AAIS Cold Storage Locker Coverage

AAIS COLD STORAGE LOCKER COVERAGE FORM ANALYSIS

(February 2024)

 

Introduction

Eligibility

Policy Construction

IM 7317–Schedule of Coverages–Cold Storage Locker Coverage

IM 7315–Cold Storage Locker Coverage–Special Perils Form Analysis

   Agreement

   Definitions

   Property Covered

   Property Not Covered

   Optional Coverage

   Coverage Extensions

   Supplemental Coverages

   Perils Covered

   Perils Excluded

   What Must Be Done in Case of Loss

   Valuation

   How Much We Pay

   Loss Payment

   Other Conditions

IM 7316–Cold Storage Locker Coverage–Named Perils Form Analysis

Endorsements and Schedules

Underwriting Considerations

INTRODUCTION

The American Association of Insurance Services (AAIS) Cold Storage Locker Coverage Forms provide coverage for loss to perishable food belonging to others while in a rented locker within the named insured’s cold storage facility. The coverage can be provided on a direct damage or legal liability basis. Damage while processing coverage can be used with either option. Two versions of the coverage form are available, with the only difference between the two being the covered perils.

The IM 7315–Cold Storage Locker Coverage–Special Perils Form is analyzed first. The differences between it and the–Cold Storage Locker Coverage–Named Perils Form will follow.

ELIGIBILITY

Any commercial business that offers cold storage lockers for rent to the public is eligible.

POLICY CONSTRUCTION

AAIS Cold Storage Locker coverage requires at least these four forms:

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

IM 7317–SCHEDULE OF COVERAGES–COLD STORAGE LOCKER COVERAGE
(01 12 changes)

This Schedule of Coverages is used with IM 7315–Cold Storage Locker Coverage–Special Perils Form or
IM 7316–Cold Storage Locker Coverage–Named Perils Form. IM 7317 contains the following information:

Policy Number (01 12 addition)

The 01 12 edition added a space to enter the policy number.

Covered Premises

The premises number and location address or description is entered in the space provided.

Note: IM 7318–Additional Covered Premises Schedule–Cold Storage Locker Coverage is used to schedule additional premises.

Coverages and Limits

The 01 12 edition added quotation marks around the word Limits (“Limits”) because Limit is a defined word.

Three different coverages are available for the premises listed on the schedule of coverages.

Only one of the following two can be selected:

o    One limit is the most paid for covered property in a single cold storage locker at the designated location(s).

o    The other limit is the most paid for a single loss to covered property in all cold storage lockers at the designated location(s).

o    One limit that is the most paid for covered property in a single cold storage locker at the designated location(s).

o    The other limit that is the most paid for a single loss to covered property in all cold storage lockers at the designated location(s).

This coverage can be used with either of the above selections:

Deductible

The deductible amount must be entered in the space provided.

Optional Coverage

If Change in Temperature or Humidity Coverage is selected, the limit entered in the space provided is the most paid for a single loss that results from change in temperature or humidity.

Coverage Extensions

The limit on the Schedule of Coverages for this coverage applies to all covered locations:

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

There is no limit in the coverage form. As a result, policy limits apply but defense costs reduce the amount available to pay for the loss. A limit entered restricts the amount of defense costs coverage available. The previous edition had the word “covered” in the space provided. The 01 12 edition has the words “See Form” in that space.

The number of days is 365 unless a different number of days is entered.

Supplemental Coverages

This coverage provides additional coverage and limits.

The limit is $10,000 unless a different limit is entered.

Additional Information (01 12 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 7315–COLD STORAGE LOCKER COVERAGE–SPECIAL PERILS FORM ANALYSIS

This analysis is of the 10 06 edition.

Agreement

The insurance company agrees to provide the coverage described in the coverage form and in the schedule of coverages. The named insured agrees to pay the premium. The agreement is subject to all the coverage form's terms, conditions, endorsements, and definitions.

Definitions

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

1. You and your

The party(ies) named on the declarations as the insured.

2. We, us, and our

The insurance company that has agreed to provide the coverage.

3. Earth movement

Earthquake is earth movement, as is any landslide or mine subsidence. A volcanic eruption, explosion, or effusion is also earth movement. The earth shifting, rising, eroding, expanding, freezing, or thawing is earth movement, as is any mishandled soil compacting. Any movement of water that causes foundations, buildings, or structures to crack, settle, or shift is also considered earth movement.

