(February 2024)
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IM 7507–Schedule of Coverages–Miscellaneous Bailee–Processor Floater IM 7501–Miscellaneous Bailee–Processor Floater Analysis |
The American Association of Insurance Services (AAIS) Miscellaneous
Bailee–Processor Floater covers direct physical loss 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 for processing. Finishing, repairing,
restoring, and adjusting are some examples of processes. Coverage applies to
direct damage to covered property that a covered peril causes. Coverage extends
to property in transit and property stored after processing work is completed.
Only property for which the named insured issued a storage receipt is covered.
This analysis is of the 04 04
edition.
Any commercial enterprise that accepts property of others for a broad
range of processing work for a charge, other than commercial dry cleaners and
laundries, is eligible. Each insurance company that writes this coverage
establishes its own eligibility criteria.
Related Article: AAIS Bailee Customers Floater Coverage–Dry
Cleaners and Laundry Coverage Form
AAIS Miscellaneous Bailee–Processor Floater coverage requires at least these four forms:
Related Article: CL 0100–AAIS Commercial Lines Common Policy Conditions
IM 7507–Schedule of Coverages–Miscellaneous Bailee–Processor Floater contains the following Information:
The 01 12 edition added a
space to enter the policy number.
All covered premises must be listed,
described, and a limit must be entered in the spaces provided. Coverage does
not apply to any premises not listed. The
01 12 edition placed quotation marks around "Limits" because it is a
defined word.
A general description of covered property must be entered in the space provided.
The only coverage extension provided
is Additional Debris Removal Expenses. The limit is $5,000 unless a different
limit is entered. The 01 12 edition
added "Limits" above the Limits column for both Coverage Extensions
and Supplemental Coverages.
Each of these coverages provides additional limits of coverage or additional coverage. Required entries vary by type of coverage.
The limit is $5,000 unless a different limit is entered.
The limit is $10,000 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.
One deductible is entered that applies to all covered premises.
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.
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. This is subject to all the coverage form's terms, conditions, endorsements, and definitions.
Defined terms are used throughout the coverage form. Restricting their meaning to its definition is how all parties have a clearer understanding of the intended coverage. The definitions can increase or decrease coverage, so they should be carefully reviewed. Eleven terms are defined:
This is the named insured person or organization on the declarations.
This is the insurance company that provides the coverage.
Any movement or vibration of the earth
is considered earth movement. Examples include earthquake, landslide, mudflow,
mudslide, mine subsidence, sinking, rising, or shifting of the earth, but these examples are not meant to
limit the definition. Sinkhole collapse is not earth movement.
Flood is flood. In addition, surface
water, waves, tidal water, or overflow of bodies of water are also flood. Spray
that results from any of these, whether driven by wind or not, is also flood.
This is the amount of coverage that applies to the insured property.
This is a broad and expansive term. It includes 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.
Any page labeled as such contains coverage information, including
declarations or supplemental declarations.
A sinkhole is created when an underground opening is created by water acting
on limestone or other rock formations. The earth's surface suddenly settling or
collapsing into that sinkhole is sinkhole collapse. Sinkhole collapse does not
include the land's value or the cost to fill sinkholes.
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 do 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 directly result from a part of the system or
appliance that holds the water or steam cracking or breaking.
All provisions, limitations, exclusions, conditions, and definitions
that apply to this coverage.
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.
The only property covered is the property
of others in the named insured's custody for processing. 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 covered.
Coverage applies to direct physical loss or damage that a covered peril causes to the property of others in the named insured's care, custody, and control for processing. Finishing, repairing, restoring, adjusting, and similar or related work on the property are examples of processing.
Coverage is limited to the type of
property described on the schedule of coverages while at premises listed on the schedule of coverages.
Eight types of property are specifically excluded:
This property is more correctly insured under aircraft and watercraft coverage forms and policies.
Property that is illegal to possess is not covered. Property that is
legal to own but used as part of an illegal trade or transported illegally is
also not covered.
It is important to note this applies to fur garments and those garments trimmed
with fur. When fur is part of a garment,
the entire garment is excluded.
This property is more correctly insured under Furriers Customers Coverage
Forms.
Related Article: ISO Furriers Customers Coverage Form
Jewelry of every type and description, precious and semi-precious
stones, gold, silver, platinum, and other precious metals and alloys is not
covered.
This property is more correctly insured under Jewelers Block Coverage Forms.
Related Articles:
ISO Jewelers
Block Coverage Form
ISO
Jewelers Block Coverage Form
Several 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
Coverage does not apply to any property of others that is accepted for processing or storage, but no charge is made.
Note: This excludes coverage for gratuitous work or service.
Any type of self-propelled vehicle intended for use on public highways (including automobiles). This property is more correctly insured under automobile Garagekeepers Coverage.
Related Article: CA 99 37–Garagekeepers Coverage
Property that is waterborne in transit while in the custody of carriers for hire is covered, but all else is not.
There is one coverage extension. Its limit is either the limit on the schedule of coverages or the default limit in the coverage form. This limit is part of the applicable limit for covered property and not in addition to it unless otherwise indicated. It is not added to or combined with limits for any other coverage extension or supplemental coverage and is not subject to any coinsurance provisions that apply elsewhere in the coverage form.
