AAIS Bailee Floater Coverage-Dry Cleaner And Laundry Form

AAIS BAILEE CUSTOMERS FLOATER COVERAGE–DRY CLEANERS AND LAUNDRY FORM COVERAGE ANALYSIS

((February 2024)

 

Introduction

Eligibility

Policy Construction

IM 7555–Schedule of Coverages–Bailee Customers Floater

IM 7550–Bailee Customers Floater Coverage–Dry Cleaners and Laundry Form Analysis

   Introduction

   Agreement

   Property Covered

   Property Not Covered

   Coverage Extensions

   Supplemental Coverages

   Perils Covered

   Perils Excluded

   What Must Be Done in Case of Loss

   Valuation

   How Much We Pay

   Loss Payment

   Reporting Conditions

   Conditions

   Definitions

Endorsements and Schedules

Underwriting Considerations

INTRODUCTION

The American Association of Insurance Services (AAIS) Bailee Customers Floater Coverage–Dry Cleaners and Laundry Form covers direct physical loss or damage to property of others in the named insured's care, custody, and control. The property must be at the location(s) on the schedule of coverages and be there for processing. Dry cleaning, laundering, dyeing, alterations, and repairs are examples of processes. Coverage applies to direct loss or damage to covered property a covered peril causes. Covered property is limited to only certain property such as garments, clothing, rugs, drapes, and similar items.

Coverage also applies when the named insured stores items for a charge but only when there is a storage limit and a location on the schedule of coverages. Only property for which the named insured issues a storage receipt is covered.

This analysis is of the 05 11 edition. Changes from the previous edition are in bold print.

ELIGIBILITY

Any commercial dry cleaning operation is eligible. This coverage form excludes furs or fur-trimmed garments, but IM 7561–Fur Garment Endorsement can be added to provide this coverage.

Individual insurance companies may further limit eligibility. Common limitations include the size of operations, commercial laundry operations, self-service laundries, and fur or leather cleaning businesses.

Coverage for other types of bailee situations must use a Miscellaneous Bailee-Processor Floater.

Related Article: AAIS Miscellaneous Bailee–Processor Floater

POLICY CONSTRUCTION

AAIS Bailee Customers Floater Coverage–Dry Cleaners and Laundry Form require at least these four forms:

Related Article: CL 0100–AAIS Commercial Lines Common Policy Conditions

IM 7555–SCHEDULE OF COVERAGES–BAILEE CUSTOMERS FLOATER (05 11 changes)

IM 7555–Schedule of Coverages–Bailee Customers Floater contains the following information:

Policy Number (05 11 edition)

The 05 11 edition added a space to enter the policy number.

Covered Premises

All covered premises must be listed. Coverage does not apply to any premises that are not listed.

The following coverages have spaces for the premises number and the limit at each premises:

Coverage is limited to the limit entered for each premises in the space provided.

Coverage is limited to the limit entered for each premises in the spaces provided.

A space is provided to enter a catastrophe limit for all losses at all premises. This must be closely monitored when changes are made to the limits above. If those limits are increased, and this limit is not, the catastrophe limit will be a secondary cap reducing coverage for the customer.

 

Example: Mainline Cleaners is adding a new location. It currently lists two premises with limits of $50,000 and $65,000 for processing, and the catastrophe limit is $115,000. The new premises limit is $50,000. If a catastrophe occurs, destroying all three premises, the maximum payout will be $115,000 if the catastrophe limit was not updated at the time of the third premises being added.

Coverage Extensions

The following Coverage Extensions have spaces for limits at all covered premises:

The limit is $5,000 unless a different limit is entered.

The 05 11 edition has the words "See Form" entered in the limits column. There is no limit in the coverage form. As a result, policy limits apply, but defense costs reduce the amount available to pay for losses.

The number of days of coverage when covered items are removed because of impending covered loss is ten unless a different number is entered.

Supplemental Coverages (05 11 changes)

The 05 11 edition deletes Earthquake Coverage and Flood Coverage (along with the Deductible provisions for each of these coverages) and Sewer Backup Coverage that was in the previous edition. If Earthquake Coverage and Flood Coverage are needed, the IM 7807–Earthquake and Flood Schedule must be attached along with the IM 7857–Earthquake and Flood Endorsement.

Each of these coverages provides additional limits of coverage or additional coverage:

The limit is $5,000 unless a different limit is entered.

The limit is $5,000 unless a different limit is entered.

The limit is $5,000 unless a different limit is entered.

The limit is $25,000 unless a different limit is entered.

The limit is $2,500 unless a different limit is entered.

The limit is $5,000 unless a different limit is entered.

Deductible (05 11 changes)

The deductible amount is entered in the space provided. Only one deductible applies.

The 05 11 edition deleted the provisions for separate deductibles for Earthquake Coverage, Flood Coverage, and Sewer Backup Coverage that were in the previous edition.

Reporting Conditions

This section allows the named insured to select the reporting condition to apply. When selected, the reporting period and the adjustment period must be checked.

There is a separate section for the following:

Additional Information (05 11 change)

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

The previous edition referred to this section as Optional Coverages and Endorsements.

IM-7550–BAILEE CUSTOMERS FLOATER COVERAGE–DRY CLEANERS AND LAUNDRY FORM COVERAGE FORM ANALYSIS

Introduction (05 11 edition)

The 05 11 edition defines two items in this section.

The 05 11 edition also moved the Definitions Section that immediately followed the Agreement in the previous edition to the end of the coverage form.

