ISO MACHINERY AND EQUIPMENT COVERAGE FORM ANALYSIS

The Insurance Services Office (ISO) Machinery and Equipment Coverage Form applies to specifically described and identified owned and non-owned mobile or portable property. Examples of the types of property this coverage form can be used to insure are voting machines, vending machines, Automated Teller Machines (ATM's), welding equipment, jukeboxes, and robotics.

POLICY CONSTRUCTION

Machinery And Equipment Coverage requires at least the following six forms:

IL DS 00–Common Policy Declarations
IL 00 17–Common Policy Conditions

CM DS 02–Commercial Inland Marine Declarations
CM 00 01–Commercial Inland Marine Conditions

IH DS 94–Machinery and Equipment Declarations
IH 00 94–Machinery and Equipment Coverage Form

MACHINERY AND EQUIPMENT DECLARATIONS

The advisory Machinery and Equipment Declarations does not have spaces for the named insured, its mailing address, other named insured information, the policy period, or the description of the insured business. That information is on the Common Policy Declarations. IH DS 94 contains the following information:

Insurance Company and Producer Name

The insurance company's name that provides the coverage and the name of the agent or broker that produces the business are entered in the spaces provided.

Limits of Insurance

Note: The same coverage form is used regardless if the coverage is on a scheduled basis, blanket basis, or combination of the two.

This section has spaces to enter limits of insurance for the following:

Scheduled Machinery and Equipment

Specific property is listed with a limit entered for each item.

All Scheduled Covered Equipment in Any One Occurrence

A single limit must be entered that caps the amount available to pay for a single occurrence.

Blanket Machinery And Equipment

A description must be provided for the property items that are to be blanketed. A per item sub-limit for and an occurrence limit must be entered.

Theft from Unattended Vehicle

A Theft from Unattended Vehicle exclusion is part of the coverage form. If a check is placed in this box, that exclusion is deleted.

Coinsurance

This section has a space to enter the coinsurance percentage that triggers the coinsurance additional condition. When the percentage is entered, it applies only to the scheduled items.

Deductible

This section has two spaces to enter the amount of deductible that applies. One deductible amount applies to Scheduled Property. The other applies to Blanket Property.

Note: If a loss occurs that involves both scheduled property and blanket property only the higher of the two deductibles apply to the loss.

Rates and Premiums

The following is entered when coverage is written on a non-reporting basis:

Rates per $100
Premium

The following is entered when coverage is written on a reporting basis:

Deposit Premium
Minimum Premium
Reporting Period
Premium Adjustment Period
Premium Base
Rates per $100

Special Provisions

Any special provisions are entered in the space provided.

IH 00 94–MACHINERY AND EQUIPMENT COVERAGE FORM ANALYSIS

This analysis is of the 12 13 edition. Changes from the previous edition are in bold print.

Introduction

This section encourages carefully reading the entire coverage form to determine what is covered, what is not covered, rights, and duties. It defines we, us, and our as the insurance company that provides this insurance coverage. It also defines you and your as the named insured on the declarations. Other words that have special meaning are defined in F. Definitions.

A. Coverage

The insurance company pays for direct physical loss or damage to covered property, but only when that loss is from a covered cause of loss.

1. Covered Property

Covered property is described in the declaration as the named insured's mobile or portable machinery and equipment. Similar property of others in the named insured’s care, custody, or control is also considered covered property.

Note: Machinery and equipment coverage is usually written by scheduling each item of equipment and stating its value or limit of insurance. This is not always practical, especially when the named insured has numerous insurable items. Another approach is to write a blanket limit, generally, describe the type of machinery or equipment, and declare a maximum limit for each item and an aggregate limit to apply in any one occurrence. A third alternative is to schedule larger items and then blanket smaller items subject to a maximum limit per item.

2. Property Not Covered

The following described property is not covered:

a. Accounts, bills, currency, documents, records, deeds, money, notes, securities, or stamps

Note: This property is a mix of property that should be covered under commercial crime, accounts receivable, and valuable papers coverage forms.

ISO Accounts Receivable Coverage Form Analysis

ISO Valuable Papers Coverage Form Analysis

ISO Commercial Crime Coverage Forms and Policies Analysis

b. The machinery or equipment contents

Note: Contents can range from candy to compact discs to cash to votes.

Example: Kitty Towels provides laundry service for beach towels at several local hotels. The “Get the Kitty Towel” machine is located next to the cabana. Guests can select a towel from the machine by swiping their hotel passkey. The “Feed the Kitty” machine next to it is where the guests place their used towels and swipe their passkeys to get credit for the returned towel. The machines and their contents are destroyed during a windstorm. The machines are covered, but the destroyed towels are not.

c. Agricultural type machinery and equipment

Note: This type of property is usually insured under farm equipment floaters, coverage forms, and policies.

d. Contractors' equipment

Note: This type of property is more correctly written on contractors' equipment coverage forms and policies.

