AAIS Equipment Sales And Rental Coverage

AAIS EQUIPMENT SALES AND RENTAL COVERAGE FORM ANALYSIS

(February 2024)

 

Introduction

Eligibility

Policy Construction

Schedules of Coverages

IM 7705–Schedule of Coverages–Inside and Outside Building Coverage–Equipment Sales and Rental Coverage

IM 7706–Schedule of Coverages–Separate Limit Coverage–Equipment Sales and Rental Coverage

IM 7700–Equipment Sales And Rental Coverage 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

   Other Conditions

   Definitions

Endorsements and Schedules

Underwriting Considerations

INTRODUCTION

The American Association of Insurance Services (AAIS) Equipment Sales and Rental Coverage insures agricultural, construction, and other types of mobile equipment the named insured holds for sale or rental. Tools are not covered.

Limits can be scheduled using one of two schedules of coverages:

Both of these schedules are used with the IM 7700–Equipment Sales and Rental Coverage Form.

ELIGIBILITY

Any commercial business with agricultural, construction or other types of mobile equipment for sale or rent is eligible.

POLICY CONSTRUCTION

AAIS Equipment Sales and Rental Coverage require at least these four forms:

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

SCHEDULES OF COVERAGES

IM 7705–SCHEDULE OF COVERAGES–INSIDE AND OUTSIDE BUILDING COVERAGE–EQUIPMENT SALES AND RENTAL COVERAGE (01 12 changes)

This Schedule of Coverages contains the following information:

Policy Number (01 12 addition)

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

Described Premises

All covered premises must be listed. Space is available for two premises. Unlisted premises are not covered.
IM 7709–Additional Described Premises Schedule–Inside and Outside Building Coverage is used to list additional locations.

Catastrophe Limit

This limit applies to all coverages at all locations in case of a catastrophic loss.

Premises Number 1

This section has two limits. The box next to either Property Inside Buildings Limit and/or Property Outside Buildings Limit must be checked.

Note: A separate limit is not entered for these coverages. They are blanketed into the Property Inside Buildings Limit.

Note: A separate limit is not entered for these coverages. They are blanketed into the Property Outside Buildings Limit.

Premises Number 2

This section has the same information as for Premises No. 1.

Coverage Extensions

The entries on the schedules of coverages for the following coverages apply to all covered locations:

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

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

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

Supplemental Coverages

Each of these coverages provides additional limits of coverage or additional coverage. Required entries vary by type of coverage.

The limit is $100,000 unless a different limit is entered.

The limit is $100,000 unless a different limit is entered.

The limit is $100,000 unless a different limit is entered.

The limit is $100,000 unless a different limit is entered.

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

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

The limit is $100,000 unless a different limit is entered.

Deductible

A deductible amount must be entered in the space provided.

Coinsurance

One of the following coinsurance options must be selected separately for Property Inside Buildings and Property Outside Buildings:

Valuation

A valuation basis of either Actual Cash Value or Replacement Cost must be selected for each of the following:

Reporting Conditions

If coverage is provided on a non-reporting basis, this section does not apply and the Reporting Conditions Waived box must be checked. If coverage is provided on a reporting basis, the Reporting Conditions Applicable box must be checked and entries for the following made:

Additional premiums based on reports of value are due on the date indicated on the insurance company's billing statement.

Other described property subject to reporting have separate reporting rates (if checked and entered) based on values or sales. This is for:

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 7706–SCHEDULE OF COVERAGES–SEPARATE LIMIT COVERAGE–EQUIPMENT SALES AND RENTAL COVERAGE (01 12 changes)

This Schedule of Coverages contains the following information:

Policy Number (01 12 addition)

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

Described Premises

All covered premises must be listed. Space is available for two premises. Unlisted premises are not covered.
IM 7710–Additional Described Premises Schedule–Separate Limit Coverage is used to list additional locations.

Catastrophe Limit

This section is identical to IM 7705.

Premises Number 1

This section requires entering separate limits for each coverage selected. Each limit is the most paid for loss or damage to that covered property in any one occurrence, regardless of whether it is inside or outside. The coverages are:

Premises Number 2

This section has the same information as for Premises No. 1.

Coverage Extensions

This section is identical to IM 7705.

Supplemental Coverages

This section is identical to IM 7705.

Deductible

This section is identical to IM 7705.

