New Insurance Services Office, Inc. (ISO), commercial property forms and endorsements bearing an October 2000 edition date became available for use in a majority of jurisdictions in the first and second quarters of 2001. The 2000 revisions to the ISO commercial property portfolio affect 11 coverage forms, all 3 causes of loss forms, 24 coverage endorsements, and a number of schedule endorsements. This article reviews the changes to the building and personal property coverage form (CP 00 10). An exhibit summarizing the changes appears at the end of the discussion.
New Increased Cost of Construction Additional Coverage
One of the key changes in the 2000 edition is a new additional coverage for increased cost of construction resulting from building laws enforcement. For each damaged building insured on a replacement cost basis, coverage is provided for increased costs incurred to comply with ordinances or laws regulating the construction or repair of buildings or establishing zoning or land use requirements. The limit for this additional coverage is the lesser of: $10,000 or 5 percent of the limit of insurance applicable to the building. (If the damaged building is subject to a blanket limit, the increased cost of construction limit is the lesser of: $10,000 or 5 percent of the value of the damaged building at time of loss multiplied by the applicable coinsurance percentage.)
Note that no coverage is provided for the cost of demolishing any undamaged property, the loss of any undamaged portions of the building that must be demolished, or the cost of upgrading undamaged portions of the building. Full coverage for building ordinance loss exposures is available under the ordinance or law coverage endorsement, CP 04 05.
New Non-Owned Detached Trailers Coverage Extension
It has become very common for trucking companies delivering goods to insureds to leave the trailer for unloading by the insured and return later to retrieve the empty trailer. The insured is usually responsible for any damage to or theft of the trailer while it is on the insured's premises. Using rented trailers as storage facilities is another increasingly common business practice that subjects the insured to liability for damage to this type of property of others. The non-owned detached trailers coverage extension included in the 2000 edition of the building and personal property coverage form is designed to respond to these loss exposures. It provides a small amount of automatic coverage on trailers used in the insured's business, but not owned by the insured. Coverage applies only if the loss or damage takes place when the trailer is in the insured's custody and only if the insured is contractually obligated to pay for the loss or damage. The limit is $5,000, unless a higher limit is shown in the declarations. This coverage is excess over any amount due from other insurance.
No coverage applies to loss occurring while the trailer is attached to a vehicle, even if the vehicle is not in motion, or to loss occurring during hitching or unhitching. Keep in mind that this coverage is subject to the applicable causes of loss form, and that only the special causes of loss form (CP 10 30) provides coverage for theft.
For consistency with this new coverage extension, a related change has been made to the property not covered provision. Specifically, a fourth exception has been added to Exclusion 2.o., which precludes coverage for vehicles or self-propelled machines that are licensed for use on public roads or operated principally away from the covered premises. The new exception establishes that the vehicle exclusion does not apply to trailers that are covered under the non-owned detached trailer coverage extension.
Expansion of the Property Off-Premises Extension
In the 2000 edition of the form, the $10,000 property off-premises coverage extension has been expanded to apply to the following.
Stock
Business personal property at fairs, trade shows, or exhibitions
Business personal property that is in storage at a location leased by the insured, provided that the lease was signed after the inception of the policy period
In prior editions, the property off-premises coverage extension specifically excluded stock and property at fairs, exhibitions, and locations leased by the insured.
Changes to Newly Acquired Property Coverage Extension
Several changes have been made to the newly acquired property coverage extension in the 2000 edition of the form. New language added to the business personal property portion of the extension specifies that coverage applies to all of the following.
Newly acquired business personal property at existing locations
Business personal property (regardless of whether it is newly acquired) at any newly acquired location other than at fairs, trade shows, or exhibitions
Business personal property (regardless of whether it is newly acquired) at newly constructed or acquired buildings at the insured premises
Prior editions specifically granted coverage for business personal property at newly acquired locations only. There was no language establishing coverage for business personal property in newly constructed buildings at the insured's premises or for newly acquired business personal property at existing locations.