AAIS Contractors’ Equipment Coverage Forms

ISO Contractors’ Equipment Coverage Form

e. Physicians and surgeons equipment

Note: This type of property is usually insured under physicians and surgeons equipment coverage forms and policies.

ISO Physicians and Surgeons Equipment Coverage Form

AAIS Physicians and Dentists Equipment Coverage

f. Scientific and medical diagnostic equipment

Note: This type of property is usually insured under scientific or medical diagnostic equipment coverage forms and policies.

AAIS Mobile Medical Equipment Coverage

ISO Scientific and Medical Diagnostic Equipment Coverage Form

g. Aircraft, watercraft, or motor vehicles. However, only motor vehicles designed to be used on public roads are excluded.

Note: Aircraft and watercraft are usually insured under aircraft, boat, yacht, or watercraft coverage forms and policies. Motor vehicles are usually insured under commercial auto coverage forms and policies.

h. Owned property that is loaned, leased, or rented to others

Note: This property is excluded because the named insured does not have possession or control of it, and there is no way to guarantee that it is being used correctly or safely. As a result, this coverage form’s pricing is not sufficient for that type of exposure. Specific coverage for equipment rented to others must be purchased.

i. Property the named insured accepts but only when the named insured is operating as either a common or a contract carrier for hire

Note: This type of property is usually insured under motor truck cargo carriers coverage forms and policies.

AAIS Motor Truck Cargo Legal Liability Coverage Forms

ISO Motor Truck Cargo Carriers Coverage Form

j. Property that is for sale. Property that is being held for sale under a consignment agreement. Property that is in the process of being manufactured.

Note: This type of property is usually insured under standard commercial property coverage forms and policies.

k. Contraband. Any property that is illegal for the named insured to own or that is in illicit trade or transportation is not covered.

3. Covered Causes of Loss

Covered causes of loss are direct physical loss or damage to covered property, except for causes of loss listed in the exclusions section.

4. Additional Coverages

Some of the following additional coverages are also additional amounts of insurance.

a. Additional Acquired Property

The named insured may acquire additional property similar to the kind this coverage form insures during the policy period. If it does, such property is covered for up to 30 days but not past the expiration date. The most the insurance company pays for loss or damage is 25% of the sum of the limit of insurance for all scheduled equipment on the declarations or $10,000, whichever is less. The named insured must report the value of the newly acquired property to the insurance company within 30 days after taking possession of it and pays premium for it from the acquisition date. If this is not done, coverage ends after 30 days or at the expiration date, whichever occurs first.

Three important conditions apply:

The coinsurance additional condition does not apply.
This additional coverage does not increase the limit of insurance.
This additional coverage does not apply to property that is covered on a blanket basis.

Example: Vern's Vending Service rents a wide variety of vending machines, most of which dispense soft drinks and snacks. Vern also services vending machines of others that need repair or periodic maintenance. One of his competitors decides to retire and offers Vern his remaining stock of vending machines after having divested himself of most of them over the past year. Vern likes what he sees, offers twenty-five cents on the dollar of their value, and the competitor accepts the offer. Vern plans to pick them up in about two weeks and decides to wait until then to report the acquisition to his insurance agent. If a loss occurs during that time period, payment is limited to 25% of the sum of his scheduled limits or $10,000, whichever is less.

b. Debris Removal

A property damage loss usually creates debris that must be removed. The insurance company pays the cost of removing the debris of a covered loss. The expenses must be reported to the insurance company in writing within 180 days of the date of loss. The most paid is 25% of the sum of the following:

The amount that is paid for direct physical loss or damage to covered property
The deductible that applies to such direct physical loss or damage

Payments under this Additional Coverage do not increase the limit of insurance that applies. However, the insurance company pays an additional $5,000 per occurrence when the direct physical loss or damage combined with the debris removal expense exceeds the limit of insurance or when the debris removal expense is more than the amount payable under the above described 25% limitation.

This coverage does not apply to costs to extract pollutants from land or water or to remove, restore, or replace polluted land or water.

c. Preservation of Property

Covered property may need to be moved to keep it from being damaged by a covered cause of loss. When the named insured takes such action, the insurance company pays for any direct loss or damage such property sustains during the move. In addition, coverage applies at the location where the property is stored for up to 30 days after the date it was moved there.

This additional coverage does not increase the limit of insurance.

Notes: There are several important points to consider:

The potential loss or damage from which the property is being protected must be a covered cause of loss.

