Chapter 14 Miscellaneous Commercial Lines Coverage

Miscellaneous Commercial Lines Coverage

OVERVIEW

Besides the key property and liability coverages available to insure commercial risks, other coverages are available to have as stand-alone policies or as coverage parts added to a Commercial Package policy. These miscellaneous coverages are often essential to filling in gaps created by exclusions in other policies, such as coverage for steam boiler explosions or unique liability exposures for professions that owe a higher standard of care to their clients.

These policies are subject to the Common Policy Conditions outlined in Chapter 9, in addition to their own policy conditions. When included on a CPP, they are also subject to the Common Policy Declarations and its own Declarations page.

Equipment Breakdown Protection Coverage Form

Commercial property insurance covers losses to property, including machinery and equipment, caused by external perils like fire and lightning, but those policies always exclude losses caused by steam boiler explosions, an internal peril. To account for this gap in coverage, Equipment Breakdown insurance, previously referred to as Boiler and Machinery insurance, was created to insure those losses.

Today, this insurance provides coverage for loss due to the breakdown of most types of equipment, such as boilers, machinery, refrigeration systems, air conditioning systems, and electrical equipment. These policies protect the insured’s property and property in their care when lost or damaged because of equipment explosion or breakdown, including potential coverage for indirect losses.

Coverage may be included in a Commercial Package policy or written as a monoline policy. The primary form of coverage is the Equipment Breakdown Protection Coverage Form, and while individual policies provide the same basic coverage, their forms vary among insurers. Coverage may also be added by endorsement to modify the Causes of Loss – Special Form applicable to commercial property insurance. This endorsement removes the exclusions related to equipment breakdown in order to provide the same basic coverage as the separate Equipment Breakdown Protection Coverage Form.

Definitions

Breakdown

A breakdown refers to certain types of direct physical loss that require the equipment to be repaired or replaced. These losses are the failure of pressure or vacuum equipment; mechanical failure, including rupture or bursting caused by centrifugal force; and electrical failure, including arcing. However, a breakdown does not include the following:

• Malfunction, including but not limited to adjustment, alignment, calibration, cleaning, or modification

• Defects, erasures, errors, limitations, or viruses in computer equipment and programs

• Leakage at any valve, fitting, shaft seal, gland packing, joint, or connection

• Damage to any vacuum tube, gas tube, or brush

• Damage to any structure or foundation supporting the covered equipment or any of its parts

• The functioning of any safety or protection device

• The cracking of any part on an internal combustion gas turbine exposed to the products of combustion

If an initial breakdown causes other breakdowns, they will all be considered one breakdown. In other words, all breakdowns at any one premises that manifest themselves at the same time and are the direct result of the same cause will be considered one breakdown.

On the Equipment Breakdown Coverage Form, the single covered cause of loss is a breakdown to covered equipment.

Covered Equipment

Covered equipment includes equipment built to operate under internal pressure or vacuum; communication and computer equipment; and electrical or mechanical equipment that is used in the generation, transmission, or utilization of energy.

Mostly, covered equipment must be located at a premises described in the Declarations and be owned or leased by the insured, or operated under their control. However, covered equipment also includes these same types of equipment that are owned by a public or private utility and are used solely to supply utility services to the insured’s premises.

Covered equipment does not include:

• Electronic data processing or storage media, such as films, tapes, or discs

• The part of the pressure or vacuum equipment that is not under internal pressure or vacuum

• Insulating or refractory material

• Catalysts

• Certain structures supporting or containing the covered equipment, such as foundations or cabinets

• Piping and similar equipment buried underground that would require excavation to remove

• Vehicles, aircraft, self-propelled equipment, and floating vessels

• Felt, wire, screen, chain, belt, or other parts subject to periodic replacement

• Machines used solely for research, diagnosis, or similar, unless diagnostic equipment is designated in the Declarations

• Equipment or its parts manufactured by the insured for sale

Covered Property

Covered property is any property that the insured owns, or property that is in the insured’s care, custody, or control and for which the insured is legally liable.

Coverages

The following types of coverage are provided by the Equipment Breakdown Coverage Form if they are indicated on the policy’s Declarations page.

Property Damage

The form pays for direct damage to covered property located at the premises described in the Declarations.

Expediting Expenses

The form pays for the reasonable extra costs the insured incurs to make temporary repairs and to expedite the permanent repairs or replacements.

Business Income and Extra Expense

The form pays the actual loss of business income during the period of restoration and the necessary extra expense the insured incurs to operate the business during the period of restoration. The insured may choose to have only extra expense coverage, in which case business income coverage is not provided.

Business income is the net profit or loss before income taxes, including normal operating expenses and payroll, that would have been earned. Extra expense refers to the additional cost the insured incurs to operate their business that is more than the cost the insured would have incurred during the same period if no breakdown occurred.

The period of restoration is the period that begins either at the time of breakdown or 24 hours before the insurer receives notice of the breakdown, whichever is later.

Example

An insured’s equipment suffers a breakdown at noon on Friday, and the insured notifies the insurer later that afternoon. In this case, the period of restoration would begin at the time of breakdown. If the insured’s equipment suffers a breakdown at noon on Friday but the insured notifies the insurer at noon on Monday, the period of restoration would begin as of that Sunday at noon.

The period of restoration ends 5 consecutive days after the date when the damaged property is repaired or replaced with reasonable speed and similar quality.

Spoilage Damage

The form will pay for spoilage damage to raw materials, property in process, and finished products as long as the property is in storage or in the course of being manufactured. Spoilage damage must result from the lack of or excess power, light, heat, steam, or refrigeration.

