ISO Commercial Property Changes: Which Coverage Options Are New?

The Insurance Services Office has revised its commercial property policy forms and endorsements to provide new coverage options.

The changes are among more than 40 that ISO has made to its forms, which have an edition date of October 2012 and will be effective in most states on April 1. Other revisions broaden coverage, reduce coverage or leave coverage largely unchanged.

Agents need to be aware of the changes to curb their errors & omissions exposure. Not all companies are adopting them, so check with your carriers to find out if they’re using the new forms.

Below are some of the new coverage options:

Changes in the Policy Form

Options for Increasing Specified Limits
The property forms include various specified dollar amounts, some of which may be increased by entering a higher limit on the declarations page. A revision of coverage grants is being made to refer to the option of a higher limit on the declarations page.

The revision is being made in:

• Electronic data
• Newly acquired locations
• Interruption of computer operations
• Limitations for theft

Changes to Endorsements

Higher Limits (CP 04 08)
Property forms include various specified dollar amounts, some of which can be increased by entering higher limits in the declarations. This endorsement is being introduced as an alternative to using the declarations to increase dollar limits. It is designed only for situations in which a limit can be increased by simple declarations entry.

Limitations on Coverage for Roof Surfacing (CP 10 36)
Roof surfacing is subject to deterioration over time and must be replaced in the normal course of building maintenance. Insurers are at times confronted with repairing or replacing a roof that was in poor condition prior to loss.

This endorsement is being introduced to provide options for covering roof surfacing at actual cash value and for excluding cosmetic damage to roof surfacing. The ACV option applies the buildings that are otherwise subject to replacement cost loss settlement and pertain to loss by any covered peril. The cosmetic exclusion option applies only to the perils of wind and hail, and can be written with regard to the underlying valuation clause. Both options can be written to apply to the same building.

Increase in Rebuilding Expenses Following Disaster (CP 04 09)
The cost of labor and materials usually increases after a disaster, due to heightened demand and limited resources, including fewer available laborers, shortages of materials and supplies and disruption of delivery systems. Coverage limits that would otherwise be adequate may be insufficient to cover the increased costs.

This endorsement is being introduced to insure additional expenses when costs increase as a result of a disaster. Buildings to which coverage applies are identified in the schedule. Coverage applies to damage from an event that’s a declared disaster and from an event that occurs in close temporal proximity to the disaster.

The maximum amount of additional coverage is determined by applying a specified percentage to the limit for specific insurance, or the value of the building when insurance is written on a blanket basis. A portion of the additional coverage can be used to cover debris removal and the increased cost of compliance with building codes, if ordinance or law coverage C is included in the policy. A separate amount of coverage applies to buildings covered under the policy’s extension for newly acquired or constructed buildings.

Coverage is on an annual aggregate basis. Expenses payable under the endorsement are reduced by expenses recovered from any business income or extra expense coverage.

Theft of Building Materials and Supplies (Other than Builders Risk) (CP 10 44)
Under the limitations section of the Special Cause of Loss form, theft coverage for building materials and supplies not a part of the building or structure is limited to those that are held for sale by the insured. This endorsement is being introduced to provide coverage for the theft of building materials and supplies that are located on or within 100 feet of the premises when such property is intended to become a permanent part of the building or structure.

The endorsement is compatible with the building and personal property coverage form and the condominium association coverage form, provided the special form applies without theft exclusion.

The endorsement does not apply to builder’s risk policies (CP 00 20). Similar coverage can be added by using CP 11 21 Builders Risk–Theft of Building Materials, Fixtures, Machinery and Equipment.

Utility Service–Wastewater Removal (Time Element) (CP 15 45)
This endorsement is revised to add a new category of utility service, wastewater removal property. Wastewater removal property is a utility system for removing wastewater and sewage from the described premises, other than a system designed primarily for draining wastewater.

Property includes sewer mains, pumping stations and similar equipment for moving the effluent to a holding, treatment or disposal facility. Coverage does not apply to interruption in wastewater removal service caused by a discharge of water or sewage due to heavy rainfall or flooding.

Food Contamination (CP 15 05)
This endorsement is a new option introduced to cover business income and extra expense losses arising out of food contamination. The endorsement pertains to the business income and extra expense coverage form.

Coverage is limited to loss of income due to closure of the business and to certain expenses, and liability for bodily injury is not covered.

Covered expenses include:

• Cost of cleaning equipment
• Cost of replacing food
• Medical testing
• Vaccination and advertising expense

Separate limits apply to advertising expenses and all other coverage under the endorsement. The limits apply on an annual aggregate basis.

Ted Kinney is director of education and technical affairs for the Alabama Independent Insurance Agents.

This is the second story in a three-part series on 2012 revisions to policy forms and endorsements. Look to next week’s edition of IN&V for a story on revisions that are expected to leave coverage unchanged, and check out last week’s story on changes that broaden coverage.