Covered property is covered for ANY cause of loss while it is being moved to and from (and while at) the "safe" location.

The property removed must be moved back within 30 days from the date of the move.

d. Pollutant Clean Up and Removal

The insurance company pays to clean up pollutants caused by or that result from a covered cause of loss that occurs during the policy period. The most paid is $10,000 per premises as an aggregate amount during each separate 12-month policy period. The expenses are paid only if they are reported to the insurance company in writing within 180 days of the date of loss.

This coverage does not apply to costs to evaluate the presence or effects of pollutants. However, it does pay for testing that is part of the process of extracting pollutants from either land or water.

This limit is an additional amount of insurance.

Example: Vern keeps a large tank of solvent adjacent to his workshop. He uses its contents to clean and refurbish his stock of vending machines and to perform preventive maintenance. His employees were unloading a large vending machine from the back of a truck when they lost control, and it fell against the solvent tank. It ruptured, and its contents discharged and ran down the slope to a small pond. The amount that reached the pond was fairly small, but it and the ground had to be cleaned up and remediated, costing just over $12,500. This additional coverage paid its $10,000 limit.

B. Exclusions

1. Primary Exclusions

The first group of exclusions applies whether or not the loss event results in widespread damage or affects a significant geographical area and is essentially absolute. Subject to specific exceptions, each is totally excluded, regardless of any other cause or event contributing to a loss 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. Governmental Action

This exclusion applies to the legal and authorized seizure or destruction of property by a government entity’s order. There is one exception. Loss or damage caused when the governmental entity orders property to be destroyed is covered if used as a method to prevent a fire from spreading is covered. However, this exception applies only if the fire being contained would have been a covered fire under this coverage form.

b. Nuclear Hazard

Nuclear reaction, radiation, or radioactive contamination is not covered. There is an exception. If a fire results from the nuclear reaction, radiation or radioactive contamination there is coverage for the direct loss or damage caused by that fire.

c. War and Military Action

This exclusion lists three specific warlike activities.

War. This can be a declared war, an undeclared war, or a civil war.
Military force of a warlike nature. These activities must utilize military personnel or agents of a government or other type of authority. Actions taken to prevent any of these activities are also considered war.
Insurrection, rebellion, revolution, and attempts to usurp power. Any government action to respond to such actions is also considered 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 resulting from any of these events.

a. Delay, loss of use, and loss of market

These are consequential or indirect losses that develop as a result of a direct loss or damage.

b. Dishonest or criminal acts (12 13 changes)

These are any dishonest or criminal acts the named insured, its partners, employees, temporary employees, leased workers, officers, directors, trustees, authorized representatives, or members and managers of a limited liability company commit. This also includes theft.

Such acts committed by anyone with an interest in the property, their employees, temporary employees, leased workers, or authorized representatives who act alone or who act in collusion with other parties or with each other are also excluded. This exclusion also applies whether or not the acts take place during regular working hours.

This exclusion does not apply to acts of destruction by the named insured’s employees, temporary employees, leased workers, or authorized representatives. However, there is no coverage for theft by the named insured’s employees, temporary employees, leased workers, or authorized representatives.

The 12 13 edition removed the part of the exclusion in the previous edition that applied to dishonest or criminal acts committed by anyone entrusted with the property for any reason.

c. Processing or work upon the property

Loss or damage caused when covered property is being processed or worked upon is not covered. This applies regardless of who is doing the processing. There is one exception. If a fire or explosion results from such work or processing of covered property, any damage to covered property caused by that fire and explosion is covered but only if the fire or explosion is otherwise covered under this form.

Example: Jason is servicing a vending machine. He takes the front panel off and places it against the machine. A skateboarder gets too close, and the panel falls hard on the concrete, damaging the electronics inside the panel. This loss is not covered because it occurred while the machine was being worked on.

d. Theft from an unattended vehicle

There is no coverage when the loss is due to theft from an unattended vehicle. There are three exceptions.

If the vehicle's doors, windows, and compartments were closed and locked at the time of the theft AND there are visible signs of forced entry, coverage does apply.
If covered property is in a carrier for hire’s care, custody, or control.
When the Theft From Unattended Vehicle Exclusion Does Apply box is checked on the Declarations

e. Unexplained disappearance

When covered property is gone, and there is no obvious cause or explanation of what happened to it.

f. Shortage found upon taking inventory

Any loss discovered as a result of an inventory shortage, and there is no explanation as to what happened to the property, similar to unexplained disappearance. This is sometimes referred to as "inventory shrinkage."