Coinsurance

One of the following coinsurance options must be selected separately for Equipment for Sale, Equipment Leased or Rented to Others, and Parts, Accessories, Tires, Fluids, and Lubrication Supplies:

Valuation

A valuation basis of either Actual Cash Value or Replacement Cost must be selected for each of the following:

Reporting Conditions

This section is identical to IM 7705, except that rates are not based on Inside Buildings and Outside Buildings.

Additional Information

This section is identical to IM 7705.

IM 7700–EQUIPMENT SALES AND RENTAL COVERAGE FORM ANALYSIS

This analysis is of the 01 09 edition.

Introduction

The terms "you" and "your" are the party(ies) identified on the declarations as the insured. "We", "us," and "our" is the insurance company that provides the coverage. These are the only two definitions in this introduction. However, there are many other defined terms used in this coverage form. The other terms can be found in the Definitions Section at the end of the coverage form. It is very important to review these definitions because of how they can broaden or restrict coverage.

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. This entire agreement is subject to all the coverage form's terms, conditions, endorsements, and definitions.

Property Covered

The insurance company covers the following property, subject to certain exclusions or limitations.

1. Inside and Outside Building Coverage

If IM 7705–Schedule of Coverages–Inside and Outside Building Coverage–Equipment Sales and Rental Coverage is used with this coverage form, coverage applies to the following:

a. Property Inside Buildings

Property described in Item 3. of this section is covered but only while inside a building at the premises listed on the schedule of coverages. The single scheduled limit for property inside buildings applies to all property that is inside the building and only while it is inside the building. This limit is not to be combined with the limit for Property that is Outside Buildings.

Example: Ray's Rentals stocks a large variety of contractors' equipment in its equipment rental business. Space in the building is limited, and Ray keeps his smaller equipment inside and larger equipment outside in the yard. Ray decides to use this approach to insure his equipment because he can easily keep track of the values of the comparatively few larger items of equipment he stores outside.

b. Property Outside Buildings

Property described in Item 3. of this section is covered but only while outside of buildings at the premises listed on the schedule of coverages. The single scheduled limit for property outside of buildings applies to all property outside the building and only while it is outside the buildings.

This limit is not to be combined with the limit for Property that is Inside Buildings.

c. Building

As used in this coverage form, a building is any permanent structure with four walls and a complete roof.

Example: Ray moved some of his equipment out of the larger building into a structure with a roof but only three sides. The equipment in this structure is considered Property Outside Buildings, and Ray should adjust his limits accordingly.

2. Separate Limit Coverage

If IM 7706–Schedule of Coverages–Separate Limit Coverage–Equipment Sales and Rental Coverage is used with this coverage form, coverage applies to only property described in item 3. selected on the schedule of coverages and for which a limit is entered. The entered limit for one piece of equipment cannot be combined with the limit of another.

Example: Sara’s Opportunities keeps track of her equipment by item number, not by location, so she is not interested in being restricted by location when covering equipment. She selected the IM 7706 and lists all of her equipment.

3. Described Property

a. Equipment Intended for Sale

New and used equipment is covered when a covered peril causes direct physical loss or damage to it. The only restriction is that the equipment must be held for sale to others.

Note: This description of equipment of others is not a limitation. There are no further explanations as to what this category may or may not include, so it is very broad.

Equipment intended for sale is covered only when the selection for it is displayed on the schedule of coverages.

b. Equipment You Lease or Rent to Others

Equipment that the named insured holds to lease or rent to others is covered when a covered peril causes direct physical loss or damage to it. This applies to equipment that will be leased under any type of lease arrangement, including a lease-to-purchase arrangement. Equipment leased or rented to others is covered only when this coverage is checked on the schedule of coverages.

All of the following conditions must be met for coverage to apply.

Example: Bonanza Builders rented a telescoping truck crane from Louie's Lifts to raise comparatively light objects to different heights on the City Center Building it was constructing for the City of Agawar. As part of the lease arrangement, it agreed to insure the crane for the duration of its portion of the job. The objects to be lifted were within the crane's capacity as long as the weight of the total lift was within the manufacturer's recommended load capacity. Everything was proceeding on schedule and according to plan until Bonanza attempted a comparatively simple lift without first deploying the truck's outriggers. The weight of the load, while not excessive, caused the crane to tip over, damaging the boom. Bonanza suddenly realized that in its haste to perform the work and keep the project on schedule, it had neglected to arrange the insurance it was contractually obligated to provide. Louie’s Lift turns to its insurance company for contingency coverage.

c. Equipment of Others You Are Repairing or Servicing

Equipment that belongs to others in the named insured's care, custody, or control is covered for direct physical loss or damage by a covered peril if that equipment is with the named insured for repair, service, or maintenance.