This section refers to the Definitions Section for a list of words and/or phrases with special meanings.

Agreement

This section states that the insurance company provides the coverage described in the coverage form and the schedule of coverages in return for the named insured's premium payment. The coverage provided is subject to all the coverage form's terms, conditions, endorsements, and definitions.

Property Covered (05 11 changes)

Only property of others is covered. This property must be in the named insured's custody for processing and/or storage. This property is covered for direct physical loss or damage that a covered peril causes. It is important to continue reading because there are several exclusions and limitations on the types of property that are covered.

1. Processing (05 11 changes)

a. Coverage applies to direct physical loss or damage to property of others. The property of others must meet the following two criteria to be covered:

b. Covered property of others is limited to only garments, clothing, rugs, drapes, and similar property while at a premise listed on the schedule of coverages.

c. (05 11 edition)

The most paid in any one occurrence for loss or damage to property of others for processing at specific premises is the limit of insurance for Processing Coverage for that premises on the schedule of coverages.

2. Storage

a. Coverage applies to direct physical loss or damage (05 11 edition) to the property of others that the named insured accepts for storage.

b. The insurance company covers such property only at premises listed on the schedule of coverages that have a limit of insurance for storage. In addition, coverage applies to only such property for which the named insured issued a storage receipt.

c. (05 11 edition)

The most paid in any one occurrence for loss or damage to property of others for storage at specific premises is the limit of insurance for that premises for Storage Coverage on the schedule of coverages.

 

Example: Martha stores her winter clothes at Action Dry Cleaners. A fire occurs, and the resulting smoke damages all stored property. Although Martha cannot find her copy of the receipt, Action produces its copy, and Martha is reimbursed for the value of her ruined clothing.

Property Not Covered

Four types of property are specifically excluded:

1. Contraband

Property that is illegal to possess is not covered. Property that is legal to possess but being used as part of an illegal trade or being transported illegally is also not covered.

Example: Millie stores her rhinoceros skin jacket with Ace Cleaning. The jacket was made from the skin of an endangered animal and was not permitted in this country. This coverage form does not compensate Millie when a loss occurs at Ace Cleaning.

 

2. Furs

Garments trimmed with fur are also excluded. This property is more correctly insured under Furriers Customers Coverage Forms.

Related Article: ISO Furriers Customers Coverage Form

Note: IM 7561–Fur Garment Endorsement is available to cover this type of property.

 

Example: Jim and Tammy take some of their winter garments to Davis Dry Cleaners for laundering and dry cleaning. Several of Tammy's garments have fur trim on the collar and cuffs. A small fire caused by an electrical short circuit starts in one of the dry-cleaning machines. The fire damages many articles in it, including Tammy's fur-trimmed garments. The damage to those garments is excluded because Davis did not add the fur garment endorsement to its policy.

 

3. Money and Securities

A number of types of property are not covered under this item. Accounts, bills, currency, food stamps, evidence of debt, and lottery tickets not held for sale, in addition to money, notes, or securities, are all not covered.

Note: This property should be insured under Commercial Crime Coverage Forms.

Related Article: Commercial Crime Coverage Analysis

4. No Charge for Service

Coverage does not apply to any property of others that is accepted for processing or storage, but no charge is made.

Note: This excludes gratuitous work or service.

 

Example: George is thankful for his local police officers' help, so he offers to clean their uniforms free of charge. The plan backfires when a smoke loss damages the uniforms, and his insurance company denies payment.

Coverage Extensions

Provisions That Apply To Coverage Extensions

There are three coverage extensions. The limit for each is either the limit on the schedule of coverages or the default limit in the coverage form. These limits are part of the applicable limit for covered property and not in addition to it unless otherwise indicated. These limits are not added to or combined with limits for any other coverage extension or supplemental coverage and are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

1. Debris Removal (05 11 changes)

a. When a covered peril damages or destroys covered property, the cost to remove any created debris is covered under this extension. The 05 11 edition defines debris removal as the costs to demolish, clear, and remove debris.

b. Debris removal does not include any costs for removing, restoring, or replacing polluted land or water or to extract pollutants.

c. There are two parts of the Limit section. The first is restricting any debris removal payment to no more than 25% of the amount paid for the actual direct physical loss or damage. To calculate the 25%, only the direct physical damage loss is considered. This means any debris removal costs must be excluded before the calculation is made. (05 11 edition)

The second part is that when the debris removal and the physical damage loss are added together, no more than the limit of insurance is paid.

 

Example: Miserly Cleaners' limit for processing is $50,000. A covered fire occurs.

Scenario 1: The fire loss exceeds $50,000, so it is considered a total loss. The debris removal cost is $7,500, and the maximum available is $12,500. However, because the $50,000 is already needed to pay for the physical damage loss, no debris removal coverage is available.

Scenario 2: The covered fire loss is $2,000. The debris removal cost is $5,000, but only the maximum debris removal cost of $2,000 x.25 = $500 is paid.

Scenario 3: The covered fire loss is $35,000. The debris removal cost is $3,000. The maximum debris removal cost payment is .25 X $35,000 = $8,750. The total of the $35,000 + $3,000 = $38,000. This entire loss would be covered after the deductible.

d. An additional $5,000 (or a higher amount entered on the schedule of coverages) is available if the debris removal expense is more than 25% of the loss amount or if the combined cost of loss and debris removal is more than the limit of insurance for the covered property.

Example: This above revision illustrates how this $5,000 influences each loss.

Miserly Cleaners' limit for processing is $50,000. A covered fire occurs.