Note

If opted into, this coverage only applies to spoilage damage of certain materials that results from specified perils, like the lack of power. Other losses resulting from lack of or excess power, heat, etc. are excluded.

Utility Interruption

If the insured has coverage for business income, extra expense, or spoilage damage, coverage is extended to include losses resulting from the interruption of utility services, when the covered equipment is used to supply electric power, communication services, air conditioning, heating, gas, sewer, water, or steam to the insured’s premises. The interruption must result directly from a breakdown to covered equipment owned, operated, or controlled by a local private or public utility.

Newly Acquired Premises

If this option is selected, coverage is automatically provided to newly acquired premises the insured has purchased or leased, beginning at the time the insured acquires the property.

Ordinance or Law Coverage

This provides limited coverage when a loss is increased because of the enforcement of any laws or ordinances regulating the demolition, construction, repair, or use of a building.

Primarily, this coverage pays for the loss in value of the undamaged part of the property due to the enforcement of the ordinance or law, the actual cost to demolish and clear the site, and the necessary increased cost to repair or reconstruct the building.

Errors and Omissions

With this coverage, the insurer will pay for any loss or damage that is not otherwise payable due to an error or unintentional omission in the description or location of property, a failure to include any owned and occupied premises on the Declarations page at policy inception, or an error or unintentional omission by the insured that results in coverage cancellation for a premises. However, errors or omissions in any reporting of values are not covered.

Brands and Labels

If branded or labeled merchandise included as covered property is damaged by a breakdown, the insurer may take all or part of the property at an agreed or appraised value. If this is done, the insured may stamp the word “salvage” on the property or remove the label and relabel the merchandise. These may be done at the insurer’s expense.

Exclusions

The following exclusions appear on the Equipment Breakdown Protection Coverage Form:

• Ordinance or law, except as specifically provided by ordinance or law coverage when that coverage is selected by the insured

• Indirect losses resulting from the lack of or excess power, light, heat, steam, or refrigeration, except as specifically provided by spoilage damage coverage when selected by the insured

• Earth movement, including earthquake, landslide, mine subsidence, and volcanic action

• Water, including flood, tidal water, mudslide or mudflow, water that backs up or overflows from a sewer or sump pump, underground water seeping through foundations, sprinkler system leakage, and water used to extinguish a fire

• Nuclear reaction or radiation, or radioactive contamination

• War or military action

• Explosion, including fire or combustion explosion that results from a breakdown and explosion within the furnace of a chemical recovery type boiler

  • However, coverage is given back for the explosion of covered equipment, like steam boilers, electric steam generators, steam engines, gas turbines, and similar items

• Damage to covered equipment undergoing a pressure or electrical test, such as an electrical insulation breakdown test or gas pressure test

• Breakdowns caused by windstorm or hail

• Deliberate acts or acts of sabotage to utility equipment

• The insured’s neglect to use all reasonable means to protect covered property from further damage

• Deterioration, corrosion, or wear and tear

  • However, if a breakdown does occur, the resulting damage is covered

Example

A pressurized storage tank is showing cracks, chemical corrosion, and other signs of fatigue, but is otherwise working properly. The Equipment Breakdown Coverage Form would not cover the repairs for this kind of wear and tear. However, if the tank then explodes because of the fatigue, the breakdown would be covered

Limits of Insurance

The policy contains a limit of insurance that represents the most the insurer will pay for loss or damage from any one breakdown. When the insured selects from the coverages available, the applicable limits can either be included in the one-breakdown limit, or have their own individual limits.

If covered equipment is used solely to supply utility services to the insured’s premises, is owned by a public or private utility, and is not in the insured’s care or control, a $1 sublimit applies.

Unless a higher limit is shown in the Declarations, $25,000 sublimits, all of which are included in the one-breakdown limit of insurance, apply to the following losses:

• Spoilage to covered property contaminated by ammonia

• Additional expenses to clean, repair, replace, or dispose of covered property that is damaged by a hazardous substance other than ammonia

• Consequential loss, meaning the reduction in the value of undamaged stock parts of a product that becomes unmarketable due to physical damage resulting from a breakdown

• The cost to research, replace, or restore damaged data or media

• Water damage that is not otherwise excluded

Selected Conditions

Although the Equipment Breakdown Protection Coverage Form contains many conditions that are similar to the conditions in other property policies, it also contains its own unique conditions.

Suspension Condition

If covered equipment is found to be in, or exposed to, a dangerous condition, the insurer may immediately suspend the coverage provided for the breakdown of that equipment. Advance notice is not required, but written notice must be mailed or delivered to the insured’s last known address or the address where the covered equipment is located. Once suspended, coverage can only be reinstated by endorsement.

The insured will receive a pro rata refund of premium for the suspended coverage.

Valuation

The value of covered property is the cost to repair, rebuild, or replace the damaged property with comparable property on the same or another site, whichever is less costly, or the cost actually and necessarily expended in repairing, rebuilding, or replacing the property. If the insured does not repair or replace the property within 24 months after the date of breakdown, the insurer will only pay the lesser of the cost it would have taken to do so or the actual cash value.

Coverage is not provided for damaged property that is obsolete or useless to the insured.

Business Income and Extra Expense Conditions

If the insured selects business income and extra expense coverage, the insured must complete an Annual Report of Values form once a year and have it approved by the insurer. The report must be submitted within 3 months of the date specified in the Declarations. Upon receipt of the annual report of values, the insurer will adjust the premium as necessary. If a report is not submitted in time, a coinsurance provision will apply.

Selected Endorsements

Actual Cash Value Endorsement

When added, this endorsement changes the property damage method of valuation. The insurer will pay the lesser of:

• The cost to repair or replace the damaged property with comparable property on the same or another site, whichever is less costly

• The actual cash value of damaged property

These values are calculated as of the time of the breakdown.