Debris Removal
a. The insurance company pays costs incurred to
remove debris created because a covered peril to covered property occurs.
b. Debris removal does not include any costs
for removing, restoring, or replacing polluted land, water, or extracting
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. 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.
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.
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.
Provisions That Apply To Supplemental Coverages
There are four supplemental coverages. The limit for each can be listed either on the form or the schedule of coverages. If a different limit is listed on the schedule of coverages, that limit is applicable.
Limits for supplemental coverages are separate from and not part of the applicable limit for the covered property. If a limit is not listed, then coverage is provided up to the total limit for the covered property. Again, though, if a different limit is listed on the schedule of coverages, that limit is applicable.
The limit available for coverage described under the supplemental coverage is the only limit available. It is not the total of the limit for the supplemental coverage and the limit for the covered property. The limits are not added to or combined with limits for any other supplemental coverage or coverage extension and are not subject to any coinsurance provisions that apply elsewhere in the coverage form.
1. Off-Site Property
Coverage applies to direct physical loss caused by, or that results from a covered peril to covered property while that property is temporarily at an unscheduled offsite location. The most paid in any one occurrence is $5,000 unless there is a different limit on the schedule of coverages.
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Example: Maverick Motors repairs and restores electric motors. Maverick sends
its finished motors to Perfection Painting to apply the paint's final coat
that completes the repair or restoration project. This supplemental coverage insures the motors for up to $5,000 while
they are at Perfection Painting. |
2. 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 only paid 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 $10,000 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.
3. Property in Storage
a. Coverage applies to direct physical loss or damage a covered peril causes to covered property of others the insured stores after the processing operation has been completed.
b. Storage coverage only applies if the named insured first processes the property at a premises on the schedule of coverages before storing it. The named insured must issue a storage receipt.
c. The most paid in any one occurrence is $5,000 unless there is a different limit on the schedule of coverages.
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Example: Morton's Marina repairs watercraft, prepares watercraft for the opening of the boating season in the spring, and stores smaller watercraft during the winter. Morton increases the $5,000 limit of insurance to reflect the higher values stored. |
4. Transit
Coverage applies to direct physical
loss by a covered peril to covered property while in transit. The most paid in
any one occurrence is $5,000 unless there
is a different limit on the schedule of coverages.
Coverage applies to risks of direct physical loss. This broad peril is subject to the limitations and exclusions described in this policy.
1. Primary Exclusions
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 a 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 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 is caused by a civil authority destroying property to control a fire. This
exception only applies if the fire results from a covered peril.
b. Earth Movement or Volcanic Eruption
Earth movement and volcanic eruption caused loss are not covered. There
are three exceptions:
c. Flood
The insurance company does not pay for loss due to flood. However, 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 Backup and Water below the Surface
Loss due
to water backing up through a sewer or drain is not covered. Loss that occurs because water below the ground's
surface exerts pressure on covered buildings or structures is also not covered.
However, 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 action 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 any 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
The second group of exclusions applies to loss caused by or resulting
from the following 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 that is 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 Clients’ Property will need to be attached for employee dishonesty coverage
to apply.
Related Article: CR 04 01– Employee Theft Of Clients’ Property
c. Electrical Currents
Loss caused by electrical currents or arcing is not covered unless the
source of the electricity is lightning. The exception is that loss is covered when
caused by a specific peril resulting from the electrical current or arcing.
d. Loss of Use
There is no coverage for loss that results from delay, loss of use, or loss of market.
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Example:
Jason was chroming 25 fenders for Kevin. The fenders were to be used during
an upcoming auto show. A fire destroyed Jason's shop, and all of Kevin's fenders
were destroyed. The fenders' damage is covered, but Kevin's loss of future
income due to the fenders not being at the auto show is not covered. |
e. Mechanical Breakdown
The insurance company
does not pay for loss or damage caused by any mechanical, structural, or
electrical breakdown or malfunction. This includes breakdowns and malfunctions
that result from a structural, mechanical, or reconditioning process. However,
if any such breakdown or malfunction results in a specified peril taking place,
coverage applies to the loss or damage that specified peril causes.
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Example: Interstate Painting is doing electrostatic painting on bicycle tubing when a significant electrical surge causes the chemistry to change dramatically. This results in the metal tubing being weakened. The tubing's diminished value due to the power surge and subsequent chemical change is excluded. |
f. 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 one exception
is that this does not apply to covered property in the custody of carriers for
hire.
g. Pollutants
There is no coverage for loss caused by or that results from any
release, discharge, seepage, migration, dispersal, or escape of pollutants unless a specified peril causes the
event, except for the coverage that Supplemental Coverages 2. Pollutant Cleanup
and Removal provides. Coverage applies to the resulting loss to covered
property that a specified peril causes.
h. Processing Work
The insurance company does not pay for loss to covered property of others caused by processing or other work performed on it. The one exception is that coverage does apply when a loss occurs because of a specific peril that resulted from the processing work.