Scenario 1: The fire loss exceeds $50,000, so it is considered a total loss. The debris removal cost is $7,500, and the maximum available is $12,500. However, because the $50,000 is already needed to pay for the physical damage loss, only the $5,000 additional limit is available for the debris removal.

Scenario 2: The covered fire loss is $2,000. The debris removal cost is $5,000, but only the maximum debris removal cost of $2,000 x.25 = $500 or the $5,000 additional debris cost is paid. In this case, the entire debris removal is paid.

Scenario 3: The covered fire loss is $35,000. The debris removal cost is $3,000. The maximum debris removal cost payment is .25 X $35,000 = $8,750. The total of the $35,000 + $3,000 = $38,000. This entire loss would be covered after the deductible. There is no change in this scenario because the loss was handled within item c.

e. The named insured must report debris removal expenses to the insurance company within 180 days of the loss date for this coverage extension to apply.

2. Defense Costs

Note: This coverage form provides third-party coverage for the benefit of the named insured. Because of this, the insurance company takes control of the loss and negotiates with the third party that sustained damage. This section explains how the insurance company and the named insured are to work together on any such claim.

a. The insurance company decides when to defend suits against the named insured resulting from covered loss or damage to covered property. This is not the decision of the named insured. This means the insurance company controls the investigation and how suits or claims are processed.

b. Once the insurance company has paid out the policy limits based on a judgment or written settlement, the insurance company is no longer under an obligation to defend the named insured.

c. The named insured's only involvement in the claim is to act within the written approval of the insurance company.

d. Once the insurance company agrees to defend a suit, it also agrees to pay seven specific expenses related to it. These expenses are not part of the limit of insurance, and no deductible applies to any of them:

3. Emergency Removal (05 11 change)

a. This covers direct physical loss or damage (05 11 edition) to covered property removed from the scheduled location to avoid loss or damage from an impending covered peril. The loss can occur while in transit between the scheduled location and the sanctuary location. This coverage is unique in that the property that is being moved is not subject to any exclusion while in transit or at a sanctuary location. However, the reason for moving the property must be due to a covered peril.

b. Coverage applies for up to ten days after the property is first moved but does not extend past the policy's expiration date. An entry can be made on the schedule of coverages to increase the number of days.

Note: Coverage does not extend past the expiration date, which means that if the insured has property at a sanctuary location when coverage renews, the sanctuary location must be listed as a premises, or coverage no longer applies.

 

Example: Action Dry Cleaners' owner knows the enormous summer storm forecast for the next day could easily wipe out his less than well-maintained building. If that happens, virtually all of the customer property he has for cleaning or storage will be badly damaged, if not completely destroyed. He packs up all the customers' property, places it in a box truck, and drives to a business associate's secure and well-built storage facility. He knows he can simply drive the vehicle into the facility and wait out the storm.

In the excitement of the moment, he leaves the keys in the truck. When the owner returns, the truck is gone. Because the property was moved to protect it from the storm, the theft of the cargo is covered even though property on or in unattended vehicles is usually excluded.

Supplemental Coverages

Provisions That Apply to Supplemental Coverages (05 11 changes)

There are six supplemental coverages. The limit for each coverage is the supplemental limit within this coverage form (05 11 edition) unless there is a coverage limit on the schedule of coverages. Limits for any supplemental coverage are separate from and are not part of the applicable limit for the covered property.

The limit available for coverage described under a supplemental coverage is the only one available. It is not the total limit for a supplemental coverage and the limit for the covered property. The limits are not added to or combined with limits for any other supplemental coverage, coverage extension, or other coverage (05 11 edition). They are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

The 05 11 edition deleted Earthquake and Flood Supplemental Coverages that were in the previous edition. These coverages are now available using IM 7857–Earthquake and Flood Coverage Endorsement.

1. Earned Charges

When customer property is lost or damaged (05 11 edition) by a covered peril, the customer usually refuses to pay for any service the named insured performed on the property before the loss. This coverage pays the earned charges the named insured is owed but cannot collect. The limit is $5,000. This limit can be increased.

 

Example: A tornado badly damages Action Dry Cleaning and ruins all the clothing in the shop. Most of the items had already been processed. Because the processing charges cannot be collected, Action is eligible to receive up to $5,000 to cover its loss.

2. Newly Acquired Premises

When the named insured acquires a new location during the policy term, coverage is automatically provided for that location for a maximum of 60 days. The limit is $5,000 per location to allow the named insured time to report it to the insurance company. Coverage ceases when the property is reported, the policy expires, or after 60 days, whichever occurs first. Additional premiums for coverage are charged and must be paid starting from the acquisition date. The $5,000 limit can be increased.

3. Off-Site Property

Coverage applies to direct physical loss or damage (05 11 edition) caused by or that results from a covered peril to covered property while it is temporarily at an unscheduled offsite location. The most paid in any one occurrence is $5,000, but that limit can be increased.

 

Example: Action Dry Cleaning's owner detects a strange odor when he arrives in the morning to open the business. He cannot find the source and notices that the odor is worsening. Rather than taking a chance on garments already cleaned being saturated with the smell, he takes them to another dry cleaner's location, with which he has a reciprocal agreement for such events, until he can locate the source of the odor and remove it. This supplemental coverage insures the removed garments for up to $5,000.