The insurer will not pay for damaged property that is obsolete or useless to the insured.

Business Income – Report of Values Endorsement

This endorsement is no longer widely used, but when it is, it allows the insured to meet the annual report of values requirement for business income coverage. The endorsement establishes actual total net profits, fixed charges, and expenses for the 12-month policy period that is about to end.

The insured fills out the form, signs it, and submits it to the insurer. The amounts are then used to estimate the same profits, charges, and expenses for the upcoming 12-month policy period. The purpose of doing this is to help the insurer determine the amount payable to the insured in the event of a loss of income.

Specialty and Professional Liability Insurance

Some businesses and professionals possess unique characteristics that expose them to losses that are specifically excluded under other commercial liability policies, or that are otherwise not protected by the bodily injury and property damage coverages provided by those policies, which creates coverage gaps. Specialty liability insurance is available for these exposures. Specialty insurance policies are written on nonstandard forms with unique provisions and conditions particular to the risks of the insured. Two important types of insurance are contained within specialty insurance: Professional Liability insurance and Management Liability insurance.

Professional Liability insurance protects certain professionals from losses that arise out of their professional conduct. The coverage helps protect against economic (financial) loss and indirect (consequential) loss for which they may be liable. These professionals are expected to maintain a higher standard of care because their field holds these professionals out to the general public as having greater than average expertise in particular areas. Professional Liability policies, like Errors and Omissions (E&O) and Medical Malpractice policies, are available for medical professionals, lawyers, architects, engineers, contractors, brokers, real estate agents, and insurance agents.

Management Liability insurance protects officers, directors, and other managers from losses that arise out of their fiduciary responsibilities and other duties as business leaders.

Common Specialty Insurance Characteristics

Common Perils/Exposures

Specialty policies may insure against a wide range of perils, including:

• Fraud or breach of contract

• Conflict of interest

• Malpractice or neglect

• Government investigation

• Errors and omissions

• Cyber risks, such as:

  • Business-to-Business (B2B) exposures

  • Business-to-Consumer (B2C) exposures

  • Internet Service Providers (ISP), mobile, cellular exposures

  • Internal technology infrastructure exposures

  • Corporate brochure website exposures

Excluded Exposures

Specialty policies will exclude losses resulting from perils addressed by other policies. Depending on the specific policy, these may include:

• Bodily injury and property damage

• Personal injury

• Work-related injuries

• Motor vehicles, aircraft, and watercraft

• ERISA responsibilities

• Employment Practices Liability

Some exposures are uninsurable or within the insured’s control, such as intentional acts or prior acts. Other exclusions will be specific to the policy and profession it covers.

For example, a policy for an insurance agent or broker may exclude coverage for claims arising out of professional services for which a license was required but was either not obtained or invalid at the time of rendering services.

Who Is An Insured

As with Commercial General Liability policies, the insureds are those named in the Declarations and can include:

• Executive officers and directors

• Stockholders and trustees

• Volunteer workers and employees

Duty to Defend

Whereas a duty to defend is typically a standard feature of Commercial General Liability policies, it is an evolving issue for Professional Liability insurance. Most policies do not require insurers to provide a defense for covered claims, but they may still require insurers to cover the insured’s defense costs. This allows the insured, like a doctor or attorney, to have more control over whether to settle a loss or not. It is important for the insured to understand what defense provisions are included on their policy.

Shrinking Limits Defense Provision (Defense Within Limits Provision)

This means defense costs associated with a claim reduce policy limits. This is different from Commercial General Liability policies, which pay defense costs in addition to policy limits.

Consent to Settle Provision

Specialty policies may include a provision that requires the insurer to obtain the insured’s consent before settling. If the insurer is seeking consent to settle and the insured refuses, the insured may be liable for the additional defense costs or increased damages incurred as a result.

Policy Triggers

Professional Liability policies almost always use Claims-Made or Claims-Made and Reported forms. Neither of these forms are activated by when the occurrence takes place. Instead, coverage is initiated depending on when a claim is made, meaning there is a demand by a third party for the insured to pay damages, and when that claim is reported to the insurer.

The Claims-Made Form requires the claim first be made during the policy period. The claim can be reported after the policy period, but generally the insurer will require the claim to be reported immediately or as soon as practicable after the claim is made.

The Claims-Made and Reported Form requires the claim to be both made and reported during the policy period.

Types of Professional Liability Insurance

Errors and Omissions (E&O) Insurance

Errors and Omissions insurance is written for professionals who provide services and whose negligent acts or omissions may result in financial harm to a third party. These professions include insurance agents, adjusters, real estate agents, architects, accountants, attorneys, surveyors, and appraisers. Claims to which E&O insurance applies include negligence, errors such as clerical errors in filing orders, omissions of relevant information to the client, and misrepresentation of a product or service.

As it relates to the business of insurance, agents have a duty to carefully determine the insured’s needs and suitability. Failing to meet these needs when making a recommendation can affect the insured’s coverage or leave them without coverage due to the agent’s neglect. The agent can be held legally responsible for neglect, errors, or omissions when making customer recommendations.

Errors and Omissions insurance is usually offered with a minimum limit of liability of $1 million, which may include defense costs. Coverage is usually excluded for fraud, criminal acts, and misuse of client funds.

Medical Malpractice Insurance

Medical Malpractice insurance is typically written for medical professionals—such as doctors, surgeons, nurses, and dentists—whose negligent acts or omissions may injure or harm patients. Other professions covered by malpractice insurance include social workers and beauticians. This is the only type of professional liability policy that may include coverage for bodily injury. For example, a Physicians, Surgeons, and Dentists (PS&D) Liability policy covers the insured’s legal liability as a result of a medical incident, which is the rendering of medical or dental services by the insured or the insured’s employee, or anyone under the insured’s supervision.