Coverage applies only if it is selected on the schedule of coverages. There is no coverage if a selection is not made.

d. Parts, Accessories, Tires, Fluids, and Lubrication Supplies

The named insured’s stock of equipment parts and accessories, tires, fluids, and lubrication is covered for direct physical loss or damage by a covered peril.

Coverage applies only if it is selected on the schedule of coverages. There is no coverage if a selection is not made

4. We Do Not Cover

A loss that occurs because of a dispute over ownership is not covered. One example is a defective title, but there may also be other issues.

 

Example: Marvin’s accepted a late model bulldozer as a trade in for a front loader. A month later, the police inform him that the bulldozer was stolen from a jobsite two states over. The title he received was a forgery. Marvin is upset as he watches the police haul away the bulldozer. He attempts to locate the purchaser to get back his front loader, but there is no trace of him. Marvin realizes he has been scammed and submits a theft claim to his carrier. The claim is denied.

Property Not Covered

Seven specific types of property are excluded:

1. Aircraft or Watercraft

Aircraft and watercraft are not covered. Unmanned Aerial Vehicles (UAV or drones) are considered aircraft and not covered.

2. 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.

3. Furniture, Fixtures, and Other Property

This coverage form is for equipment rented or leased to others, so Other Property such as office supplies, improvements and betterments, machinery, fittings, patterns, dies, molds, models, tools, furniture, and fixtures are not covered.

4. Loaned Property

Any property that the named insured loans to others is not covered.

Example: Ray's neighbor Alice is installing a new patio and must compact the soil before pouring the cement into the forms. Ray loans her a compactor to use to do the job. While transporting the compactor on her pickup truck, Alice brakes and swerves sharply to avoid a dog. The compactor is ejected and destroyed. Coverage does not apply in this case because the compactor was being loaned.

5. Manufactured Equipment

Equipment is excluded only while it is actually being manufactured.

Manufactured equipment that the named insured has delivered and is assembling is covered. However, coverage applies if the only item being attached to manufactured equipment is an optional gear or apparatus. Coverage also applies to property the named insured has already manufactured that it is modifying.

6. Sold Property

Any property that has been sold is no longer covered once it leaves the named insured's custody or the custody of carriers for hire that deliver it on the named insured's behalf. Property that is sold subject to an installment sales agreement is considered sold property and not covered. Property that is considered sold but has been returned to the named insured for service, maintenance, or repair is covered.

Example: Ray manufactured a lawn blowing system for a customer. It was sold subject to Ray assembling it on the customer’s premises. While Ray was assembling it, a vehicle backed over parts of it. The damaged property is covered even though Ray manufactured it because he was assembling it after delivering it. Although it was sold, it was still covered because it remained in Ray’s custody until the assembly was complete.

7. Vehicles

Vehicles designed for use on the highway, such as automobiles, self-propelled cranes and self-propelled vehicles designed to carry mounted machinery, are covered.

Note: This property is more correctly insured under commercial automobile coverage forms.

Related Article: CA 00 01–Business Auto Coverage Form Analysis

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

The insurance company pays costs incurred to remove debris caused by a covered peril that occurs.

This coverage extension does not apply to any pollutant cleanup, extraction, removal, restoration, or replacement involving land or water.

The most paid is 25% of the amount paid for the actual direct physical loss or damage. The combined value of the direct loss or damage and the debris removal cannot exceed the limit of insurance for the covered property.

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.

Debris removal expenses must be reported to the insurance company within 180 days of the date of loss for this extension to apply.

2. Emergency Removal

This covers direct physical loss or damage to covered property while it is being moved or stored elsewhere to avoid loss or damage by a covered peril at a scheduled location. Coverage applies for up to ten days after the property is first moved but does not extend past the policy’s expiration date. The number of days can be increased.

Note: Coverage does not extend past the expiration date. If the insured has property at an emergency location when coverage renews, the emergency location must be listed as a premises, or coverage no longer applies.