Mine subsidence is earth movement regardless of whether the mine is natural or man-made.

The only exception in this definition is that sinkhole collapse is not considered earth movement.

4. Flood

A general but temporary condition where normally dry land becomes at least partially inundated. The cause of the inundation can be due to an overflow of inland or tidal waters, waves, tidal waves, or tsunamis. It may also be due to spray from these that may be wind-driven or not.

Surface water runoff or unusually rapid accumulation is also flood, regardless of the source of the water.

Mudslide or mudflow is considered flood only when the cause is either surface water runoff or unusually rapid accumulation or waves or because water exceeds the cyclical levels that would be expected.

5. Limit

The amount of coverage that applies to the insured property.

6. Perishable food

Food that must be stored or maintained under specific controlled conditions. When those specific controlled conditions fail, the food is subject to loss or damage.

Note: Common controlled conditions include heating, refrigeration, and humidity control but are not limited to just these.

7. 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.

Any page labeled as such that contains coverage information. Declarations or supplemental declarations are included.

9. 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. The value of the collapsing land or the cost of filling the sinkhole is not included in this definition.

10. 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, 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. Damage to the interior of buildings or personal property stored in buildings damaged by a falling object is not included unless that falling object first breaches the building's exterior.

The cracking or breaking of part of a system or appliance that holds water or steam that causes the sudden or accidental discharge or leakage of the water or steam is water damage.

11. Suit

This is any type of judicial proceeding used to determine the named insured’s liability and to establish damages to covered property of others in the named insured's care, custody, or control. Arbitration is one of the proceedings, but only when the named insured is required to participate.

12. Terms

All policy provisions, limitations, exclusions, conditions, and definitions that apply to this coverage.

13. Volcanic action

An airborne volcanic blast or shock waves, ash, dust, and particulate matter. The cost to remove that ash, dust, and particular matter is paid only if the covered property sustained direct damage from it.

Lava flow is also considered volcanic action.

Property Covered

Coverage applies to the property described below, subject to any exclusions or limitations.

Note: The coverage can be either legal liability or direct damage, and that selection is made on the schedule of coverages. Item 3. Processing is an option available if either 1 or 2 is selected. Item 3 is not available as a stand-alone coverage.

1. Legal Liability Coverage

A box must be marked on the schedule of coverages to select this coverage.

a. The named insured is covered for only its legal liability for damage to perishable food of customers in its rented cold storage lockers. The only damage covered is direct physical loss to that food by a covered peril. The legal obligation is established by a cold storage receipt, contract, or agreement the named insured issued.

b. The perishable food must be in a rented locker at a covered premises for this coverage to apply. The cold storage locker must be owned by the named insured.

c. If costs, fines, expenses, fees, penalties, or damages are assessed against the named insured because it violated claims-related laws or statutes, this coverage will not pay.

Example: Reginald’s Family Farm Storage provides cold storage lockers to members of the Amish and Mennonite communities in his county. He purchases only the legal liability coverage that his warehouse receipt requires because he knows his customers will not pay for any additional coverage and would not expect him to respond to any losses that are not his legal liability. However, Reginald has gotten very lax in how he responds to claims. A non-Amish client, David, is furious with Reginald and notifies the state agency to get their help. The agency accesses a significant fine, and Reginald must pay it himself. However, the insurance company will pay David’s actual claim once Reginald submits it to them.

2. Direct Coverage

A box must be marked on the schedule of coverages to select this coverage.

a. The named insured is covered for damage to perishable food of customers in its rented cold storage lockers. The only damage covered is direct physical loss to that food by a covered peril.

b. The perishable food must be in a rented locker at a covered premises for this coverage to apply. The cold storage locker must be owned by the named insured.

Example: Cecil's Cold n' Chilled Warehouse has a wide variety of customers. They range from large institutional businesses with large amounts of refrigerated property to much smaller "Mom and Pop" operations with limited quantities of refrigerated goods. Cecil has the facilities to respond to their needs and others that fall somewhere between the two. Cecil decides to purchase direct coverage because he knows he will lose customers if losses are not covered – even losses that are not his fault!

3. Processing Coverage

A box must be marked on the schedule of coverages to select this coverage. If this coverage is not selected, all processing-caused losses are excluded in Exclusion 2.h. Processing Work.

a. Perishable food of customers is covered for direct physical damage by a covered peril. The cold storage associated with that processing is also covered.