Types of Management Liability Insurance

Directors and Officers Liability (D&O) Insurance

Directors and Officers insurance is written to protect the directors and officers of a corporation or other legal entity for wrongful acts committed while acting in their capacity as directors and officers for the organization. The organization may be held liable for these wrongful acts, and the directors and officers may be held personally liable.

D&O policies offer three standard Insuring Agreements that the insured may select. These are:

• A-Side Coverage, which provides direct coverage for directors and officers for claims made against them for wrongful acts committed in their capacity as a director or officer

• B-Side Coverage, which reimburses the company for the amount it spends indemnifying directors and officers for claims against them. However, this coverage does not apply to the company’s own liability.

• C-Side Coverage, which insures losses sustained by the company itself, regardless of any losses suffered by its directors and officers

Fiduciary Liability Insurance

Fiduciary Liability insurance provides errors and omissions insurance for businesses with respect to their administration of employee benefit plans, such as pensions, profit-sharing plans, and medical insurance. ERISA increased the legal liabilities of fiduciaries that, in turn, increased many business’ exposures to fiduciary liability claims.

Employment Practices Liability Insurance (EPLI)

Employment Practices Liability insurance emerged in response to major legal changes regarding employee rights. It provides coverage against claims made by former, current, and potential employees alleging that their legal rights were violated. EPLI policies protect against claims of wrongful acts, which refer to a number of offenses, including:

• Wrongful termination, demotion, failure to promote, or refusal to employ

• Harassment, including sexual harassment

• Discrimination on the basis of race, age, gender, disability, religion, etc.

• Defamation

• Invasion of privacy, mental anguish, and emotional distress

• Adverse action for reporting the employer’s unfair or illegal practices

• Violations of wage and hour regulations

• Breach of employment contract

Prior acts, pending legislation, and injuries covered by Workers’ Compensation and Employers Liability policies are all excluded from coverage. Punitive damages and civil/criminal fines assessed against the insured are also typically excluded, though some insurers may make coverage available.

Liquor Liability Insurance

Liquor Liability insurance, also known as Dram Shop Liability insurance, provides liability coverage for businesses that sell, serve, distribute, manufacture, or furnish alcoholic beverages. This liability arises from dram shop liability regulations, both statutory and common law. Under these laws, a business that sells or serves alcohol to an intoxicated person or otherwise contributes to the intoxication of an individual may be held liable for injuries caused to or by the actions of that individual. These injuries include bodily injury and property damage.

Examples of claims include assault and battery by an intoxicated customer or drunk driving.

Expected or intended injuries are excluded, except for bodily injury that results from the use of reasonable force to protect people or property. Coverage is also excluded if the alcoholic beverages are sold, served, or furnished while any required liquor license is not in effect.

Cyber Liability Coverages

As businesses continue to rely on computers, websites, email, and other technology to conduct normal business operations, there is an increased need for cyber risk insurance. Because protections for e-commerce operations continue to develop, cyber liability coverages often differ between insurers, though there are some common coverages between policies to add protection for cyber liability, data breaches and cyber security, and the restoration of data.

Internet Liability and Network Protection Policy

The Internet Liability and Network Protection policy provides liability coverage on a claims-made basis for risks that are specific to business use of the internet. The policy provides the following five Insuring Agreements:

• Insuring Agreement A – Website Publishing Liability provides liability coverage for wrongful acts committed in the course of internet publishing. Wrongful acts include actual or alleged error, misstatement, or misleading statement that results in copyright infringement, defamation, or a violation of another person’s privacy.

• Insuring Agreement B – Network Security pays for the insured’s liability for a network-related security breach. Covered wrongful acts include actual or alleged breach of duty, omission, or neglect that results in unauthorized access to the insured’s computer system by a non-insured, causing unauthorized publication of customers’ personal information or the transmission of a virus to a third party.

• Insuring Agreement C – Replacement Or Restoration Of Electronic Data pays for loss or recovery of data resulting from a virus or other malware

• Insuring Agreement D – Cyber Extortion pays for losses resulting from extortion threats, such as threat of a virus, denial of service attack, publication of customers’ personal information, or dissemination of proprietary information. Coverage is provided for ransom payments and extortion expenses, like the costs of a security firm to determine the validity of the threat.

• Insuring Agreement E – Business Income And Extra Expense pays for indirect loss due to business interruption resulting from an attack or extortion attempt

Insuring Agreements A and B include coverage for defense costs, included in the policy limit.

Commercial Cyber Insurance Policy Developments

The Commercial Cyber Insurance policy further develops these foundational Insuring Agreements to specify more particular coverage. For example, cyber extortion coverage specifically provides coverage for losses resulting from threats regarding hacker attacks, malicious code and viruses, ransomware, and the disruption of computer systems by gaining unauthorized access.

Network security coverage is also expanded into two Insuring Agreements covering:

• Security breach expenses, which pays expenses incurred to investigate and recover from unauthorized acquisition of customers’ personal information

• Security breach liability, which covers damages the insured becomes legally obligated to pay and defense expenses incurred as a result of actual or alleged neglect, breach of duty, or omission that results in a security breach or transmission of a computer virus

The Commercial Cyber Insurance policy will also pay for public relations expenses to restore the insured’s reputation as a result of negative publicity about a cyber incident.

Umbrella and Excess Liability Insurance

Any form of excess liability coverage provides an additional layer of insurance protection above and beyond the limits of liability provided by another casualty insurance policy issued as primary insurance to cover third-party claims.