Example: An enormous fire in the recycling facility adjacent to Ray's storage yard convinces him to move his outdoor equipment or run the risk of the intense heat damaging it. Because he does not have many items to move, he quickly gets them into the parking lot of the furniture manufacturer across the street. Unfortunately, a thief takes advantage of the circumstance and steals the equipment while everyone is busy fighting the fire. Coverage applies even though the equipment was off premises because it had been removed to protect it from the fire.

3. Emergency Removal Expenses

This coverage extension pays the expenses for the named insured to move covered property away from a covered location that a covered peril threatens. It also pays the storage fees incurred to keep it at a safe location for up to ten days after the property is first moved. The most paid for such expenses in any one occurrence is $5,000. Coverage ends when the policy expires, even if the property is still at the safe location. This is additional coverage. As a result, all such expenses paid are in addition to this property’s limit of insurance.

Example: Ray paid the furniture store $500 in advance to use its parking lot to store the equipment. Ray will be reimbursed for that cost.

Supplemental Coverages

Provisions That Apply To Supplemental Coverages

There are seven supplemental coverages. Each 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 the covered property, not part of it.

The limit available for coverage described under a supplemental coverage is the only limit available for it. It is not the total of the 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 or coverage extension. They are also not subject to coinsurance provisions that apply elsewhere in the coverage form.

1. Equipment on Exhibition

Equipment temporarily exhibited or displayed away from a premises listed on the schedule of coverages is covered for direct physical loss or damage by a covered peril. The most paid in a single occurrence is $100,000, but that limit can be increased.

2. Equipment Sent Off-Premises for Repairs

Equipment sent away from premises listed on the schedule of coverages and in the care, custody, or control of others for service, maintenance, or repair is covered for direct physical loss or damage by a covered peril. The most paid in a single occurrence is $100,000, but that limit can be increased.

Example: Ray does most of the repairs on his equipment, but he cannot do everything. He sends a sophisticated computer-controlled CNC lathe to Murphy's Machinery for a major tune-up. While there, a fire breaks out in Murphy's paint spray booth adjacent to the repair area that damages Ray's lathe. Thanks to this supplemental coverage, the lathe repair costs are covered.

3. Newly Acquired Premises

When the named insured acquires a new location during the policy term, coverage is automatically provided for property at that premises for a maximum of 60 days. The limit is $100,000 per location to allow the named insured time to report it to the insurance company. Coverage ceases when the property is reported, when the policy expires, or after 60 days, whichever occurs first. This is not free coverage since additional premium for the coverage must be paid starting from the acquisition date. The $100,000 limit can be increased.

4. Off-Premises Trial Period

Equipment away from a described premises for trial periods, trial runs, demonstrations, test drives, or other tests to evaluate its performance is covered for direct physical loss or damage by a covered peril. The most paid in a single occurrence is $100,000. This limit can be increased.

5. 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 that a covered peril that occurs during each separate 12-month policy period causes. This limit can be increased.

Example: Ray's Rentals does everything it can in the face of the oncoming storm, but it cannot do everything. The small metal building on the premises that contains small tanks of solvents, motor oil, and lubricants used to service vehicles is blown away by the force of the storm, the tanks overturn, and their contents emptied onto the ground. The spill spreads and pollutes the land, but the volume of spilled liquid is fairly small, and so is the affected area. Ray's employees are able to control the area and keep it from spreading any further. This supplemental coverage pays the costs to clean up the spilled pollutants and to extract them from the affected area of land. However, Ray must pay the costs of subsequent testing for any lingering effects from the spill.

6. Sewer Backup

a. Coverage applies to direct physical loss to covered property caused by or that results from the following:

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

c. $5,000 is the most paid in any one occurrence. This limit can be increased.

7. Transit

a. Equipment is covered when direct physical loss or damage by a covered peril damages it during transit. The equipment is covered on both incoming and outgoing shipments, regardless of whether the transport is by the named insured or with carriers for hire.

b. Property that is sold and shipped at the owner's expense is covered, but only if the owner rejects the shipment because the property is damaged and refuses to pay the named insured for the rejected equipment.

c. The property rejected in item b above is also covered as it is waiting to be returned and during the return transit.

d. The named insured is granted permission to accept bills of lading or shipping receipts from carriers for hire limiting their liability to less than the covered property’s actual cash value.

e. Property of others that the named insured transports (and is responsible for) as a carrier for hire is not covered.

f. The most paid in a single occurrence is $100,000. 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 resulting from these events.

a. Civil Authority

There is no coverage for a 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 to control 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 four exceptions:

c. Flood

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 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, Septic Tank, Sump, or Drain Backup and Water below the Surface

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 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 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. Animal Nesting, Infestation, or Discharge

Loss or damage caused by or that results from any nesting, infestation, discharge, or release of waste products or secretions by animals is excluded. The term animal includes birds, insects, or vermin but is not limited to just these. If any of these excluded events results in a covered peril occurring, coverage applies to the loss or damage that covered peril causes.

b. 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.