Note: When the Processing coverage is selected on the schedule of coverages, the exclusion regarding processing work is removed so that loss caused by processing becomes a covered peril.

b. Coverage does not extend off site, so the perishable food must be at a covered premises for this coverage to apply.

Example: Reginald was flash freezing product brought to him by his customers when a small fire started in the processing area. The food had to be destroyed because of smoke damage. Because Reginald had purchased this addition coverage, all products being processed were covered.

Property Not Covered

Five specific types of property are excluded:

1. Contraband

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

2. Furs

If a garment has any fur on it, that entire garment is not covered.

3. Live Animals

There are no exceptions. Live animals are not covered.

4. No Charge for Service

This applies only to Processing Coverage.

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

Note: This essentially excludes gratuitous work or service.

 

Example: Reginald was also flash freezing produce brought from a local community garden that was being processed free of charge when the small fire occurred. This food was also ruined, but Reginald was not paid for it because he was processing it without charging.

5. Property Not Under Receipt

This applies to only Legal Liability Coverage and Direct Damage Coverage.

When a rental locker receipt has not been issued, there is no coverage for property of others in that locker.

Optional Coverage

When Optional Coverage–Change in Temperature or Humidity Coverage is selected on the schedule of coverages, and a limit is entered in the space provided, it is separate from and not part of the applicable limit under Property Covered. This limit 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.

Change in Temperature or Humidity Coverage

This coverage applies only if it is selected on the schedule of coverages.

Coverage applies to direct physical loss to covered property due to a change in temperature or humidity. The change must be due to one or more of the following three situations below and only when the described situation results from a covered peril.

The most paid is the limit shown for Change in Temperature or Humidity Coverage on the schedule of coverages.

The deductible for this coverage is shown on the schedule of coverages and applies only to it.

The Temperature/Humidity exclusion in the Perils Excluded section is deleted but only for the coverage provided within this Coverage.

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 included 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

When a covered peril damages or destroys covered property, the cost to remove any created debris is covered under this extension.

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

There are two parts to 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.

 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.

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 is providing 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.

The insurance company decides when to defend suits brought against the named insured that result from covered loss or damage to covered property. This is not the decision of the named insured. This means that the insurance company is in control of the investigation and how suits or claims are handled.

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

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

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

This covers direct physical loss to covered property moved or stored to avoid loss or damage from an impending covered peril. The loss can occur while in transit to the sanctuary location or while being stored there. This coverage is unique because 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 covered peril.

Coverage applies for up to 365 days after the property is first moved but does not extend past the policy’s expiration date.

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.

Supplemental Coverages

Provisions That Apply To Supplemental Coverages

There is one supplemental coverage. It has its own default limit that can be increased by entering a higher limit on the schedule of coverages. Limits for any supplemental coverage are separate from the applicable limit for covered property, not part of it.

The limit available for coverage described under a supplemental coverage is the only one available. It is not the total of the limit for a supplemental coverage and the limit for 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.

Pollutant Cleanup and Removal

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.

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.

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

The most paid at any one location is $10,000 for all such expenses that a covered peril that occurs at that location during each separate 12-month policy period causes. This limit can be increased.

Perils Covered

Coverage applies to risks of direct physical loss unless the loss is limited or caused by an excluded peril.

Perils Excluded

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 loss that results from an order 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 as a means of controlling a fire. This exception applies only if the fire results from a covered peril.

b. Earth Movement

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

c. Flood 

The insurance company does not pay for loss or damage caused by flood. There is one exception. If fire, explosion or sprinkler leakage results from a flood, the loss or damage from the fire, explosion, or sprinkler leakage is covered but not the flood damage.

d. Nuclear Hazard

The insurance company does not cover loss or damage caused by or resulting from any nuclear reaction, radiation, or contamination. This is absolute and applies whether or not the nuclear incident was controlled 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 the 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. There is one exception. Fire, explosion, and theft losses resulting from such backup or hydrostatic pressure are covered.

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 is 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 or damage caused by or resulting from any of the following loss events. Some of these 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 that results from criminal, fraudulent, dishonest, or illegal acts that any of the following commit alone or in collusion with another:

Coverage applies if employees destroy property. It does not apply if employees steal.