4. Pollutant Cleanup and Removal

a. The insurance company pays the named insured's expenses to extract pollutants from land or water if a covered peril that occurred during the policy period caused the pollutants to be released or discharged.

b. This is immediate coverage, so any expenses to extract pollutants are paid only when reported to the insurance company within 180 days of the date of loss.

c. Costs related to testing, evaluating, observing, or recording pollutants are excluded except for those costs that are part of the extraction process.

d. The most paid at any one location is $25,000 for all such expenses a covered peril that occurs at that location during each separate 12-month policy period causes. This limit can be increased.

5. Sewer Backup Coverage (05 11 changes)

a. Coverage applies to direct physical loss or damage (05 11 edition) to covered property caused by or that result from the following:

b. Coverage does not apply to loss or damage that result from any of the following:

c. $2,500 is the most paid in any one occurrence. This limit can be increased.

6. Transit

When a direct physical loss or damage (05 11 edition) by a covered peril to covered property occurs while in transit, coverage is provided. The most paid in any one occurrence is $5,000. This limit can be increased.

Perils Covered

Coverage applies to risks of direct physical loss or damage (05 11 edition). This very broad statement is modified by the statement that it applies only if the loss is not limited or caused by an excluded peril.

Perils Excluded

1. Primary Exclusions (05 11 changes)

The first group of exclusions is essentially absolute. Subject to specific exceptions, loss or damage by each is totally excluded, regardless of any other cause or event that contributes to the loss, either concurrently or in any other sequence. The insurance company does not pay for any direct or indirect loss or damage caused by or that results from any of these events.

Related Article: Concurrent Causation and Anti-Concurrent Causation Clauses–A Discussion

a. Civil Authority

There is no coverage for a loss that results from an order that any civil or government authority issues. These orders may include seizure, confiscation, destruction, or quarantine of property, but this exclusion is not limited to only these. The only exception is when the loss or damage is caused by a civil authority destroying property to control a fire. This exception applies only if the fire results from a covered peril.

b. Earth Movement (05 11 title and other changes)

Earth movement is not covered except for the following four exceptions:

Note: The previous edition's exclusion stated the sinkhole collapse was covered. It remains covered based on the definition of earth movement in the Definitions section.

c. Flood (05 11 changes)

The insurance company does not pay for loss or damage caused by flood or material that the flood carries or moves. This exclusion applies even if the water is driven by wind, such as a storm surge. Damage caused by material that mudslide or mudflow carries or moves is also excluded.

There are two exceptions:

 d. Nuclear Hazard

The insurance company does not cover loss or damage caused by or that results from any nuclear reaction, radiation, or contamination. This is absolute and applies whether the nuclear incident was controlled or not and by whatever means caused. Any loss the nuclear hazard causes is not treated as a loss that fire, explosion, or smoke causes. The only exception is when a fire results from a nuclear fire. Direct loss or damage from that fire is covered, but the damage from the nuclear hazard remains excluded.

e. Sewer, Septic Tank, Sump, or Drain Backup and Water below the Surface (05 11 title and other changes)

This exclusion applies to the following except to the extent of the coverage that Supplemental Coverages 5. Sewer Backup Coverage provides.

Coverage does not apply to loss or damage that any of the following causes:

There are two exceptions:

 f. War and Military Action

The insurance company does not pay for loss or damage caused by any act of war. Undeclared and civil war or warlike actions by a military force are all considered war. All actions taken to hinder or defend against an actual or expected attack by any government or sovereign authority that uses military personnel or other agents are also considered war and excluded. In addition, acts of insurrection, rebellion, revolution, or unlawful seizure of power and any action any government authority takes to prevent or defend against such acts are excluded. If any action within the terms of this exclusion involves nuclear reaction, radiation, or contamination, this exclusion applies in place of the nuclear hazard exclusion.

Note: This means that the exception for resulting fire under the nuclear hazard is not covered when it results from war.

2. Secondary Exclusions (05 11 changes)

The second group of exclusions applies to loss or damage (05 11 edition) caused by or resulting from any of the following loss events. Some exclusions have exceptions, conditions, or limitations that should be noted and reviewed carefully. The insurance company does not pay for any loss or damage caused by or that results from any of these events.

a. Contamination or Deterioration

Loss or damage caused by contamination or deterioration is excluded. This applies to corrosion, decay, fungus, mildew, mold, rot, and rust. It also applies to any quality, fault, or weakness in covered property that causes it to damage or destroy itself. However, this exclusion is not limited to only these described causes.

b. Criminal, Fraudulent, Dishonest, or Illegal Acts

Coverage does not apply to loss caused by or results from criminal, fraudulent, dishonest, or illegal acts that any of the following commits alone or in collusion with another:

This part of the exclusion does not apply to covered property in the custody of carriers for hire.

Coverage continues to apply if employees destroy property. However, it does not apply if employees steal.

Note: Crime coverages should be used to cover this type of loss. However, because the property being covered is the property of others, the CR 04 01– Employee Theft Of Client's Property will need to be attached for employee dishonesty coverage to apply.

Related Article: CR 04 01–Employee Theft of Clients’ Property

c. Error or Omission during Processing (05 11 edition)

There is no coverage if the reason for the property damage is an error or omission during processing. The coverage is completely excluded and applies regardless of who commits the error or omission or where the error or omission occurs.

An error or omission may result in a covered peril occurring. In that case, coverage applies to the loss or damage that covered peril causes.

Note: This exclusion replaces the Processing Work exclusion in the previous edition but is similar. One change is that the exclusion in the previous edition stated that damage from a resulting specified peril was covered. The exclusion in this edition states that damage from all resulting covered perils is covered.