Umbrella liability is a specific form of excess coverage designed to insure against catastrophic losses and provide coverage that is more comprehensive than applicable primary insurance. One of the eligibility requirements for purchasing a Commercial Umbrella or Excess Liability policy is the existence of primary underlying insurance.

Underlying Insurance

Underlying insurance is specific insurance that covers the same risk insured by a Commercial Umbrella or Excess Liability policy and that will respond before the Umbrella or Excess Liability insurance. Umbrella or Excess Liability insurers require other commercial liability insurance to be in place to insure against the risks faced by a business person or commercial enterprise, including:

• Commercial General Liability, which provides liability insurance for the business’ premises, operations, products, and completed operations, among other exposures

• Employers Liability, which provides liability insurance for the business in the event an employee sues the business for injuries that fall outside Workers’ Compensation statute

• Commercial Auto Liability, for exposures pertaining to vehicles owned, used, leased, or hired by the business

• Liquor Liability, which only applies to insureds who are in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages and are subject to liquor laws

In most cases, the insurer will require $1 million of underlying coverage to be in place. If an underlying policy is cancelled or nonrenewed and not replaced, or if the underlying insurer becomes insolvent, the Umbrella acts as though the underlying policy was still in place. This typically means the insurer will pay damages in excess of the first $1 million.

Umbrella and Excess Liability Insurance

Coverages

No Excess Liability or Commercial Umbrella Liability policy is standard. Each policy contains its own Insuring Agreement, Definitions, Exclusions, Conditions, and requirements for underlying primary insurance and limits. Most carriers have developed their own form with unique coverages.

Coverages include bodily injury and property damage for which the insured is legally liable, under Coverage A of the policy, including a defense, either inside or outside the limits of liability. Personal and advertising injury coverage is offered under Coverage B. Further coverages may be provided as well, depending on the needs of the insured. In all cases, the required underlying primary insurance must pay first for claims to which it applies.

Coverage usually applies worldwide. Multiple limits of insurance are usually provided, including an aggregate limit, an each occurrence limit, and a separate per person limit for personal and advertising injury.

Common Limits

Standard limits range from $1 to $10 million, and higher limits are available, usually up to $25 million or $50 million.

Self-Insured Retention

As with Personal Umbrella Liability policies, a Commercial Umbrella Liability policy has a self-insured retention, which is a form of cost-sharing that applies when the policy drops down to act as primary coverage because the underlying primary policy does not cover a loss.

Employee Benefits Liability Coverage Endorsement

This coverage is closely related to E&O insurance, but is available as an endorsement option for Commercial Umbrella Liability policies. Employee benefits liability coverage will pay the amounts the insured is legally obligated to pay, in excess of the underlying limits, that result from any act, error, or omission of the insured or any person for which the insured is liable.

The act, error, or omission must be negligently committed in the administration of the insured’s employee benefit program. An employee benefit program means a program that offers any of the following benefits to employees:

• Group life, health, dental, vision, or hearing insurance

• Profit-sharing, employee savings, employee stock ownership, or pension plans

• Unemployment insurance, Social Security benefits, or Workers’ Compensation and disability benefits

• Vacation plans, leave of absence programs, or transportation or health club subsidies

• Any other similar benefit plan scheduled on the endorsement

This definition includes employee benefit programs provided through a cafeteria plan, which allows employees to elect to pay for certain benefits with pre-tax dollars.

Administration refers to providing information about program eligibility to employees and their dependents and beneficiaries, handling program records, and effecting or continuing an employee’s participation in the program.

Coverage is provided on a Claims-Made basis. The act, error, or omission must have taken place between the retroactive date and the end of the policy period. A resulting claim must be made against the insured during the policy period or an extended reporting period.

Coverage is excluded for fraudulent or criminal acts, failure to perform a contract, and insufficiency of funds.

NFIP Commercial Coverage

The National Flood Insurance Program (NFIP) defines flood as the inundation of normally-dry land that results from:

• Overflow of inland or tidal waters, such as a tidal wave generated by a hurricane

• Unusual and rapid accumulation or runoff of surface waters

• Mudslide or mudflow caused by accumulation of water

• Collapse or destabilization of land along a shoreline resulting from erosion or the effect of waves or water currents exceeding normal, cyclical levels

The flood must involve at least 2 acres of the insured’s land, or at least the insured’s land and an adjacent piece of property.

NFIP Commercial Coverage (continued)

NFIP Commercial Coverage (continued) For commercial risks, flood insurance through the NFIP is written on the General Property Form, which provides the following coverages:

Coverage A – Building Property, which applies to buildings that are walled, roofed, above ground, and affixed to a permanent site

Coverage B – Personal Property, as long as the property is located in a fully enclosed building

Coverage C – Other Coverages, which includes coverages included as Additional Coverages on other commercial property policies, like debris removal

Coverage D – Increased Cost of Compliance, which resembles ordinance or law coverage

Indirect loss coverages—such as loss of use, business income, or extra expense—are not covered by the NFIP.

Flood policies are available from participating private insurers under the Write Your Own program, or directly from the NFIP. Agents do not have authority to bind coverage with the NFIP, but all licensed agents may write flood insurance with the NFIP.

Farm Insurance

Farm and ranch owners have their own unique exposures that require particular insurance coverage. Unlike the farms of the past, farms today often are large business operations. Further, many farms have residential and commercial exposures on the same premises, and coverage for this combination of exposures is best protected together in a comprehensive product for farms. This is why farm properties are ineligible for coverage under Homeowners and Dwelling policies.

