AAIS VALUABLE PAPERS
AND RECORDS COVERAGE ANALYSIS
(August 2025)
|
IM 1555–Schedule of Coverages–Valuable
Papers and Records IM 1550–Valuable Papers and Records
Coverage Analysis |
The American
Association of Insurance Services (AAIS) offers Valuable Papers and Records
Coverage specifically designed for commercial enterprises to protect important
business documents. This includes a wide range of materials, such as books,
records, manuscripts, maps, prints, deeds, mortgages, as well as copyright and
patent rights related to key products. The loss or damage of these vital
documents can significantly impact a business's operations.
While this coverage
form is less commonly used than in the past, it remains a critical option for
businesses. Many commercial property insurance policies now include Valuable
Papers and Records Coverage as an additional coverage or an extension with healthy
sub-limits. Despite its reduced prevalence, this coverage form typically
provides broader protection for valuable documents and materials..
Any commercial account
is eligible to purchase coverage for Valuable Papers and Records. While items
such as money, securities, bank notes, checks, travelers' checks, stamps,
tokens, tickets, and data processing media may be considered valuable papers,
they are not included or eligible under this coverage form.
AAIS Valuable Papers
and Records Coverage requires at least these four forms:
Related Article: CL 0100 AAIS
Commercial Lines Common Policy Conditions
This Schedule of
Coverages is used with IM 1550–Valuable Papers and Records Coverage. IM 1555
contains the following information:
A location number and
address must be provided for each premises, along with the limit.
Property Away From
Described Premises is covered automatically for $5,000. Additional amounts can
be added for an additional charge. The $5,000 or higher limit must be entered
in the space provided.
Coverage is provided on
a blanket basis, but property that cannot be replaced with like kind and
quality must be scheduled separately. These items should be specifically
described with their item and location numbers, along with the desired limit.
Additionally, their insured limit should be deducted from the overall limit at
the described premises to prevent duplicate coverage.
NOTE: This is a very
important provision. Many eligible documents are dynamic, and their values can
change. Others are unique or "one of a kind" and cannot be valued
using standard valuation methods and techniques. Whenever an insured has unique
or unusual papers or records with high or fluctuating values, they should be
identified and specifically scheduled with their own limit(s). They should not
be combined with other common documents where their values might not get the
attention they deserve, and the total value might be insufficient at the time
of loss.
A specific amount the
insured must pay out-of-pocket for each covered loss.
Spaces are available to
enter the following for each location with a storage container:
NOTE: Valuable
papers and records stored outside of designated containers are not covered when
the business is closed. This means entries in this section must be accurate.
Two optional
endorsements are available based on entries on the schedule of coverages.
This endorsement does
not cover losses caused by electronic data processing equipment, computer
programs, software, media, or data that fail to accurately recognize,
interpret, or process any encoded, encrypted, or abbreviated date or time.
This endorsement adds
other Property Not Covered and Perils Excluded specific to library risks.
Valuable Papers and
Records Coverage is written on a non-reporting basis. This section includes
spaces to record the annual premium and the rates for blanket property and
scheduled items.
This analysis is based on the 01 05 edition.
This section states that the insurance company provides the coverage
described in exchange 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 included in the schedule of coverages also apply.
There is a statement indicating that certain words and phrases
highlighted in bold print in the coverage form are defined in the Definitions
section 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.
Defined words are used
throughout the coverage form. When these terms appear in the coverage form, the
meaning provided in this section must be applied.
NOTE: The Editors added
titles to enhance clarity.
The
parties specifically listed on the declarations as insureds.
The
insurance company providing the coverage.
The applicable coverage
amount.
Any page labeled as
such that includes coverage details, including declarations or supplemental
declarations.
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.
The definition
contains the following specifically named perils:
Two terms require
further clarification:
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.
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.
All provisions, limitations, exclusions, conditions, and definitions
relevant to the coverage provided.
These are inscribed, printed or written documents, manuscripts, or
records. The term also includes abstracts, books, deeds, drawings, films, maps,
and mortgages.
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.
The insurance company covers property
described below unless it is excluded or subject to specific limitations.
Direct
physical loss to the insured's owned valuable papers is covered if caused by a
covered peril. Damage to similar or related property of others in its care,
custody, or control is also covered.
Coverage applies only
to valuable papers and records located inside a building at the premises
specified in the schedule of coverages.
