorsements to use with Floor Plan Merchandise Coverage.

IM 1111–Limit of Loss–Single Interest for Lending Institutions

This endorsement is added to only single interest policies covering lenders. It modifies How Much We Pay to pay for a loss when the lender's interest is impaired.

IM 1112–Limit of Recovery–Single Interest for Lending Institutions

This endorsement applies only to single interest policies. It amends Other Conditions regarding Subrogation and prevents the insurance company from attempting to recover for a loss from the dealer without the insured lender's consent.

UNDERWRITING CONSIDERATIONS

This coverage should be underwritten in the same manner as business personal property. The primary concern is the construction, operations, and common and special hazards of the specific occupancy, as well as the public and private fire protection and exposures presented by neighboring occupancies affecting the insured’s operations. Theft and vandalism might also be significant considerations, depending on the type of merchandise and security measures used to protect against these risks. These perils must be evaluated carefully.