Farm insurance has evolved to keep pace with the changes in farming operations and offers multiple coverage form options to make policies customizable for the farm or ranch being insured. The primary coverage forms available to offer key farm coverage include:

• Farm Property – Farm Dwellings, Appurtenant Structures, and Household Personal Property Coverage Form

• Farm Property – Farm Personal Property Coverage Form

• Farm Property – Barns, Outbuildings, and Other Farm Structures Coverage Form

• Farm Liability Coverage Form

Additional specialized property forms include the Mobile Agricultural Machinery and Equipment Coverage Form and the Livestock Coverage Form.

Definitions

These forms provide coverage for residential and commercial property, so many definitions are provided to distinguish between these building and personal property uses. A dwelling is a building used principally for family residential purposes, including mobile homes and modular homes. Dwellings do not mean a building used in agricultural operations for storage of farm produce, livestock, or poultry.

Business property refers to property pertaining to any trade, profession, or occupation that is not farming. Farm personal property, on the other hand, refers to equipment, supplies, and products for farming and ranching operations. Farm personal property includes feed, seed, fertilizer, livestock, other animals, poultry, bees, fish, worms, grain, produce, agricultural machinery and equipment, and agricultural vehicles.

Importantly, the forms make distinctions between various types of animals. Livestock means cattle, sheep, swine, goats, horses, mules, and donkeys. Poultry, meaning any fowl kept by the insured for use or sale, are specified separately.

Similar to a Homeowners policy, insureds include the named insured, their resident relatives, and any person under age 21 who is in the care of the named insured or any resident relative. Resident relatives under age 24 who are currently away at school are also covered. Insured locations include any location described in the Farm Property Declarations page.

Coverage A – Dwellings

Coverage A protects the residential dwellings that the insured owns and that are indicated on the Declarations page. The dwellings may be located on or away from the insured location.

Coverage includes attached structures, materials intended for use in building or altering the covered dwellings, and outdoor equipment used to service the dwellings or their grounds.

Land, water, trees, plants, and lawns are not considered covered property.

Coverage B – Other Private Structures Appurtenant to Dwellings

Coverage B protects secondary structures that are separated from a covered dwelling, including those other structures attached only by a fence or utility line. Except for private garages, these other structures cannot be rented, held for rental, or used principally for farming purposes.

Land and water are not considered covered property.

Losses under Coverage A and B are covered on a replacement cost basis, with an 80% coinsurance requirement.

Coverage C – Household Personal Property

Coverage C provides insurance for household personal property owned or used by the insured or members of the insured’s family. Property must be located on the insured location. After a loss, the insured may request coverage for the household personal property of others while that property is in a dwelling or on the grounds related to the dwelling.

Aircraft, trees and plants, animals, farm personal property, motor vehicles and electronic equipment used solely with them, credit cards, and data processing media are all considered property not covered. Articles described separately and covered by the policy or another insurance policy (such as a Personal Articles Floater) are also excluded from this coverage.

Like Coverage C of a Homeowners policy, special limits of insurance apply to certain property, including securities, watercraft, trailers, and business property. Special limits also apply to property lost by theft, such as furs and jewelry, firearms, and electronic apparatus.

Losses under Coverage C are covered on an actual cash value basis.

Coverage D – Loss of Use

Coverage D provides additional living expenses when the insured’s principal living quarters are uninhabitable due to a covered cause of loss, as well as fair rental value coverage when a dwelling or other structure held for rental is uninhabitable. These coverages are provided only for the amounts necessary to allow the household to maintain its normal standard of living.

Loss and Expense Due to Emergency Prohibition Against Occupancy coverage pays additional living expenses and fair rental value for up to 2 weeks when a civil authority prevents the use of a dwelling or other structure because a neighboring premises was damaged by a covered peril.

Coverages (continued)

Coverage E – Scheduled Farm Personal Property

Coverage E covers certain types of property if a limit of insurance appears in the Declarations for that type. These types of property include:

• Grain, feed, hay, straw, and fodder in buildings, structures, sacks, wagons, or trucks. If these items are in the open, certain limitations apply.

• Farm products, materials, and supplies shown in the Declarations

• Trays, boxes, and box shook (the parts needed to make a barrel or packing box)

• Computers and software used for farm management

• Miscellaneous equipment usual or incidental to farm operations

  • However, this does not include tractors, combines, harvesters, hay balers, vehicles covered by an auto policy, watercraft, aircraft, fences, windmills, or irrigation equipment

• Borrowed or rented farm machinery, vehicles, or equipment

  • However, this does not include vehicles covered by an auto policy, watercraft, or aircraft

• Owned portable buildings and structures

The following are also insurable, but only under the Basic or Broad Causes of Loss perils:

• Poultry, except turkeys, are only covered if specified

• Livestock on or away from the location. Livestock in the custody of a common or contract carrier, at public sales yards, or at packing plants are not covered.

• Bees, worms, fish, and other animals

Growing crops and private light poles are not covered.

Special limits of insurance apply to certain property insured under Coverage E. If no specific stack limit is shown in the Declarations for hay, straw, or fodder in the open, the limit will be $10,000 for any one stack. Miscellaneous equipment is covered up to $3,000 per piece of equipment. Covered poultry is covered for its cash market value at the time of loss. The maximum limit for each head of covered livestock is $2,000.

Losses to farm personal property are settled on an actual cash value basis.

Coverage F – Unscheduled Farm Personal Property

Coverage F provides insurance for limited types of property that have not been scheduled on the policy. These types are:

• Grain, feed, fertilizer, hay, straw, fodder, and pesticides

• Livestock, subject to the same conditions and maximum limit specified for Coverage E

• Farm machinery, equipment, implements, tools, and supplies

Covered property does not include vehicles covered by an auto policy, watercraft, aircraft, fences, windmills, irrigation equipment, poultry, bees, fish, worms, racehorses or show ponies, data processing media, equipment in manufacturing plants, trees or lawns, and crops in the open (like tobacco and cotton).