Example: Carl accidentally rips a dress he is ironing. Coverage did not apply under the prior edition because the damage occurred during processing, and ripping is not a specified peril. However, under the new edition, coverage may apply because ripping is not specifically excluded. Coverage applies if Carl leaves the iron on a dress, walks away to talk with a customer, and then returns to find the dress and the ironing board on fire.

d. Loss of Use and Consequential Loss (05 11 title and other changes)

There is no coverage for loss or damage (05 11 edition) that results from delay, loss of use, loss of market, or any kind of consequential loss or damage.

Example: A fire at Party Dress Cleaning results in 50 prom dresses being destroyed three days before the big dance. The increased costs paid by the parents to quickly purchase new dresses are not covered causes of loss.

e. Missing Property

The unexplained or mysterious disappearance of the covered property is excluded when there is no physical evidence to suggest what happened to it, and the only proof that a loss occurred is based on an audit or physical inventory. The only exception is covered property in the custody of carriers for hire is covered.

f. Pollutants

There is no coverage for loss or damage (05 11 edition) caused by or that results from any release, discharge, seepage, migration, dispersal, or escape of pollutants unless a specified peril causes the event and except for the coverage that Supplemental Coverages 4. Pollutant Cleanup and Removal provides. Coverage applies to the resulting loss or damage to covered property that a specified peril causes.

g. Temperature/Humidity

Loss or damage (05 11 edition) to covered property that dryness, dampness, humidity, changes in, or extremes of temperature causes are excluded.

h. Theft from an Unattended Vehicle

Coverage does not apply to theft of covered property from an unattended vehicle unless the vehicle was locked, its windows securely closed, and visible evidence of forced entry into the vehicle. The exception is that covered property in the custody of carriers for hire is covered.

 

Example: Zachary is told always to close and lock the van's doors when he is away from it making deliveries. He enters a client's premises to deliver and pick up cleaning and forgets to lock the vehicle. When he returns to it, he discovers a full rack of processed uniforms is missing. The theft loss is excluded because the van was not locked.

 

i. Voluntary Parting

Loss or damage (05 11 edition) to covered property voluntarily given to others is excluded. There is no coverage even if the surrender was due to a fraudulent scheme, trick, or false pretense.

j. Wear and Tear

Loss or damage (05 11 edition) is not covered when caused by or results from (05 11 edition) wear, tear, marring, or scratching.

What Must Be Done In Case Of Loss

1. Notice

The named insured must promptly notify the insurance company or its agent of a loss. The notice must describe the property lost or damaged. If a criminal act caused the loss, the appropriate law enforcement agency must also be notified. The insurance company has the right to require that any notice to it be in writing.

2. You Must Protect Property

During and after a loss, the named insured must take all reasonable steps to protect covered property from further loss. The insurance company pays reasonable costs the named insured incurs, provided the named insured maintains accurate records to substantiate the costs. Paying these costs is not in addition to the policy limits. There is no coverage for any repairs or emergency measures performed on property not already damaged by a covered peril.

Note: It is important to realize that any such costs incurred will reduce the amount available to pay the actual loss.

Example: Let's use Zachary again. A month after the uninsured theft loss, Zachary is much more careful. His first stop of the day on his route is a restaurant. Zachary locks the van before he takes the clean aprons and tablecloths inside. Unfortunately, he is forced to wait nearly 20 minutes because a shift manager cannot find the key to the closet where the dirty linen is kept. When Zachary finally goes out to the van with the dirty linen, he discovers thieves pried open the van's doors with crowbars and removed half of the cleaned items inside. Visibly upset, Zachary re-enters the restaurant, telephones his supervisor, and informs him of the loss. When he hears about the break-in, the restaurant manager gives Zachary a complimentary breakfast. When Zachary returns to the van, the remaining cleaned items are also gone. The second loss is excluded because Zachary did not take any steps to protect the rest of the cleaning.

3. Proof of Loss

The named insured must complete and return the insurance company's prescribed proof of loss forms within 60 days after the company requests it. The information provided must include the time, place, and circumstances involved with the loss and information on any other insurance coverage that may apply. It must also include the named insured's interest and the interest of others concerning the property involved, including lienholders, loss payees, and mortgagees. Any changes in the title to the property during the policy period must be disclosed, in addition to providing any other reasonable information the company may require to adjust and settle the loss.

4. Examination

Examination under oath may be required in matters that relate to the loss. The insurance company may request these examinations more than once, but such requests must be reasonable. If multiple persons are examined, the company has the right to examine each individual separately.

5. Records

The named insured must maintain and produce any records related to the loss. The insurance company must be allowed to make copies and take extracts of them as often as it reasonably requests. Records include tax returns and bank microfilms of all related cancelled checks, but records are not limited to just these.

6. Damaged Property

Damaged and undamaged property must be made available for the insurance company's inspection as often as reasonably necessary. It must also be allowed to take samples of the property to the extent necessary to adjust and settle the loss.

7. Volunteer Payments

The named insured may not voluntarily make payments, assume obligations, pay or offer rewards, or incur other expenses without the insurance company's express approval. If it does, it does so at its own expense. The only exceptions are those costs incurred to protect property, as item 2. above describes.

8. Abandonment

The named insured may not abandon damaged property to the insurance company without its written consent.

9. Cooperation

The named insured must cooperate with the insurance company. Any actions required of the named insured within this policy must be performed.

Valuation

1. Actual Cash Value

The value of the covered property is its actual cash value at the time of loss. Actual cash is replacement cost new minus depreciation.