There is one exception. If a covered peril occurs due to any of these, coverage applies to the loss or damage that covered peril causes.

c. 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.

Coverage for this exposure should be purchased using a commercial crime coverage form.

Related Article: ISO Commercial Crime Coverage Forms and Policies Analysis

d. Electrical Currents

This exclusion applies only to property that is artificially generating current. Damage to electrical apparatus or any wiring within the covered property is excluded when it is caused by artificially generated electricity. The exception is that if fire or explosion occurs, the resulting loss or damage from that fire or explosion is covered.

e. Loss of Use

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

f. Mechanical Breakdown

Loss or damage caused by a breakdown or malfunction that is mechanical, structural, or electrical is excluded. This applies even when the reason for the breakdown or malfunction is the result of a structural, mechanical, or reconditioning process. There is one exception. When a covered peril occurs due to any of these, coverage applies to the loss or damage caused by that covered peril.

Example: Centrifugal force causes one of Ray's compressors to explode while he is testing it. A piece of hot metal lands and ignites a small pile of sawdust Ray keeps to soak up oil spills. The fire spreads rapidly and damages some spray-painting equipment before the fire department arrives to extinguish the blaze. The damage to the compressor the explosion caused is not covered, but the subsequent damage the fire caused is covered.

g. 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.

The one exception is that this does not apply to covered property while it is in the custody of carriers for hire.

h. Pollutants

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

i. Process to Repair, Adjust, Service, or Maintain

When any process being taken to adjust, service, maintain or repair covered property causes loss or damage to that covered property. However, there is coverage for damage caused by any resulting fire or explosion.

Example: Ray at Ray's Rentals is certain he can get more power out of one of his generators if he just "tweaks" it a bit. However, his "tweaking" destroys the generator. There is no coverage for this equipment loss because the adjustment destroyed the equipment.

j. Temperature/Humidity

Loss or damage to covered property caused by dryness, dampness, humidity, changes in, or extremes of temperature is excluded. If any of these results in a covered peril occurring, coverage applies to the loss or damage that covered peril causes.

k. Voluntary Parting

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

l. Wear And Tear

Loss or damage caused by wear, tear, marring, or scratching is excluded. The one exception is that if any of these results in a covered peril occurring, the covered property loss from that covered peril is covered.

 

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 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, 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 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 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 has the right to make payments, assume obligations, pay or offer rewards, or incur other expenses. However, unless the insurance company's has given written approval for such actions, the named insured cannot expect any reimbursement. The only exception is that the insurance company will pay for the 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

When actual cash value is selected on the schedule of coverages, covered property is valued at its actual cash value at the time of loss or damage. The only exception is when provisions under Valuation 3. Equipment Sold apply.

Note: The form does not mention that ACV must be selected; only that replacement cost is not selected. This conflicts with how the schedule of coverages works.

2. Replacement Cost

When replacement cost valuation is selected on the schedule of coverages, the value of covered property is based on its replacement cost, subject to the following:

Note: It is the intention to do so that must be provided within 180 days of the loss - not 180 days following the settlement.

The only exception is when provisions under Valuation 3. Equipment Sold applies.

Note: The form does not mention that replacement cost must be selected, only that ACV is not selected. This conflicts with how the schedule of coverages works.

3. Equipment Sold

The value of equipment that has been sold but has not yet been delivered is based on its selling cost. This cost is then reduced by all discounts and expenses that the named insured was not required to incur because the equipment had been destroyed. This valuation applies only when a piece of equipment is considered a total loss.

Example: A large backhoe was awaiting delivery when it was stolen. Its selling price was $50,000. However, Ray provided a 10% discount if the invoice was paid within 60 days, and Ray did not incur either the $1,000 cost to deliver it or the $3,000 setup costs. As a result, the insurance company does not pay Ray more than $50,000 less the $5,000 invoice discount, the $3,000 set up cost, and the $1,000 delivery cost for a total of $41,000.

