Insurance Services Office (ISO) introduced five new commercial property endorsements to attach to its revised commercial property policy. Along with these updated forms and new endorsements, ISO also revised 13 of its current commercial property policy endorsement. All of these changes became effective in November or December 2008 (based on the state), and sport a 06/07 edition date.

Commercial property changes are broken into five categories: 1) changes to the commercial property policy (CP 00 10); 2) changes to the time element coverage forms (CP 00 30, CP 00 32 and CP 00 50); 3) changes to the special cause of loss form (CP 10 30); 4) new commercial property endorsements; and 5) revised commercial property endorsements. Changes falling within each category are highlighted in this and the following commentary.

Commercial Property Policy (CP 00 10) Changes

ISO made four changes to the CP 00 10 Commercial Property form in the 06/07 edition of the policy. Two revisions are fully contained in the commercial property form itself and two, outdoor signs and the collapse provision, effectuated changes in both the commercial property policy wording and the Special Cause of Loss form (CP 10 30).

Outdoor Signs
Coverage limits extended in the CP 00 10 and the covered causes of loss provided by the CP 10 30 are the two changes to outdoor sign coverage brought about by the 06/07 edition of both forms. Automatic coverage limits are increased to $2,500 and the covered perils for detached signs are no longer limited to named perils only.

Prior to the new filing, the outdoor signs coverage limit was $1,000; and the location of the sign dictated how that limit was paid. Losses to outdoor signs attached to the insured building were covered for up to $1,000 per sign. Detached signs were subject to a $1,000 per occurrence aggregate limit; so if three sign were damaged in one incidence, the most the insured would receive is $1,000 (regardless the total amount of damage to the three signs). Coverage for attached and detached signs is now provided on a per sign basis for up to $2,500.

Detached signs were provided named perils only protection in the previous edition of the special cause of loss form (CP 00 30). The new 06/07 edition of the CP 00 30 (special cause of loss form) removed this named peril limitation and extended open peril coverage to detached signs. Both attached and detached signs now enjoy open peril coverage.

Collapse
Like the outdoor sign coverage, ISO re-worded the collapse exclusion and exception in both the commercial property policy (CP 00 10) and the special cause of loss form (CP 10 30) in this latest edition. But unlike the sign coverage, no real change in coverage was created by the new collapse wording other than a clarification of intent.

As in previous commercial property forms, collapse coverage is granted by an exception to the collapse exclusion (this is how the industry controls the amount of coverage granted). The 06/07 edition simply re-ordered the collapse wording to more succinctly clarify what collapse is and is not by specifically defining what is excluded from the coverage extension.

Prior to the change, the exclusion and exception wording did not flow well between the commercial property and cause of loss forms; it was chopped up and not especially well written. The new wording and placement allows for easier reading and understanding.

The only real change is a clarification of intent. Previously, the form extended coverage to "hidden decay" with no limitation on the term "decay." The re-worded 06/07 form specifies that hidden decay means "building decay."

Fire Department Service Charge
The new form does not offer any change in coverage or limit; only the option to purchase additional amounts of coverage if needed.

Insureds are extended $1,000, as an Additional Coverage, to pay costs associated with any fire department service charge resulting from the fire department's protection of the structure from a covered cause of loss. The automatic limit is not changed by the new wording; but now the insured is allowed to purchase higher limits if needed. An endorsement is not required, only a note on the declarations page.

Party Walls
Coverage for party walls is a wholly new provision in the loss payment section of the commercial property policy (E.4.h.). Party walls are walls that separate two entities and in which these entities have a common/shared ownership. Ownership interest is based on contract (lease wording) or statutory provisions affecting common ownership.

This new section provides that the carrier will pay the proportional cost, based on ownership interest, to replace or repair an insured party wall following a covered cause of loss. If, however, any other owner is unwilling or unable to repair their owned section of the wall, the insurance carrier will pay the entire amount necessary to repair the whole party wall. Upon payment, the carrier has the right to subrogate against the other party to recover their cost.

The policy's coinsurance provision is not suspended if the carrier pays to replace the entire party wall, potentially leading to a coinsurance problem. Although the potential for a coinsurance penalty may be slight, clients still need to be aware of the possibility. When valuing building coverage, clients may be best served using the value for the entire wall in their calculation, not just the ownership interest specified in any contract or statute.

Business Income Coverage Form Changes (CP 00 30, CP 00 32 and CP 00 50)

Two changes were made to each of the CP 00 30 (Business Income Form - With Extra Expense), CP 00 32 (Business Income Form - Without Extra Expense) and CP 00 50 (Extra Expense Coverage Form): 1) the coverage period for income loss caused by the actions of a civil authority was increased to four weeks; and 2) the damaged property causing the civil authority to act can be no more than one mile from the insured location.

Waiting periods are unchanged: 72 hours for business income polices and none for extra expense coverage.

Cause of Loss -Special Form (CP 10 30) Changes

Two existing exclusions found in the CP 10 30 were updated and one new exclusion was added to the form. Both the utility service exclusion and the artificially generated electrical current exclusion were updated to clarify and modernize their wording; and the Loss or Damage to Products (Product Error) exclusion, a completely new exclusion, was added in the 06/07 edition of the form.

Utility Service Exclusion
Five changes were made to the utility service exclusionary wording. Each is outlined below:
• The exclusionary wording is now identical for both the property coverage and the time element coverage. Previous editions of the commercial property form used different exclusionary wording (based on the location of the damage causing the loss) for each. (See the next bullet point.)
• Both the property and time element wording now exclude damage resulting from the failure of on-premises equipment used to supply the utility service from an off-premises source. Thus, there is no coverage for damage caused by an on-premises transformer since it is used to supply power from an off-premises source.
• Communication and water services are specifically added to the list of utility services (only "power" was scheduled previously).
• The form specifically states that damage caused by power surge is excluded.
• The new exclusionary wording extends communication services to include Internet access or access to cellular or satellite networks.

Artificially Generated Electrical Current
This exclusion was merely updated to account for technological advances in electrical current generation. Damage caused by magnetic or electromagnetic energy, pulses, waves or microwaves is now specifically excluded.

Loss or Damage to Products Exclusion
The products error exclusion clarifies that the policy is not intended to provide coverage for production errors which make the product useless and thus must be destroyed. This is completely new exclusion (B.5. Additional Exclusion) applying to only specified property.

An error in production resulting in the required destruction of the incorrectly manufactured product is a business risk and not considered insurable. Intentional destruction is not an insured peril; neither is the inability to sell the product insurable.

There is, however, an exception to this exclusion; if the error results in a covered cause of loss, the policy will pay for the loss or damage caused by such cause of loss. So, if a foreign substance is introduced into the production process resulting in a fire, the fire damage is covered. It is not clear whether the incorrectly manufacture piece destroyed by the fire is covered; if it is, it's probably only valued at its cost of raw materials.

Following

Five new commercial property endorsements were introduced and 13 endorsements were revised as part of this filing. A synopsis of these new and revised endorsements will be provided in the next post.