2. Pair or Set

The value of a loss that involves damage or loss of one part of a pair or set is based on a reasonable proportion of the value of the entire pair or set. However, the loss of one part of a pair or set is not considered a total loss.

Note: This recognizes that the value of the whole is greater than the value of individual parts but that the remaining parts still have value as separates.

3. Loss to Parts

The value of a lost or damaged part of the property that consists of several parts is the cost to repair or replace only the lost or damaged part.

How Much We Pay

1. Insurable Interest

The insurance company does not pay more than the named insured's insurable interest in the covered property at the time of loss.

Note: A question that may arise is what is the named insured's insurable interest in property of others? This limitation could be a problem because a customer may expect a settlement based on the limit of insurance purchased.

2. Deductible

The insurance company pays only the amount of loss that exceeds the deductible amount on the schedule of coverages.

Note: The 05 11 edition deletes Earthquake Period that was in the previous edition.

3. Loss Settlement Terms

Subject to other items in this section, the insurance company pays the least of the following:

4. Catastrophe Limit (05 11 edition)

The Catastrophe Limit on the schedule of coverages is the most paid in any one loss or occurrence. This is regardless of the number of premises or combination of such described premises and/or coverages under Coverage Extensions or Supplemental Coverages.

 

Example: Marian Cleaners has three premises and sends customers' property off premises for specialized treatment. Marian chooses a catastrophe limit of $300,000, the sum of his three premises limits. A fourth premises is added, but Marian does not change the catastrophe limit. A tornado roars through the community, damaging each store and property at other service providers. The limits at each location are sufficient, but the total loss, when debris removal and other coverages are included, is valued at $375,000. However, Marion receives only $300,000 because the catastrophe limit was not changed.

5. Insurance under More Than One Coverage

Two or more coverages in the coverage form may apply to the same loss. In that case, the insurance company does not pay more than the value of the actual claim, loss, or damage sustained.

6. Insurance under More Than One Policy

a. Proportional Share

The named insured may have other coverage subject to the same terms as this coverage form. In that case, this coverage form pays only its share of the covered loss. That share is the proportion its limit of insurance bears to the limits of insurance for all insurance that covers on the same basis.

 

Example: The Wize Guyz Dry Cleaning Plant has three partners. Each partner decides to buy his own Bailee Customers Floater Coverage, and each has a limit of $500,000. When a $15,000 covered loss occurs, each pays $5,000.

 

b. Excess Amount

There may be other coverage available for the loss. In that case, this coverage form pays on an excess basis. It pays only the amount of covered loss that exceeds the amount due from the other coverage, whether collectible or not. Any payment is subject to the limit of insurance that applies.

Example: Continuing the example above, Partner # 1 purchased this coverage form. Partner #2 purchased identical coverage. However, Partner #3 purchased considerably different coverage. As a result, this coverage form was excess over Partner #3's coverage but proportional to Partner #2's coverage.

Loss Payment

1. Loss Payment Options

a. Our Options

The insurance company makes the decision on how a loss will be paid – not the named insured or the third party. It may:

b. Notice of Our Intent to Rebuild, Repair, or Replace

The insurance company must notify the named insured of its intent to rebuild, repair, or replace within 30 days after it receives a properly completed proof of loss.

2. Your Losses

a. Adjustment and Payment of Loss

The insurance company adjusts all losses with and pays the named insured unless another loss payee named in the policy is involved.

b. Conditions for Payment of Loss

The insurance company pays a covered loss within 30 days after it receives a properly prepared proof of loss and the amount of loss is established. Either the amount of loss is determined by a written agreement between the company and the named insured or after an appraisal award is filed with the company.

3. Property of Others

a. Adjustment and Payment of Loss to Property of Others

The insurance company can adjust and pay losses that involve property of others to either the named insured acting on the property owner's behalf or directly to the property owner.

Note: There is no mention of who decides whether the named insured handles the adjustment or the insurance company handles it directly.

b. We Do Not Have To Pay You if We Pay the Owner

The insurance company is not obligated to pay the named insured if it pays the property's owner. In addition, if the property owner sues the named insured, the company has the option to defend the named insured in that suit. The insurance company pays the costs to defend the suit.

Reporting Conditions

The reporting conditions apply only if there are entries for Reporting Conditions on the schedule of coverages. This section includes details on the timing and content of the required reports, provisions in the event of cancellation, how the premium is calculated and adjusted, and provisions that affect how losses are paid.

1. Reports

a. You Will Report To Us

The named insured must submit all reports of the total receipts due from processing operations (whether collected or not) to the insurance company for the reporting period involved within 30 days after the end of the reporting period.

b. Cancellation

If coverage is cancelled, the reports of total receipts from processing operations described above (whether collected or not) must be for the period up to and including the cancellation date. Any additional premium for that period must be paid.

2. Premium Computation and Adjustment

Premiums are calculated by multiplying the value of the receipts reported by the reporting rate on the schedule of coverages. The adjustment period may be annual or some other period.

a. Annual Adjustment

If the adjustment period on the schedule of coverages is annual, the calculated premium is compared to the deposit premium. If the calculated premium exceeds the deposit, the named insured pays the insurance company the difference. If it is less, the insurance company refunds the difference to the named insured, subject to any applicable minimum premium.

b. Other Adjustment Period

If the adjustment period is other than annual, the calculated and reported premium is applied to the deposit until it is used up. After that, the named insured pays the insurance company any premiums that exceed the deposit. At expiration, if the calculated premium is less than the deposit, the insurance company refunds the difference to the named insured, subject to any applicable minimum premium.