4. Equipment on Consignment

When the named insured enters into a written agreement to sell equipment of others on consignment, the value of the item, if there is a loss, is based on the amount the owner and the named insured agreed to in that agreement. That amount is reduced by the amount of any commissions or selling fees stated in that agreement.

When there is no written agreement, the value of the consigned equipment is based on its actual cash value on the date of loss.

5. 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.

6. 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.

3. Loss Settlement Terms

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

4. Catastrophe Limit

The most the insurance company pays in a single occurrence is the Catastrophe Limit on the schedule of coverages.

This statement is absolute. No matter how many buildings, premises, or pieces of equipment, the applicable coverage extensions or supplemental coverages or where the equipment is located, the most paid in a single occurrence is the catastrophe limit.

Note: When new equipment, premises, or locations are added to the schedule of coverages, it is very important to increase the catastrophe limit. It is also very important to change this limit when values are modified at renewal. This cap can be easily overlooked until the claims adjuster uses it to cap a major loss.

Example: Yellow Barns’ catastrophe limit is $5,000,000. This limit has never been adjusted even though Yellow Barns started accepting consignments, added two additional buildings on the premises, and bought a new premises. When a tornado rips through its community, Yellow Barns is confident that its $7,500,000 value will be fully covered. Unfortunately, because Yellow Barns had not changed its catastrophe limit, the maximum paid is $5,000,000. Yellow Barns is considering suing its agent for not providing adequate counsel.

5. Coinsurance

a. When coinsurance applies to a coverage provided, the insurance company pays only part of the loss if the limit is less than the percentage of the value of the covered property on the schedule of coverages.

b. The following are the three steps to determine the amount of loss to be paid:

Step 1. Multiply the percentage on the schedule of coverages by the covered property’s value at the time of loss.

Step 2. Divide the covered property’s limit by the result determined in Step 1.

Note: There is no coinsurance penalty if the result is 1.00 or higher.

Step 3. There is a coinsurance penalty when Step 2. is less than 1.00. Subtract the deductible from the amount of loss and then multiply the total amount of loss by the percentage determined in Step 2.

The insurance company does not pay more than the amount determined in Step 3. or the limit, whichever is less. It does not pay any remaining part of the loss.

c. If there is more than one limit on the schedule of coverages, this procedure applies separately to each limit.

d. If there is only one limit on the schedule of coverages, this procedure applies to the total of all covered property insured under that limit.

e. This coinsurance provision does not apply unless a coinsurance percentage is entered on the schedule of coverages.

6. 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.

7. 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 7. 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 must notify the named insured of its intent to rebuild, repair, or replace within 30 days after receiving 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 receiving a properly prepared proof of loss, and the amount of loss is established. The amount of loss is determined by 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.

Reporting Conditions

Reporting conditions apply if there is an entry for it on the schedule of coverages.

1. Equipment You Lease or Rent to Others

These reporting conditions apply to equipment the named insured leases or rents to others.

a. Reports

The receipts earned from the rental or leasing of equipment must be reported. The term earned means that receipts are reported even if they have not yet been collected. The report is required no later than 30 days after the policy period ends. If the policy is cancelled, the receipts reported must be through the cancellation date.

b. Premium Computation and Adjustment

The rate for Equipment You Lease or Rent to Others on the schedule of coverages is multiplied by the reported earned receipts to determine the final premium. If the calculated premium exceeds the deposit, the named insured pays the insurance company the difference. If the calculated premium is less than the deposit, the insurance company refunds the difference to the named insured. However, the insurance company will retain sufficient premium to satisfy the minimum premium.

c. Provisions That Affect How Much We Pay

Some clients purchase a reporting form and then choose not to make reports or to make reports inaccurately; these actions result in penalties when a loss occurs.

2. Other Described Property (Average Values)

These reporting conditions apply when the reporting condition for Described Property on the schedule of coverages is based on average values.

a. Reports

A report of the values of the described property is to be submitted to the insurance company by the inception date. Additional reports are then required within 30 days of the end of each reporting period as selected on the schedule of coverages. When Equipment Intended for Sale is subject to reporting, the report must include a description and value of each item of equipment. If the policy is cancelled, the values reported must be up to and include the cancellation date.

b. Premium Computation and Adjustment

The values in each report are added together to determine the aggregate value. This value is divided by the named reports to determine the average aggregate value. This value is then multiplied by the rate on the schedule of coverages to determine the final premium. If the calculated premium exceeds the deposit, the named insured pays the insurance company the difference. If the calculated premium is less than the deposit, the insurance company refunds the difference to the named insured. However, the insurance company will retain sufficient premium to satisfy the minimum premium.

c. Provisions That Affect How Much We Pay

Some clients purchase a reporting form and then choose not to make reports or make reports inaccurately; these actions result in penalties when a loss occurs.