Once the premises has
closed for business, coverage only applies to the valuable papers or records
that are stored in the containers specified in the schedule of coverages. The
only exception to this rule is if the named insured or their employees are actively
using these papers or records at the time of the loss; in that case, coverage
will still apply.
There is no coverage
for the following property:
The data processing
media on which data is stored is not covered. Examples of such media are magnetic
tapes, disk packs, diskettes, paper tapes, and cards, but other storage media
is also not covered. This only refers to the media, documents, manuscripts, or
records stored on such media, which remain covered.
Accounts, bills,
currency, coins, and food stamps are not covered. Travelers and registered
checks, lottery tickets not held for sale, money orders, notes, and securities
are also not covered. Other evidence of debt is likewise not covered. This
property is more accurately insured under commercial crime coverage forms.
NOTE: Lottery tickets not
being held for sale are not excluded. This means lottery tickets held for sale
are covered. Additionally, a court may have to define the term “other evidence
of debt” if a dispute arises.
Related
Article: Commercial Crime Coverage Analysis
Property sold but not
yet delivered is not covered.
Valuable papers stored
at a location not shown on the schedule of coverages are not covered.
Valuable papers that
cannot be replaced with similar materials are not covered, except for those
specifically listed, described, and with a limit entered on the schedule of
coverages.
Any samples being held for
sale are not covered.
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.
This covers direct
physical loss to property removed from a scheduled location to prevent
damage from an impending covered peril. The 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.
The insured
must provide written notice to the insurance company within ten days of moving
the property. Coverage will
not extend beyond the expiration date.
NOTE: The
coverage form does not specify a specific time limit for this coverage, other
than it will not extend past the policy's expiration date.
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.
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Example: Arnie's
Architects has many documents that qualify as valuable papers and records.
His coastal Florida office is threatened by the imminent landfall of a
category four hurricane, he is sure will level his establishment. Arnie packs
up these records, puts them in a truck, and begins to drive inland. Unfortunately, he takes a 25 mph exit at 50 mph,
the truck overturns, and the contents are destroyed. Coverage applies to his
valuable papers and records for the full limits on the schedule of coverages because
of this coverage extension. |
Direct physical loss to
valuable papers and records away from locations listed on the schedule of
coverages is covered when caused by a covered peril.
Valuable papers in
storage away from the scheduled locations are not covered.
The automatic coverage
limit provided is $5,000 per loss, but it can be increased on the schedule of
coverages.
The limit provided is separate from the
limit that applies to other Property Covered.
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Example: Arnie constantly takes engineering
studies, architectural drawings, and plans out of the office to meet with his
clients at their offices and building sites. When he or one of his associates
does so, this coverage extension applies, and those documents are fully
insured when away from the designated premises. Arnie recognizes his exposure
and schedules a higher limit. |
Coverage applies to
risks of direct physical loss unless the loss is limited or caused by an
excluded peril.
Coverage
for collapse is provided when caused by one or
more of the following:
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.
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.
The
following buildings and structures are not considered to be in a
state of collapse:
The covered property limit does not increase for this coverage.
There is no coverage
for loss resulting from an order issued by any civil or government
authority. These orders may include seizure, confiscation, destruction, or
quarantine of property, but this list is not exhaustive. The only exception is
when a civil authority destroys property to control a fire that causes loss or
damage. This exception applies only if the fire is caused by a covered peril.
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.
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.
NOTE: This means the exception for fire resulting from a
nuclear hazard does not apply when it is caused by war.
The second group of exclusions
pertains to loss or damage caused by or resulting from specific events listed
below. Some of these exclusions include exceptions, conditions, or limitations
that should be noted and carefully reviewed. The insurance company will
not cover any loss or damage caused by or resulting from any of these events.
There is no coverage for losses caused by or resulting from the acts or
decisions of any person, organization, or government entity. This exclusion
also applies to instances where there is a failure to act or make a decision.
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.
Coverage does not apply to loss or damage due to nesting, infestation,
or the discharge or release of waste, secretions, or other substances by
animals. In this context, animals include, but are not limited to, birds,
insects, and vermin. However, if any of these excluded events result in a
covered peril, the loss or damage that peril causes is covered.
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.