3. Provisions That Affect How Much We Pay

a. Failure to Submit Reports

If required reports are not submitted, and a loss occurs, the most the insurance company pays for that loss is 90% of the limit at the designated location.

b. Reported Values Are Less than the Full Value

If the receipts reported are less than the actual receipts earned during the reporting period, the insurance company pays only part of the loss. The proportion is the receipts reported divided by the actual receipts. The loss is multiplied by the proportion to determine the adjusted loss amount. The deductible is then subtracted from that amount before payment.

c. We Will Not Pay More than the Limit

The named insured may report values that exceed the limits on the schedule of coverages and the premium may be adjusted based on them. However, if the limit on the schedule of coverages is not adjusted, any loss payment made is based on the limit on the schedule of coverages.

Note: This does not appear to apply since receipts are being reported and not values.

Other Conditions

1. Appraisal

The insurance company and the insured may not always agree on a covered claim's value. This condition provides one method to resolve disputed claims.                                                              

Either party can request an appraisal to determine a disputed claim's value. Once requested, the parties have 20 days to obtain their own independent and competent appraisers and give their appraiser's name to the other party. The two appraisers then have 15 days to select a competent, impartial umpire. If they cannot agree on an umpire within that time period, either can request that a judge in the court of record in the state where the property is located appoint one.

The appraisers then determine the claim's value. They submit any differences to the umpire. Once any two of the three parties agree, the amount of loss is set.

Each party pays its own appraiser. Both parties share the umpire's cost and other expenses equally.

2. Benefit to Others

The insurance provided does not directly or indirectly benefit any party with custody of the named insured's property.

Note: This does not appear to apply because the named insured's property is not covered.

3. Conformity with Statute

Any condition in this coverage form that conflicts with any applicable law is amended to conform to that law.

4. Estates

Note: This condition applies only if the named insured is an individual.

a. Your Death

If the named insured dies, the person who has custody of the named insured's property is an insured until a qualified legal representative is appointed. The named insured's legal representative becomes an insured once he or she is appointed. Both are insureds, but only with respect to the property this coverage form insures.

b. Policy Period Is Not Extended

This coverage does not extend past the policy's expiration date.

5. Misrepresentation, Concealment, or Fraud

This coverage is void if any insured at any time willfully concealed or misrepresented a material fact related to the insurance provided, the property covered, or its interest in the property. It is also void if fraud or false swearing by any insured took place concerning the insurance provided or the property covered.

Note: The named insured must deal with the insurance company honestly. Its rights of recovery may be voided if it intentionally misrepresents or conceals a material fact or information. This means the insurance is treated as simply having never existed versus denying a particular claim.

6. Policy Period

Only covered losses that occur during the policy period are paid.

7. Recoveries

Paying the loss does not end the named insured's obligations and the insurance company's obligations toward one another. Additional provisions apply if the insurance company pays a loss and the lost or damaged property is subsequently recovered, or the parties responsible for the loss pay for it.

Either party that recovers property or payment must inform the other. Recovery expenses that either party incurred are reimbursed first. If the named insured keeps the recovered property, it must refund the amount of the claim the insurance company paid, unless the company agrees to a different amount. If the claim paid is less than the agreed loss due to applying a deductible or another limitation, any recovery is prorated between the named insured and the insurance company based on the company's respective interest in the loss.

8. Restoration of Limits

Paying a claim does not reduce the limit available for future claims.

9. Subrogation

The insurance company acquires the named insured's rights of recovery from third parties after it pays a loss. The named insured must help the insurance company secure those rights. The company is not obligated to pay a loss if the named insured hinders or impairs the company's rights of subrogation. However, the named insured can agree in writing to waive recovery rights from others before a loss occurs.

10. Suit against Us

The insurance company cannot be sued by anyone for any coverage until all the terms of the coverage form are met. Suits must be brought within two years after the named insured first knew about a loss. If a state law invalidates this condition, any suit brought must comply with the provisions of that law and begin within the shortest period of time allowed by law.

Note: It is normal for a basic coverage form to be modified by mandatory state-specific endorsements that address issues related to that specific state.

11. Territorial Limits

The covered property must be located in the United States, its territories and possessions, Canada, or Puerto Rico for coverage to apply.

Definitions

Defined terms are used throughout the coverage form. Restricting their meaning to the definition in it is how all parties have a clearer understanding of the coverage intended. Eleven terms are defined:

1. Earth movement (05 11 changes)

All of the following:

2. Flood (05 11 changes)

Water that overflows into or inundates areas that are usually dry or at least not covered by water. Flood can be caused by natural or artificial means, by animals or humans, or by natural events. It includes the following but is not limited to just these:

3. Limit

This is the amount of coverage that applies to the insured property.

4. Pollutant

This is a broad and expansive term. It is solids, liquids, thermal or radioactive contaminants, and irritants. It includes, but is not limited to, acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Waste includes materials intended for recycling, reclamation, and reconditioning, as well as for disposal. Visible and invisible electrical or magnetic emissions and sound emissions are also considered pollutants.

5. Processing (05 11 edition)

Work performed on the covered property that is common to a dry cleaner or laundry, such as laundering, dry cleaning, altering, repairing, and dying.

6. Schedule of coverages

Any page labeled as such that contains coverage information, including declarations or supplemental declarations.

7. Sinkhole collapse

The earth's surface suddenly settling or collapsing into an underground opening created by water acting on limestone or some other rock formation. Sinkhole collapse does not include the land's value or the cost to fill sinkholes.