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

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

Related Article: CR 04 01–Clients’ Property

c. Electrical Currents

Loss caused by electrical arcing or currents is excluded unless the electrical is from lightning. The exception is when the excluded arcing or currents result in a specified peril, then any loss or damage from that specified peril causes is covered.

d. Loss of Use

There is no coverage for loss caused by or resulting from delay, loss of use, or loss of market.

e. Mechanical Breakdown

When mechanical, structural, or electrical breakdown or malfunction causes a loss, it is excluded. The loss is excluded even if a breakdown results from a structural, mechanical, or reconditioning process. However, if a specified peril occurs due to any of these, coverage applies to the loss or damage that the specified peril causes.

f. Missing Property

Unexplained or mysterious disappearance of 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. This exception is that covered property in the custody of carriers for hire is covered.

g. Pollutants

There is no coverage for loss caused by or that results from any release, discharge, seepage, migration, dispersal, or escape of pollutants. There are three exceptions:

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. There are two exceptions:

i. Temperature/Humidity

Any loss caused by dryness, dampness, humidity, changes in, or extremes of temperature is excluded. The only exception is when a specified peril occurs due to any of these; coverage applies to the loss or damage that specified peril causes.

j. Voluntary Parting

There is no coverage for loss or damage to covered property when voluntarily given to others, even if the surrender was due to a fraudulent scheme, trick, or false pretense.

Example: Paula received a call from Friendly Foods explaining that a new employee would be picking up items from the cold storage unit. When she arrived, Paula greeted the new employee and showed her how to access the items and move them to her truck. The regular employee from Friendly Foods arrived later in the day and was shocked to learn that somebody else had already taken the product. Friendly Foods sued Paula for the stolen goods because it did not make such a phone call, and there was no “new employee.” Paula submitted the claim to the insurance company as a theft claim. However, as the details emerged, the company refused to pay the claim because Paula voluntarily parted with the product.

 

k. Wear and Tear

Loss or damage caused by wear, tear, marring, or scratching is excluded.

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 include a description of 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 the notice 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, but to do so, the named insured must maintain 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 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 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 does not have the right to turn over ownership of property to the insurance company unless that insurance company agrees to accept it. Any such agreement must be in writing.

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 covered property is based on the 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 to 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 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: This coverage form insures only property of others. The named insured has little, if any, financial insurable interest in the covered property. It would be better if this condition was written to limit coverage to the property owner’s insurable interest.

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

The insurance company pays the least of the following:

Example: Kimberly purchased a cow that Paula butchered, froze, and then placed in the cold storage locker that Kimberly rented from Paula. A fire occurred that ruined all of Kimberly’s meat. The cost to replace the meat was $1,000, which was also its actual cash value. The earned charges for Paula’s processing were $250. As long as the limit was sufficient, Kimberly should receive $1,000 and Paula should receive $250.

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 of all insurance that covers on the same basis.

b. Excess Amount

There may be other coverage available to pay for the loss other than as described in 5. a. above. 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.

Loss Payment

1. Loss Payment Options

a. Our Options

The insurance company has the following four loss payment options if a covered loss occurs.

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

The insurance company has the right to decide how it wants to settle the loss, but it is required to notify the named insured within 30 days of receiving a property completed proof of loss when the decision is to rebuild, repair, or replace.

Note: This could be upsetting to the named insured’s customers, but it is the right of the insurance carrier to decide.

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. The amount of loss is determined through either 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 has the option to adjust and pay losses that involve property of others either to the named insured acting on the property owner’s behalf or to the property owner.

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

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

Other Conditions

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. Bankruptcy of an Insured

The insurance company's obligations under the coverages provided are not changed if an insured becomes bankrupt or insolvent.

3. 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.

4. Conformity with Statute

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

5. 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.

6. Misrepresentation, Concealment, or Fraud

This coverage is void if any insured at any time willfully concealed or misrepresented a material fact that relates 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 that the insurance is treated as simply having never existed versus denying a particular claim.

7. Policy Period

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

8. 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.

9. Restoration of Limits

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

10. 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.

11. Suit against Us

The insurance company cannot be sued by anyone for any coverage until all the terms of the coverage form are met and the amount of the insured’s liability has been determined. The determination can be based on either a trial’s final judgment or a settlement agreed to by the insurance company, the claimant, and the named insured.

The insurance company is not to be joined with the insured while the liability of the insured is being determined.

Example: Casey is visibly upset because his frozen ice sculpture melted while stored in a locker at Finest Cold Storage, Inc.