New language also specifies that this coverage extension does not apply to personal property of others that is temporarily in the insured's possession in the course of the insured's installation or other work on that property, or in the course of the insured's manufacturing or wholesaling activities.
Finally, in the 2000 edition, the 30-day coverage period applicable to newly acquired property begins on the date of acquisition or start of construction of the portion of the building that would qualify as covered property. In prior editions, the 30-day coverage period begins on the date of acquisition or start of construction. This change is an acknowledgment of the practice in some geographic areas of pouring building foundations in the fall and deferring all remaining construction until the following spring. Since underground foundations are excluded from coverage unless the policy is endorsed to the contrary, the pouring of an underground building foundation would not trigger the 30-day coverage period under the new language.
New Replacement Cost Option for Personal Property of Others
In pre-2000 editions of the building and personal property coverage form, personal property of others is one of several categories of property that are covered at actual cash value even when the form's replacement cost coverage option has been elected. However, the 2000 edition of the building and personal property coverage form contains a new option to cover personal property of others on a replacement cost basis, provided that the insured is liable for it under a written contract. The property will be valued at the amount of the insured's liability under that contract, up to the lesser of its replacement cost or the limit of insurance. Note that this option is available only to insureds that have elected to value their own property at its replacement cost, using the replacement cost coverage option.
Replacement Cost Option Clarifications
The 2000 edition includes several editorial changes to the replacement cost provision. New language has been added to clarify how the replacement cost option applies to tenants' improvements and betterments, as follows.
This property is not considered personal property of others, and is, therefore, covered on a replacement cost basis if the replacement cost option has been elected.
If tenants' improvements and betterments are not repaired or replaced, or are not repaired or replaced "as soon as reasonably possible after the loss," the valuation basis will be a portion of the insured's original cost, as outlined in the form's valuation condition.
The insurer will not pay for loss to tenants' improvements and betterments if someone else (such as the landlord or the landlord's insurer) pays for repairs or replacement.
Also, the 2000 edition includes a statement making it explicit that, if a covered building is rebuilt at a new location, loss recovery is limited to the amount it would have cost to rebuild at the existing location.
Vacancy Definition
In the 2000 edition of the form, changes have been made to the vacancy definition that applies to insured building owners, as follows.
The definition of vacancy has been revised to specifically apply to general lessees of buildings as well as building owners. Prior editions made no mention of general lessees of buildings.
The square footage occupancy requirement has been restated, but not materially changed. In the 2000 edition, a building is considered vacant unless at least 31 percent of its total square footage is used to conduct customary operations, whereas in the 1995 edition, a building is considered vacant when 70 percent or more of its square footage is not used to conduct customary operations.
The language of the definition has been revised to establish that the square footage occupancy requirement also applies to leased space. In the 2000 edition, a building is considered vacant unless at least 31 percent of its total square footage is used by the building owner, a lessee, or a sub-lessee to conduct their customary operations. In contrast, the language of the 1995 edition specifies that a building is considered vacant when 70 percent or more of its square footage is either not rented or not used to conduct customary operations.
A new endorsement, vacancy changes (CP 04 60), allows for the 31 percent square footage occupancy requirement to be replaced by a lower percentage specified in the endorsement schedule. ISO's Commercial Lines Manual suggests the use of this endorsement only in situations where an occupancy level lower than 31 percent does not present the hazards associated with vacancy.
Deductible Provision Revised
The 2000 edition of the form includes both editorial and substantive revisions to the deductible provision. The first paragraph has been editorially revised to specify the sequence of steps used in determining the amount from which the deductible will be subtracted. The second paragraph has been rewritten in a way that potentially changes the application of the deductible when more than one item of property is damaged in a single loss occurrence and more than one limit of insurance applies.