8. Specified perils

The named perils of aircraft, civil commotion, explosion, falling objects, fire, hail, fire extinguishing equipment leakage, lightning, riot, sinkhole collapse, smoke, sonic boom, vandalism, vehicles, volcanic action, water damage, the weight of sleet, snow or ice and windstorm. Two terms need further explanation. Falling objects does not include loss to personal property stored in the open. It also does not include damage to buildings' interior or personal property stored in buildings unless a falling object first breaches the building's exterior.

Water damage is the sudden or accidental discharge or leakage of water or steam. However, it must be a direct result of a part of the system or appliance that holds the water or steam cracking or breaking.

9. Suit

This is a judicial proceeding. It also includes arbitration proceedings. The proceeding's purpose must be to determine liability related to direct physical loss to covered property of others while in the named insured's possession.

10. Terms

These are all provisions, limitations, exclusions, conditions, and definitions that apply to this coverage.

11. Volcanic action

An airborne volcanic blast or shock wave. It is also ash, dust, and particulate matter along with any lava flow. The term does not include the cost of removing dust, ash, or particulate matter from the covered property unless there is direct physical damage to the property.

Example: An unexpected blast came from the local volcano. It caused quite an ash plume. The ash blew into Jill's Cleaners and coated all the plastic-covered cleaned clothes. The clothes were undamaged, but Jill had to repackage all items before presenting them to the customer. The cost of repackaging is not considered volcanic action because the covered property had not been damaged.

ENDORSEMENTS AND SCHEDULES

AAIS has developed three endorsements to use with this coverage form.

IM 7561 04 04–Fur Garment Endorsement (05 11 changes)

This endorsement adds supplemental coverage for furs and fur-trimmed garments. Coverage applies only if the named insured has the items for processing. There is no coverage for fur and fur-trimmed items while in storage. Coverage applies when premises are listed on the endorsement schedule, in transit, or temporarily off-site at unscheduled premises. Coverage applies for only the limits scheduled on the endorsement and is subject to the deductible in the schedule. The 05 11 edition added a space to enter the policy number and added language that clarifies that furs and garments trimmed with fur is the property covered. It also added a limits section and removed that language from beneath each coverage on the schedule that was in the previous edition.

IM 7563–Error or Omission during Processing Coverage (05 11 edition)

This endorsement provides coverage for errors or omissions during processing operations the named insured performs on the property of others.

IM 7564–Fraud and Deceit Coverage (05 11 edition)

This endorsement covers theft of covered property due to any of the following:

UNDERWRITING CONSIDERATIONS

Bailment is the delivery of property by one party to another for some specific purpose. The parties to the bailment are the property owner (the bailor) and the party that receives the property to perform a service (the bailee).

Of the three kinds of bailment, two do not involve exchanging money and are considered gratuitous or reciprocal, similar to how neighbors share property. The third consists of some service or work done in exchange for money and is the only one that bailees coverage insures.

Examples:

·         Angela is going on vacation. She asks Terri, a close friend, to watch her cat and water her plants while she is gone. Terri is the bailee, and Angela is the bailor. In this situation, even though Terri has care, custody, and control of Angela's house, there is no business relationship involved because only Angela benefits.

·         Glenn borrows a pair of hedge clippers from his neighbor, Marty. In this situation, Glenn is the bailee, and Marty is the bailor. Glenn receives the benefit from the transaction. There is no business relationship or exchange of money.

·         Jim takes his power suit to Acme Dry Cleaners. He leaves the suit, expecting it to be cleaned and available for pick-up by Friday, the date on his receipt. The receipt also states that he must pay $14.75 when he returns to pick up the cleaned suit. This is an insurable bailment. In exchange for Jim's promise to pay the $14.75 dry cleaning fee, Acme accepts his suit with the promise to clean it and have it ready for him by Friday. This is a business transaction because of the relationship of the parties and the exchange of money for services.

 

Dry cleaners, launderers, and other types of bailees are actually liable by law for only the loss to customers' goods that the bailee's negligence caused. However, customers expect to be reimbursed for the loss regardless of negligence, and it is customary for the bailee to accept responsibility for any covered loss or damage to customers' property even though it may not be legally liable.

The coverage provided by this Bailee Customers coverage form does not require negligence on the part of the named insured before the customer can collect for a loss. It is important when comparing bailee customer policies to determine if strictly legal liability coverage is being provided or if coverage without negligence (often called goodwill coverage) is being provided. The difference in pricing can be significant. If a client changes from the goodwill non-negligence type to the legal liability type a coverage gap is created that should be noted in writing.

The desire of a client to purchase the goodwill coverage reflects a concern on the named insured's part for its customers' goodwill.

Underwriting focuses on the bailee's business experience in the specific line of business and its overall loss experience. Basic property underwriting at the scheduled locations is the starting point because it is usually on a premises. Location exposures of concern that must be addressed involve fire, theft, water damage, and pollution. The off premises exposures, including transit exposures, must be evaluated.

Related Article: ISO Commercial Property Program Underwriting Considerations

A given risk should be evaluated carefully for its potential exposure at any one time and at any one location. For a dry cleaner, value estimates can be made based on the average and maximum number of bundles of laundry or dry cleaning received each day or week. A further estimate should be made as to the average value per bundle. Another method is to determine exposure by developing an estimate based on the average value of each article. Since these values vary, depending on the nature of the clientele, estimating values is always difficult.