Losses to unscheduled farm personal property are settled on an actual cash value basis, with an 80% coinsurance provision.

Coverage G – Barns, Outbuildings, and Other Farm Structures

Coverage G protects farm buildings and structures, their attached sheds and permanent fixtures, described silos, and portable buildings and structures. Coverage is also provided for fences (except field and pasture fences), corrals, pens, chutes, feed racks, and outdoor radio and TV equipment and antennas. Improvements and betterments to the described buildings, as well as building materials and supplies used to build or alter farm structures, are also covered.

Land, water, underground foundations, piers, docks, and the cost of excavations or filling are not considered covered property.

Losses are settled on an actual cash value basis, unless the replacement cost basis option is selected. If replacement cost is selected, an 80% coinsurance provision applies.

Causes of Loss

Farm Property forms have their own Basic, Broad, and Special Covered Causes of Loss options that the insured may choose.

Covered Causes of Loss – Basic

The Basic Causes of Loss option includes the following perils:

• Fire or lightning

• Windstorm or hail

• Explosion

• Riot or civil commotion

• Aircraft

• Vehicles

• Smoke

• Vandalism

• Theft

• Sinkhole collapse

• Volcanic action

• Collision (Coverages E and F only)

• Earthquake loss to livestock

• Flood loss to livestock

Causes of Loss (continued)

Covered Causes of Loss – Broad

In addition to the perils included on the Basic option, the following perils are also covered:

• Electrocution of covered livestock

• Attacks on covered livestock by dogs or wild animals

• Accidental shooting of covered livestock

• Drowning of covered livestock from external causes

• Loading/unloading accidents

• Falling objects

• Breakage of glass or safety glazing material

• Sudden and accidental tearing apart of hot water system or appliance

• Accidental discharge or leakage of water or steam from a system or appliance

• Weight of ice, snow, or sleet

• Freezing of systems or appliances

• Sudden and accidental damage from electrical current

Covered Causes of Loss – Special

The Special Causes of Loss option provides open perils coverage for insured property, though this option is not available for livestock, poultry, other animals, bees, fish, worms, hay, and plants, trees, or shrubs.

Most of the Special option’s exclusions reiterate the exceptions seen with the Basic and Broad Covered Causes of Loss options. This option will also exclude criminal acts committed by the insured, wear and tear, rust, hidden or latent defect, smog, nesting of vermin or insects, escape of pollutants or contaminants, and mechanical breakdown.

Farm Insurance Exclusions

All Causes of Loss options will exclude the following perils:

• Ordinance or law

• Earth movement, including earth sinking or shifting, landslide, and mine subsidence

  • However, this exclusion does not apply to losses resulting from sinkhole collapse. It also does not apply to earthquake losses to farm machinery covered by the Special option or earthquake losses to livestock.

• Water, including flood, tidal waves, mudslide, mudflow, and water backing up or overflowing from a sewer or sump pump

  • However, this exclusion does not apply to flood losses to farm machinery covered by the Special option or flood losses to livestock

• Governmental action

• Intentional loss

• Nuclear hazard

• Off-premises failure of power or utility services

• Neglect

• War and military action

Additional Coverages

Applicable to All Coverages

The following Additional Coverages apply to Coverages A–G:

• Debris removal, with a limit of 25% of the amount payable for the direct physical loss. This is included in the limit of insurance applying to damaged property, but an extra 5% of that limit is provided if debris removal expenses cause the limit to be exhausted.

• Reasonable repairs

• Damage to property removed for safekeeping

• Fire department service charges

• Collapse, though this coverage only applies if the Broad or Special Covered Cause of Loss option is selected

• Pollutant clean-up and removal, with a limit of $10,000 for each location within each 12-month policy period

Additional Coverages (continued)

Applicable to Coverages A–D

The following Additional Coverages apply to Coverages A–D:

• Removal of fallen trees, up to $1,000 per loss and $500 per tree

• Credit cards and electronic fund transfer cards or other access devices, forgery, and counterfeit currency. The limit for this coverage is $500 for losses resulting from theft or unauthorized use.

• Water damage, for water or steam damage from a plumbing, heating, air conditioning, or fire protective sprinkler system, or household appliance, unless otherwise excluded

• Grave markers, up to $5,000

Applicable to Coverages E and F

The following Additional Coverages apply to Coverages E and F:

• Cost of restoring farm operations records when lost due to a covered cause, up to $2,000

• Extra expenses to resume normal farming operations after a covered physical loss

Applicable to Coverage G

Coverage G also includes the Additional Coverages for water damage and extra expense.

Limits of Insurance

Applicable limits must be shown in the Declarations for each class of property insured. If no designation appears, coverage is not provided.

Deductible

The standard deductible for property losses is $250.

Farm Property Conditions

The following standard property conditions apply:

• Abandonment

• Appraisal

• Duties in the Event of Loss

• Insurance Under Two or More Coverages

• Transfer of Rights of Recovery Against Others to Us (Subrogation)

• Concealment, Misrepresentation, or Fraud

• Pair, Sets, or Parts

• Other Insurance

• Recovered Property

• Legal Action Against Us)

• Loss Payment

• Liberalization

• Mortgage holders

• No Benefit to Bailee

The Unoccupancy and Vacancy condition states that if buildings or structures are unoccupied or vacant for more than 120 consecutive days immediately before a loss, the applicable limit to the building, structure, or contents is automatically reduced by 50%.