The reason for including some sort of language addressing this issue is that the application of the deductible does not always reduce the insured's loss recovery. If the loss amount exceeds the applicable limit plus the deductible, the insurer must pay the applicable limit of insurance (assuming that there is no coinsurance penalty). Therefore, when two separate limits apply to the property damaged in a given loss, the insured's total loss recovery could be affected, depending on which coverage items the deductible is applied to. In some such situations, the application of the deductible to one of the coverage items would have the effect of reducing the insured's loss recovery, whereas applying it to the other coverage item would not.
The language of the 1995 edition essentially stipulates that, in such situations, the deductible will be applied so as to reduce the loss recovery. The new language in the 2000 edition doesn't go that far. It states that the losses cannot be combined in determining the application of the deductible, but does not specify which item the deductible will be applied to.
In the 2000 edition of CP 00 10, the language granting $10,000 of additional debris removal coverage under certain circumstances has been deleted from the limit of insurance provision and added to the debris removal provision. Also, examples illustrating the calculation of the debris removal coverage amount have been added and a few other editorial changes have been made to the provision. There are no resulting changes in coverage.
Loss Payment Provision Clarified
In the 2000 edition of the building and personal property coverage form, the loss payment provision has been amended to specify that the value of covered property will be determined in accordance with the form's valuation condition or any provision that amends or supersedes that provision. This new language makes it clear that loss payment will be in accordance with valuation provisions established in an endorsement to the policy, if applicable.
Personal Effects of Limited Liability Company Members and Managers
In the 2000 edition, the personal effects and property of others coverage extension has been revised to apply to personal effects of members and managers of limited liability companies. The language of prior editions did not address this new type of business organization.
Summary of Changes
The following table provides a summary of the changes made in the 2000 edition of the building and personal property coverage form (CP 00 10).
Summary of 2000 Changes to CP 00 10
Increased cost of construction coverage. This new additional coverage provides the lesser of $10,000 or 5 percent of the building limit for increased cost of construction resulting from building laws enforcement.
Non-owned detached trailers coverage. This new coverage extension provides $5,000 of coverage, unless a higher limit is shown in the declarations. A corresponding exception has been added to property not covered provision
Property off premises. This coverage extension has been expanded to apply to stock, property in storage at newly leased locations, and property at fairs, trade shows, or exhibitions.
Newly acquired property. This coverage extension has been expanded to apply to business personal property at newly constructed locations and to newly acquired business personal property at existing locations. Also, the 30-day coverage period has been revised to begin on date of acquisition or start of construction of a portion of the building qualifying as covered property.
Replacement cost coverage. This option has been revised to clarify how it applies to tenants' improvements and betterments.
Replacement cost coverage on personal property of others. If elected, this new coverage option extends the replacement cost coverage option to apply to personal property of others for which the insured is liable.
Vacancy definition. The square footage occupancy requirement has been restated. Also, the definition has been revised to apply to general lessees of buildings and the square footage occupancy requirement has been revised to apply to leased space.
Deductible. The first paragraph of the provision has been editorially revised. The second paragraph, addressing the application of the deductible when more than one item of property is damaged and more than one limit applies, has been substantively revised.
Debris removal. This coverage provision has been editorially revised. A corresponding change has been made to the limits of insurance provision.
Loss payment. This provision has been revised to make it clear that loss payment will be in accordance with valuation provisions established in an endorsement to the policy, if applicable.
Personal effects. The personal effects and property of others coverage extension has been revised to apply to personal effects of members and managers of limited liability companies.
Conclusion
Upcoming articles will provide overviews of the changes to the business income and extra expense coverage form (CP 00 30) and the causes of loss forms (CP 10 10, CP 10 20, and CP 10 30).
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
New Insurance Services Office, Inc. (ISO), commercial property forms and endorsements bearing an October 2000 edition date became available for use in a majority of jurisdictions in the first and second quarters of 2001. The 2000 revisions to the ISO commercial property portfolio affect 11 coverage forms, all 3 causes of loss forms, 24 coverage endorsements, and a number of schedule endorsements. This article reviews the changes to the building and personal property coverage form (CP 00 10). An exhibit summarizing the changes appears at the end of the discussion.