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Example: Henrietta's Hammer Mill makes precision indentations on metal dies used in various applications. One of the indentations made on a die is too shallow. While testing the die at Henrietta's premises, the unintended surface-to-surface contact caused a spark that ignited combustibles and caused a fire. The initial loss in value of the die by the processing is excluded. However, the loss to the die by fire is covered. |
i. Temperature/Humidity
Loss to covered property that dryness, dampness, humidity, changes in or extremes of temperature causes is excluded. However, if any of these results in a specified peril occurring, the loss or damage that specified peril causes is covered.
j. 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 there was
visible evidence of forced entry into the vehicle. The exception is that covered
property in the custody of carriers for hire is covered.
k. Voluntary Parting
Loss 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.
l. Wear and Tear
Loss that
wear, tear, marring, or scratching causes is excluded.
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, which the named insured incurs if it 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.
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 permitted 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.
1. Actual Cash Value
The value of 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 when separate.
3. Loss to Parts
The value of a lost or damaged part of property
that consists of several parts is the cost to repair or replace only the lost
or damaged part.
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 the
named insured's insurable interest is 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.
3. Loss Settlement Terms
Subject to other items in this section, the insurance company pays the
least of the following:
4. 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.
5. 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 that its limit
of insurance bears to the limits of insurance for all insurance that covers on
the same basis.
b. Excess Amount
There may be other coverage that pays for the
loss. In that case, this coverage form pays on an excess basis. This means that
only the amount of covered loss that exceeds the amount due from the other
coverage (whether collectible or not) is paid. Any payment is subject to the limit
of insurance that applies.
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.
Note: There is no mention of who decides whether
the named insured handles the adjustment or the insurance company handles it directly.
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 at its discretion.
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.
1. Appraisal
The insurance company and the insured may not always agree on the value
of a covered claim. This condition provides one method to resolve disputed
claims.
Either party can request an appraisal to determine the value of a
disputed claim. 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
appointed. Both are insureds, but only with respect to the property insured
under this coverage form.
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 obligations of the named insured and
the insurance company 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
Covered
property must be located in the United States, its territories and possessions, Canada, or Puerto Rico for coverage to
apply.
AAIS has developed two specific endorsements that can be used with this and other Miscellaneous Floaters.
IM 75 12-Named Perils Endorsement
This endorsement changes the perils from the very broad risks of direct physical loss to providing coverage for only the named perils listed on the endorsement. The endorsement also modifies the definition of specified perils to match the listed named perils.
IM 76 16–Coverage Restricted to Described Premises
This endorsement should not be needed because the floater itself is already restricted to only described premises.
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 involves some service or work done in exchange for money
and is the only one covered by bailees' coverage.
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Examples: ·
George
and Paul have stores next to each other. Paul is called home for an emergency,
and George agrees to watch over his store until he can return. George is the bailee, and Paul is the
bailor. In this situation, even though George has care, custody, and control
of Paul's store, there is no business relationship involved because only Paul benefits. ·
George
borrows a ladder from Paul. In this situation, George is the bailee, and Paul
is the bailor. George receives the benefit from the transaction. There is no
business relationship or exchange of money. ·
George
takes his collection of electric train engines to Paul's store for cleaning,
refurbishing, and insurance valuation. He leaves everything there, expecting
all work to be done and the collection available for him to pick up exactly
30 days after the date he dropped them off, the date on his copy of the
receipt. The receipt also states that he must pay appropriate cleaning, refurbishing,
and appraisal fees as determined when he picks up the collection. This is an
insurable bailment. In exchange for Paul's promise to pay the appropriate
fees, George accepts his collection and promises to clean and refurbish it
and provide insurance valuations by the date
on the receipt. This is a business transaction because of the
relationship of the parties and the exchange of money for services. |
Bailees are legally liable for only loss to
customers' goods that the bailee's negligence causes. However, customers expect
to be reimbursed for loss regardless of
negligence, and it is customary for the bailee to accept responsibility for any
covered loss or damage to customer's property even though it may not be legally
liable.
The coverage provided by this Bailee Customers floater does not require
negligence by the named insured before the customer can collect for a loss. When
comparing bailee customer policies, it is important 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 the property is usually
on a premises. Location exposures of
concern that must be addressed involve fire, theft, water damage, and pollution.
Then off premises exposures, including transit, must be evaluated.
Related Article: ISO Commercial Property Program Underwriting
Considerations
Establishing valuation is a very important part of underwriting because undervalued property is not adequately priced.
The underwriter should request a list of property on hand with valuation to evaluate the exposure. Prior years'
Information may be very helpful if there is fluctuation. Some insureds may have contracts with each client
that establish valuation, while others may have receipts with estimated
valuation. The valuation methodology varies by type of processor.
This type of bailee coverage may be difficult and/or expensive to obtain
because evaluating and pricing such risks is challenging. The business personal
property values will probably vary significantly from one risk to another, and
the property's condition may be extremely poor when the bailor receives it.
Documentation of condition and valuation are just two hurdles claims adjustors
must deal with in case of a loss.
Risks with consistent and steady customers that deal with specific types
of personal property are more desirable than risks with many one-time customers
and many types of business personal property.