Additional Farm Property Insurance Forms

Livestock Coverage Form

The Livestock Coverage Form is used to insure livestock separately from other coverages, though the form is very similar to the other Farm Property forms. Coverage is indicated by either a per animal limit of insurance shown in the Declarations for a class of livestock, or a per class limit of insurance with a per animal sublimit. Coverage is not provided for livestock in public stockyards, sales yards, packing plants, or slaughterhouses. Coverage is typically not provided for livestock in the custody of a common or contract carrier, but a Coverage Extension is available to provide this coverage, with a limit of $1,000, unless a higher limit is shown in the Declarations.

Covered causes of loss are the same as the Covered Causes of Loss – Basic option for Farm Property policies, including the Collision peril for losses to livestock resulting from collision with a vehicle or overturn of a transport vehicle.

Livestock Coverage Form (continued)

Limits of Insurance

The most the insurer will pay for loss in any one occurrence to any one animal declared in the Declarations is the limit specified in the Declarations.

For animals not specifically declared on the Declarations, the most the insurer will pay for loss in any one occurrence to any one animal is $2,000.

Selected Conditions

Most of this form’s conditions mirror the ones included on other Farm Property forms, such as Abandonment, Appraisal, Duties in the Event of Loss, and Pair and Sets conditions.

Under the Additional Acquired Property condition, if the insured acquires additional livestock during the policy period and that class of livestock is already insured, the policy covers the additional livestock automatically for 30 days. The property must be reported, and additional premium paid, within that 30 days for coverage to continue.

The policy also has an 80% coinsurance requirement.

Mobile Agricultural Machinery and Equipment Coverage Form

The Mobile Agricultural Machinery and Equipment Coverage Form provides insurance for mobile devices used in the everyday operation of the farm, plus their accessories, tools, and spare parts. Cotton pickers, harvester-thresher combines, and four-wheel ATVs are only included as covered property if they are specifically declared and described in the Declarations.

Covered property does not include the following:

• Aircraft, watercraft, automobiles, mobile homes, motorcycles, trucks, mobile homes, dealers’ demonstration equipment, and vehicles primarily designed and licensed for public road use

• Barn cleaners, boilers, bulk feed and milk tanks, pasteurizers, and fixtures permanently attached to a building

• Irrigation equipment

• Contraband

Coverage can have a blanket limit for all machinery and equipment, or a combination of limits for specifically described machinery and equipment and a limit for unspecified machinery and equipment.

Standard exclusions apply, including exclusions for losses resulting from earth movement, governmental action, explosion of steam boilers, mechanical breakdown, and temperature changes.

Farm Liability Insurance

The Farm Liability Coverage Form may be written as a stand-alone policy or as part of a Farm package policy. The Farm Liability Coverage Form contains three major coverages: H, I, and J.

Coverage H – Bodily Injury and Property Damage Liability

Coverage H pays sums the insured becomes legally obligated to pay for losses arising from bodily injury or property damage from an occurrence that takes place during the policy period. Coverage includes fire damage legal liability, which covers fire losses to premises rented to or temporarily occupied by the insured, as well as products liability for the sale of farm products.

Exclusions

A number of exclusions apply to bodily injury and property damage liability coverage, many of which are included in other personal and commercial lines liability policies. These include:

• Expected or intended injury

• Contractual liability, except for insured contracts

• Rendering or failure to render professional services

• Transmission of communicable diseases

• Molestation, corporal punishment, or abuse

• Controlled substances

• Workers’ Compensation and Employers Liability

• Damages arising out of buildings under construction

• Bodily injury to an insured

• Damage to the insured’s property, products, or work

• Product recall

• War

Coverage H – Bodily Injury and Property Damage Liability

Exclusions (continued)

Other exclusions include damages arising out of any of the following:

• The actual or alleged release or escape of pollutants

• The release or discharge of any substance from an aircraft, like crop dusting

• The use of use of livestock or animals for a speed contest or stunting activity, to provide rides to any person for a fee

• The ownership, maintenance, use, operation, loading, and unloading of any aircraft, motor vehicle, or motorized bicycle. Some specific exceptions exist, such as motor vehicles used exclusively to assist people with disabilities and recreational motor vehicles owned by the insured involved in an occurrence that takes place on the insured location.

• The transportation of mobile equipment

• The ownership, maintenance, use, operation, loading, and unloading of any watercraft. Watercraft exclusions and exceptions are similar to the watercraft liability exclusion in a Homeowners policy.

• Custom farming, which is the performance of specific planting, cultivating, harvesting, or similar operation at a farm for someone else at a location that is not an insured location. Custom farming does not include operations conducted at premises rented by the insured, volunteer operations, or a neighborly exchange of services.

  • This exclusion only applies when the insured’s receipts from custom farming operations exceed $5,000 for the 12 months immediately preceding the date of the occurrence

Coverage I – Personal and Advertising Injury Liability

Coverage I provides payment of sums the insured becomes legally obligated to pay because of personal injury or advertising injury committed during the policy period. Personal injury must arise out of personal activities or operations usual or incidental to farming, such as when the insured unknowingly slanders a neighbor’s farm products.

Coverage is excluded for known violations of a person’s rights, criminal acts, contractual liability, and wrong quotations or descriptions of prices or the quality of goods in advertisements.

Coverage J – Medical Payments

Under Coverage J, the insurer will pay reasonable medical expenses of others that are incurred within 3 years of the date of an accident causing bodily injury. Payments are made regardless of fault. This coverage applies to a person, other than an insured, who:

• Is on the insured location with an insured’s permission

• Sustains bodily injury because of a condition of the insured location, the activities of an insured, the activities of a farm employee or residence employee during the course of their employment, or an animal owned by or in the care of an insured

• Is a residence employee who sustains injury during the course of their employment