New Increased Cost of Construction Additional Coverage
One of the key changes in the 2000 edition is a new additional coverage for increased cost of construction resulting from building laws enforcement. For each damaged building insured on a replacement cost basis, coverage is provided for increased costs incurred to comply with ordinances or laws regulating the construction or repair of buildings or establishing zoning or land use requirements. The limit for this additional coverage is the lesser of: $10,000 or 5 percent of the limit of insurance applicable to the building. (If the damaged building is subject to a blanket limit, the increased cost of construction limit is the lesser of: $10,000 or 5 percent of the value of the damaged building at time of loss multiplied by the applicable coinsurance percentage.)
Note that no coverage is provided for the cost of demolishing any undamaged property, the loss of any undamaged portions of the building that must be demolished, or the cost of upgrading undamaged portions of the building. Full coverage for building ordinance loss exposures is available under the ordinance or law coverage endorsement, CP 04 05.
New Non-Owned Detached Trailers Coverage Extension
It has become very common for trucking companies delivering goods to insureds to leave the trailer for unloading by the insured and return later to retrieve the empty trailer. The insured is usually responsible for any damage to or theft of the trailer while it is on the insured's premises. Using rented trailers as storage facilities is another increasingly common business practice that subjects the insured to liability for damage to this type of property of others. The non-owned detached trailers coverage extension included in the 2000 edition of the building and personal property coverage form is designed to respond to these loss exposures. It provides a small amount of automatic coverage on trailers used in the insured's business, but not owned by the insured. Coverage applies only if the loss or damage takes place when the trailer is in the insured's custody and only if the insured is contractually obligated to pay for the loss or damage. The limit is $5,000, unless a higher limit is shown in the declarations. This coverage is excess over any amount due from other insurance.
No coverage applies to loss occurring while the trailer is attached to a vehicle, even if the vehicle is not in motion, or to loss occurring during hitching or unhitching. Keep in mind that this coverage is subject to the applicable causes of loss form, and that only the special causes of loss form (CP 10 30) provides coverage for theft.
For consistency with this new coverage extension, a related change has been made to the property not covered provision. Specifically, a fourth exception has been added to Exclusion 2.o., which precludes coverage for vehicles or self-propelled machines that are licensed for use on public roads or operated principally away from the covered premises. The new exception establishes that the vehicle exclusion does not apply to trailers that are covered under the non-owned detached trailer coverage extension.
Expansion of the Property Off-Premises Extension
In the 2000 edition of the form, the $10,000 property off-premises coverage extension has been expanded to apply to the following.
In prior editions, the property off-premises coverage extension specifically excluded stock and property at fairs, exhibitions, and locations leased by the insured.
Changes to Newly Acquired Property Coverage Extension
Several changes have been made to the newly acquired property coverage extension in the 2000 edition of the form. New language added to the business personal property portion of the extension specifies that coverage applies to all of the following.
Prior editions specifically granted coverage for business personal property at newly acquired locations only. There was no language establishing coverage for business personal property in newly constructed buildings at the insured's premises or for newly acquired business personal property at existing locations.
New language also specifies that this coverage extension does not apply to personal property of others that is temporarily in the insured's possession in the course of the insured's installation or other work on that property, or in the course of the insured's manufacturing or wholesaling activities.
Finally, in the 2000 edition, the 30-day coverage period applicable to newly acquired property begins on the date of acquisition or start of construction of the portion of the building that would qualify as covered property. In prior editions, the 30-day coverage period begins on the date of acquisition or start of construction. This change is an acknowledgment of the practice in some geographic areas of pouring building foundations in the fall and deferring all remaining construction until the following spring. Since underground foundations are excluded from coverage unless the policy is endorsed to the contrary, the pouring of an underground building foundation would not trigger the 30-day coverage period under the new language.