Loss or damage caused by contamination or deterioration
is excluded. This includes corrosion, decay, fungus, mildew, mold, rot, and
rust. It also applies to any quality, fault, or weakness in the 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.
Coverage does not apply
to loss caused by, or resulting from criminal, fraudulent, dishonest, or
illegal acts committed by any of the following, whether alone or in collusion
with others:
·
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.
No coverage is provided for loss caused by electrical or magnetic
damage, disturbance, or erasure of electronic recordings. However, there is an
exception to this exclusion. Coverage applies to loss or damage caused by
lightning.
Losses caused by processing,
duplicating, or copying errors or omissions are excluded. However, when an
error or omission results in a fire or explosion, any resulting loss or damage
from that fire or explosion is covered.
|
Example: Arnie needs help and hires Phil and
Jill, two of his retired employees, to help him. They work after hours and make
timely progress in duplicating the records. Scenario 1: One evening, Phil decides to use the
automatic feeder when photocopying a fragile document. The document jams in
the feeder and is destroyed. This loss is not covered because it occurred
during duplication. Scenario 2: Jill spills coffee on an electrical
cord, which causes a small fire. The smoke from that fire destroys a
different fragile document. This loss is covered. |
An important provision is 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.
Coverage does not apply to
losses from delays, loss of use, or loss of market.
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.
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.
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.
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.
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.
The
value of the covered property is its
actual cash value on the date of loss. Actual Cash Value is replacement cost
new minus depreciation. This item is subject to items 2. through 4. of this
section.
The property listed as
scheduled property on the schedule of coverages is valued at the specified
limit for that particular property.
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 part still has
value as a separate.
|
Example: Arnie has a
complete set of an architectural encyclopedia that is out of production. He especially schedules the set. One day, Arnie
finds his office door jimmied open, and the office vandalized. Two of the 16
volumes were removed from their scheduled container. The value of the set is
diminished significantly by the loss of the volumes, so a payment in excess
of the proportional value is paid. |
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.
NOTE: This recognizes that the whole is more
valuable than the sum of its parts, but the individual parts still retain value
on their own.
The insurance company will not
pay more than the insured's insurable interest in the covered property at the
time of loss.
The insurance company pays only
the amount of loss exceeding the deductible amount shown on the Schedule of
Coverages for any one occurrence.
The insurance company
pays the least of the following, subject to items 1., 2., 4., and 5. in this
section:
o
The
material must be of like kind and quality or as similar as practicable.
|
Example: Arnie’s carrier is able to locate the missing volumes of
Arnie’s encyclopedia, and the volumes are in the same, if not better,
condition as the rest of the set. Since the cost to purchase those volumes is
less than the valuation, the volumes
are replaced, and Arnie does not receive a cash settlement. |
The insurance company has the following loss payment
options in the event of a covered loss:
·
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.
|
Example: Arnie’s carrier notified him 15 days after
he submitted the properly completed proof of loss that it was replacing the
volumes rather than making a cash settlement. Arnie has mixed emotions
because he had some plans for the money. |
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.
This condition is applicable only when
the insured is an individual.
This coverage does not extend past the policy’s expiration
date.
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.
Only covered losses
occurring during the policy period are paid.
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.
Payment of a claim does not
reduce the limit available for future claims.
The named insured can agree in writing to waive
recovery rights from any party, but only if this is done before a loss occurs.
NOTE: It is common for a basic coverage
form to be modified by required state-specific endorsements that address issues
related to that state.
AAIS has developed two
endorsements to use with Valuable Papers and Records Coverage.
This endorsement
restricts coverage for library risks. Property in the Custody of a Borrower is
now classified as Property Not Covered. Additional exclusions specify that
coverage does not apply to certain damages caused by a borrower or library
user, such as vandalism, failure to return books, and the mysterious
disappearance of books.
This endorsement
removes coverage for losses caused by any failure of electronic data processing
equipment, computer programs, software, media, or data to accurately recognize,
interpret, or process encoded, abbreviated, or encrypted date or time information.
Aside from determining
the location to be insured, the coverage limits, and the types of storage
containers used, the most critical aspect of underwriting this coverage is to
specifically identify the documents. The named insured must be informed about the
types of papers and records that can and should be covered.
The only way to ensure
full recovery for a unique document or record is to schedule it and assign a
value to it. If the papers or records can be duplicated, duplicates should be
made and stored elsewhere.