3. Other Described Property (Sales)

These reporting conditions apply when the reporting condition for Described Property on the schedule of coverages is based on sales.

a. Reports

The named insured must submit the following to the insurance company not later than 30 days after the end of each reporting period on the schedule of coverages:

If the policy is cancelled, the reported sales and/or receipts must be through the cancellation date.

b. Premium Computation and Adjustment

Premiums are determined and adjusted for each adjustment period on the schedule of coverages by multiplying the total sales and/or receipts by the rate on the schedule of coverages.

c. Provisions That Affect How Much We Pay

Some clients purchase a reporting form and then choose not to make reports or make reports inaccurately; these actions result in penalties when a loss occurs.

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. Benefit to Others

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

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 only applies 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 concerning 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 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

Payment of 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.

Definitions

Defined terms are used throughout the coverage form. It is important to review the definitions because coverage can be restricted and expanded within the definition. Eleven terms are defined:

1. 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 foundation, building, or structures to crack, settle, or shift is also considered earth movement.

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

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

2. Equipment

This is mobile equipment. It can be agricultural, construction, or material handling equipment, generators, elevated work platforms, and lighting equipment, but these are examples, so the definition is restricted to only these types. Tools are not considered equipment.

3. Flood

A general but temporary condition where normally dry land becomes at least partially inundated. The cause of the inundation may 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 note.

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 caused by either surface water runoff or unusually rapid accumulation or waves or because water exceeds the cyclical levels that would be expected.

4. Limit

The amount of coverage that applies to the insured property.

5. 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.

6. Schedule of coverages

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

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

 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 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.

9. Terms

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

10. Tool

Hand-held devices that are either motor driven or manual and function by directly applying force.

This is a hand-held device that works by applying direct motorized or manual force.

11. 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.

ENDORSEMENTS AND SCHEDULES

AAIS has developed the following endorsements and schedules for use with the Equipment Sales and Rental Coverage Form.

IM 7709–Additional Described Premises Schedule–Inside and Outside Building Coverage  

This schedule is used with IM 7705–Schedule of Coverages–Inside and Outside Building Coverage–Equipment Sales and Rental Coverage to list additional locations and the coverages and limits that apply to them.

IM 7710–Additional Described Premises Schedule–Separate Limit Coverage  

This schedule is used with IM 7706–Schedule of Coverages–Separate Limit Coverage–Equipment Sales and Rental Coverage to list additional locations, the coverages, and the limits that apply to them.

IM 7711–Additional Property Coverages

This endorsement adds supplemental coverage for Accounts Receivable, Business Personal Property, Computers, Employee Tools, Fuel, Valuable Papers, and the named insured's Mobile Equipment and Tools but only when there is a limit for the coverage on IM 7712–Additional Property Schedule.

IM 7712–Additional Property Schedule

This schedule is used with IM 7711–Additional Property Coverages to select coverage and the limits and deductibles that apply.

IM 7713–Property You Lease or Rent to Others

This endorsement provides supplemental coverage for property the named insured leases or rents to others based on entries made on IM 7714–Property You Lease or Rent to Others Schedule. Coverage applies to covered property at the named insured's locations. It also covers the equipment off premises but only on a contingent basis.

IM 7714–Property You Lease or Rent to Others Schedule

This schedule is used with IM 7713–Property You Lease or Rent to Others. It describes the covered property and has spaces to enter the limit, deductible, valuation, and reporting conditions that apply.

IM 7715–Fraud and Deceit Coverage

This endorsement covers losses due to theft when the named insured voluntarily parts with covered property because of a fraudulent misrepresentation and inducement to do so.

IM 7716–Installment Sales Coverage

This endorsement insures the named insured's interest in covered equipment sold under an installment sales plan.

IM 7717–Peak Season Coverage

This endorsement increases the limits of insurance for Equipment Intended for Sale during the inclusive dates entered on the endorsement schedule.