New Replacement Cost Option for Personal Property of Others
In pre-2000 editions of the building and personal property coverage form, personal property of others is one of several categories of property that are covered at actual cash value even when the form's replacement cost coverage option has been elected. However, the 2000 edition of the building and personal property coverage form contains a new option to cover personal property of others on a replacement cost basis, provided that the insured is liable for it under a written contract. The property will be valued at the amount of the insured's liability under that contract, up to the lesser of its replacement cost or the limit of insurance. Note that this option is available only to insureds that have elected to value their own property at its replacement cost, using the replacement cost coverage option.
Replacement Cost Option Clarifications
The 2000 edition includes several editorial changes to the replacement cost provision. New language has been added to clarify how the replacement cost option applies to tenants' improvements and betterments, as follows.
Also, the 2000 edition includes a statement making it explicit that, if a covered building is rebuilt at a new location, loss recovery is limited to the amount it would have cost to rebuild at the existing location.
Vacancy Definition
In the 2000 edition of the form, changes have been made to the vacancy definition that applies to insured building owners, as follows.
A new endorsement, vacancy changes (CP 04 60), allows for the 31 percent square footage occupancy requirement to be replaced by a lower percentage specified in the endorsement schedule. ISO's Commercial Lines Manual suggests the use of this endorsement only in situations where an occupancy level lower than 31 percent does not present the hazards associated with vacancy.
Deductible Provision Revised
The 2000 edition of the form includes both editorial and substantive revisions to the deductible provision. The first paragraph has been editorially revised to specify the sequence of steps used in determining the amount from which the deductible will be subtracted. The second paragraph has been rewritten in a way that potentially changes the application of the deductible when more than one item of property is damaged in a single loss occurrence and more than one limit of insurance applies.
The reason for including some sort of language addressing this issue is that the application of the deductible does not always reduce the insured's loss recovery. If the loss amount exceeds the applicable limit plus the deductible, the insurer must pay the applicable limit of insurance (assuming that there is no coinsurance penalty). Therefore, when two separate limits apply to the property damaged in a given loss, the insured's total loss recovery could be affected, depending on which coverage items the deductible is applied to. In some such situations, the application of the deductible to one of the coverage items would have the effect of reducing the insured's loss recovery, whereas applying it to the other coverage item would not.
The language of the 1995 edition essentially stipulates that, in such situations, the deductible will be applied so as to reduce the loss recovery. The new language in the 2000 edition doesn't go that far. It states that the losses cannot be combined in determining the application of the deductible, but does not specify which item the deductible will be applied to.
Debris Removal Coverage Provision Editorially Revised
In the 2000 edition of CP 00 10, the language granting $10,000 of additional debris removal coverage under certain circumstances has been deleted from the limit of insurance provision and added to the debris removal provision. Also, examples illustrating the calculation of the debris removal coverage amount have been added and a few other editorial changes have been made to the provision. There are no resulting changes in coverage.
Loss Payment Provision Clarified
In the 2000 edition of the building and personal property coverage form, the loss payment provision has been amended to specify that the value of covered property will be determined in accordance with the form's valuation condition or any provision that amends or supersedes that provision. This new language makes it clear that loss payment will be in accordance with valuation provisions established in an endorsement to the policy, if applicable.
Personal Effects of Limited Liability Company Members and Managers
In the 2000 edition, the personal effects and property of others coverage extension has been revised to apply to personal effects of members and managers of limited liability companies. The language of prior editions did not address this new type of business organization.
Summary of Changes
The following table provides a summary of the changes made in the 2000 edition of the building and personal property coverage form (CP 00 10).
Summary of 2000 Changes to CP 00 10
Conclusion
Upcoming articles will provide overviews of the changes to the business income and extra expense coverage form (CP 00 30) and the causes of loss forms (CP 10 10, CP 10 20, and CP 10 30).
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.