Scenario 1: He sues Finest and Finest’s insurance company. This coverage form does not respond to the suit against the insurance company.

Scenario 2: Finest is upset because the insurance company does not move fast enough to settle Casey’s lawsuit, so Finest decides to sue the insurance company. This suit violates the contract and is not honored.

Scenario 3: The trial determines that Finest is liable. The insurance company pays the amount of the claim. Finest then sues the insurance company because of how it handled the case. This suit is acceptable based on this provision.

 

12. Territorial Limits

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

IM 7316–COLD STORAGE LOCKER COVERAGE–NAMED PERILS FORM ANALYSIS

This analysis is of the 10 06 edition.

This coverage form is identical to IM 7315–Cold Storage Locker Coverage–Special Perils Form analyzed above the Perils Covered Section. This analysis addresses only the one section that is different.

Perils Covered

Risks of direct physical loss caused by only designated perils are covered unless the loss is limited or caused by an excluded peril. The designated perils covered are:

Both explosion and theft perils have additional wording stating that they apply except when they are excluded.

Note: The explosion exclusion is found in the Earth Movement exclusion, and the theft exclusion is in the Criminal, Fraudulent, Dishonesty, or Illegal Acts exclusion.

ENDORSEMENTS AND SCHEDULES

AAIS has developed the following schedule for use with these coverage forms:

IM 7318–Additional Covered Premises Schedule–Cold Storage Locker Coverage This schedule is used with either coverage form to list and describe additional locations and to enter the coverages, limits, and deductibles that apply.

Note: Additional company specific endorsements may be available and used. Each should be examined to determine its effect on policy coverage, especially when some may impose restrictions or controls that may be minimum requirements or prerequisites for the company to provide coverage or to accept a particular exposure.

UNDERWRITING CONSIDERATIONS

Introduction

There are two general types of cold storage locker facilities. The most common is what might be called limited service type that offers only locker facilities. Its customers prepare their foods elsewhere or have others do it for them and simply bring the packaged products to the cold storage locker facility to store. The other type is sometimes called a complete service facility. It offers one or more additional services, such as purchasing commodities at wholesale, dressing, chilling, and cutting meat, blanching and packaging vegetables, and flash-freezing incoming products. Some purchase and freeze fruits and vegetables in quantity and later resell them to locker patrons and others. Some also distribute commercially frozen foods and serve as local storage facilities for retail businesses in the local area.

The most significant loss factors affecting perishable food in cold storage locker facilities are temperature fluctuations or complete refrigeration loss due to equipment breakdowns, refrigeration leaks, leaks in seals, and electrical power interruptions. Proper and intensive routine, periodic and preventive maintenance, backup generators, and comprehensive emergency plans are the most important factors in anticipating and being prepared if any loss of refrigeration occurs.

Underwriting Factors

Many underwriting considerations related to warehouses also relate to cold storage lockers, but cold storage lockers are a more clearly defined and limited form of warehousing. In addition to the specific areas outlined above, several general factors are important to effectively and successfully underwrite cold storage locker risks.

Legal Liability versus Direct Damage Underwriting

Legal liability does not include most catastrophic perils, such as flood, earthquake, windstorm, and the like. Commonly referred to as acts of God, these perils are outside a warehouse operator's responsibility, but it still has responsibilities related to these perils that could involve it in a legal liability loss situation. Because the coverage form insures these perils, the insurance company must be certain that the cold locker operator takes a common sense approach to conduct its business to minimize the effects of one of these perils if it occurs. Where flood might be a factor, goods susceptible to water damage should be stored above grade or basement levels. Where earthquake is a factor, construction should be earthquake resistant, or the goods stored inside should not be as susceptible to damage if a building collapses because of an earthquake event. Construction should be such that the building can withstand a strong windstorm or rainstorm. Depending on the location, some external exposures to loss are more significant than others, and the building's construction and the way business is conducted should reflect it and, as much as possible, minimize or eliminate the chances of loss.

Cold Locker Rental Receipt

Coverage depends on the language in the receipt. These should be completed in a structured and consistent manner and follow prescribed procedures to guarantee uniformity and accuracy. There is no coverage on the food stored in the cold locker without a rental receipt for that locker. Receipts should be duplicated, and the duplicates stored off premises so that losses can be handled accurately and promptly if the copy kept at the warehouse location is itself lost or destroyed. Both the customer and the named insured should be able to produce their copies of the storage receipt if a loss occurs.