IM 7718–Repair Service Coverage

This endorsement covers the named insured's tools, its employees' tools, tires, and equipment parts and accessories used to repair, service, or maintain its customers' equipment. Coverage is on an Actual Cash Value or Replacement Cost basis and is subject to the deductible on the endorsement schedule.

IM 7719–Tool Coverages

This endorsement provides supplemental coverage for tools held for sale, leased, or rented to others. The coverage provided is based on entries made on IM 7720–Tool Schedule. Coverage applies to covered property at the named insured's locations. It also covers tools rented and off premises but only on a contingent basis.

IM 7720–Tool Schedule

This schedule is used with IM 7719–Tool Coverages. It describes the various types of covered tools and the applicable limits, deductibles, valuation, and reporting conditions.

IM 7721–Equipment Hauling Coverage

This endorsement covers equipment that belongs to others that the named insured has in its care, custody, and control for transportation as a carrier for hire.

IM 7722–Hail Deductible–Property in the Open  

This endorsement replaces the Deductible provision under How Much We Pay concerning loss or damage by hail to covered property with either a larger flat or a percentage deductible.

IM 7723–Hail Exclusion–Property in the Open

This endorsement excludes hail loss or damage to covered property in the open.

IM 7724–Coverage for Loss of Equipment Rental Income

This endorsement is used to insure loss of equipment lease or rental income during the period of interruption.

UNDERWRITING CONSIDERATIONS

Introduction

The Equipment Sales and Rental Coverage form is available for only risks that sell and rent equipment. The equipment may be very large or relatively small. The values can be significant or fairly low. The location of the property may be at an owned location, at a client’s premises or jobsite, in storage or in transit.

Location

When the mobile equipment is at the owned locations, commercial property underwriting should take place.

Related Article: Commercial Property Underwriting Considerations

If the equipment is stored at a single location when not in use, the same commercial property underwriting techniques should be used. In addition, consideration must be given to the potentially catastrophic impact if all of the named insured’s equipment is stored at a single location with the potential to be damaged in the same event.

Hazards must be examined carefully and distinctions made between equipment inside buildings and equipment outside buildings. Most dealers' buildings usually include a showroom area, offices, a parts department, a service area, and a waiting area. Specific hazards must be examined carefully, such as spray painting, welding, cutting, parts cleaning, and flammable products. Gasoline storage tanks and pumps must be examined very carefully. Tire storage should be orderly, and theft issues must be addressed. Compliance with all regulations and standards must be verified.

Many dealers have large outdoor storage facilities and are located in rural areas. A major issue with respect to this equipment is the weather because such equipment is susceptible to hail and other severe weather damage. The dealer’s area should be clear of brush and other vegetation, as well as areas adjacent to it. Gasoline storage tanks and pumps should be situated away from buildings. Theft is a significant issue under these conditions because such equipment is easily disposed of on the black market. Yards should be fenced, well lit, patrolled regularly, and equipment should be parked in tight rows.

Transit

Equipment covered by this policy must be mobile. That means that transit must be seriously considered. If the mobile equipment is transported on the named insured’s own vehicles, the commercial automobile underwriting should be conducted because if an accident happens to the transporting vehicle, then the equipment will also be damaged.

Related Article: ISO Business Auto Coverage Form Underwriting Considerations

Considerations such as the types of vehicles used, driver qualifications, and distance traveled must be addressed. This includes transportation by carriers for hire. This area also includes outside operations used for service, maintenance, and repair as well as procedures employed in leasing and rental operations.

Mobile Equipment

The equipment can vary widely in its damageability, size, and value.

The equipment schedule must be reviewed carefully. The age, value, and condition of the equipment must be reviewed. Insurance to value can be a concern, so spot checks on pricing are important. Obsolete equipment may be over-insured, which could result in a morale hazard.

The following are examples of equipment that may be covered:

Values are an extremely important consideration and should be addressed logically and include average and maximum values for:

Management

The type of equipment the dealer handles, the length of time the dealer has been in the business, and its financial condition must be addressed. The ideal dealer should have been successful in this type of business for at least five years. This ensures that it has probably survived some business cycles, has learned how to manage this unique and potentially difficult operation and is likely to continue to survive as business conditions change over time.

Loss History

Previous loss experience is an excellent predictor of future loss activity. This measure assumes that the ownership and management have been reasonably stable over time, changes in operations minor, and the same general types of equipment handled throughout the period.