g. Artificially generated electrical, magnetic, or electromagnetic energy

Loss or damage that is caused by or that results from artificially generated electrical, magnetic, or electromagnetic energy damaging, disturbing, disrupting, or interfering with any of the following:

Networks, devices, systems, wires, or appliances of an electrical or electronic nature
Cellular or satellite devices, appliances, systems, or networks

Examples of this excluded energy are electrical current, charges a magnetic or electromagnetic field produces, and microwaves, but they are not limited to just these. There are two exceptions:

If the energy described in this exclusion results in a fire or explosion, coverage applies to the direct loss or damage that fire or explosion causes, but only if the fire or exploration are considered covered causes of loss under this coverage form.
The exclusion applies only to the particular item in which the disturbance occurs

h. Voluntary parting

The named insured or anyone else entrusted with the property being tricked or deceived into giving that property away.

i. Unauthorized instructions

When covered property is transferred to another person or place because unauthorized instructions were received to do so.

j. Neglect

Neglect on an insured’s part to take reasonable measures to preserve and protect covered property from subsequent damage during and after the time of loss.

k. Theft (12 13 addition)

Theft by any person the named insured entrusts covered property to for any reason, whether they act alone or in collusion with any other party. This exclusion applies 24 hours a day/7 days a week. There is one exception. Covered property in a carrier for hire’s care, custody, or control is not subject to this exclusion.

3. Other Exclusions

This group of exclusions applies to loss or damage caused by or resulting from any of the following loss events. In every case, if loss or damage by a covered cause of loss occurs as a result of one of these excluded events, coverage applies to the loss or damage the resulting covered cause of loss causes. The insurance company does not pay for any loss or damage caused by or that results from any of these events.

a. Wear and tear, depreciation

This is loss or damage due to wear, tear, and depreciation.

Notes:

Wear and tear is damage that occurs naturally as a result of aging or normal wear.

Depreciation is a loss of value due to wear.

b. Any quality in the property

These are any qualities in the property that cause it to destroy or damage itself.

Note: An example is loss or damage caused by hidden or latent defects in the property.

c. Mechanical breakdown

This is loss or damage caused by or that results from machines, tools, or mechanisms failing to operate or function properly.

d. Insects, vermin, or rodents

This is loss or damage to covered property caused by or that results from insects, vermin, or rodents.

Note: Some examples are damage from mice, rats, cockroaches, squirrels, beavers, spiders, ants, centipedes, and ticks. Each is characterized by destructive habits that cause damage, such as gnawing and nibbling.

e. Corrosion, rust, dampness, or extremes of temperature

This is corrosion, rust, dampness, or extremes of temperature that cause loss or damage to covered property.

Notes:

Rust and corrosion are low-temperature oxidation processes that deteriorate over time due to inactivity or neglect.

Dampness and temperature extremes can affect the oxidation process which affects different forms of property. They can also have other effects on the same and other forms of property.

C. Limits of Insurance

The most the insurance company pays for loss or damage in a single occurrence is the limit of insurance on the declarations for the applicable coverage.

D. Deductible

The insurance company does not pay for loss or damage until the amount of the adjusted loss or damage (before capping with the limit of insurance that applies) exceeds the deductible on the declarations. It then pays the amount of the adjusted loss or damage that exceeds the deductible up to the limit of insurance that applies.

Both scheduled and blanket covered property may sustain loss or damage in the same occurrence. In that case, the higher deductible on the declarations applies to the loss.

E. Additional Conditions

These conditions are in addition to the Commercial Inland Marine Conditions and the Common Policy Conditions.

1. Coverage Territory

The coverage territory is the United States of America, its territories and possessions, Puerto Rico and Canada. This includes property shipped by air within and between these points.

2. Coinsurance

This condition applies if there is a coinsurance percentage on the declarations.

The insurance company does not pay the full amount of any loss or damage if the value of the covered property at the time of loss or damage multiplied by the coinsurance percentage is more than the limit of insurance for all covered property at that location. In such cases, the amount the company pays is determined as follows:

Step a. Multiply the value of the covered property at the time and location of the loss or damage by the coinsurance percentage on the declarations.

Step b. Divide the limit of insurance for the covered property at the location where the loss or damage occurred by Step a.

Step c. Multiply the total amount of loss or damage at the loss location by Step b. before applying the deductible (if any).

Step d. Subtract the amount of deductible from Step c.

The insurance company pays the lesser of Step d. or the limit of insurance. Any amount that remains must be paid by other insurance, or the named insured must pay it from its own funds.

F. Definitions

There is one definition.

Pollutants

These are any solid, liquid, gaseous, or thermal irritants or contaminants. Pollutants also include smoke, vapor, soot, fumes, acids, alkalis, chemicals, or waste. Waste is any material intended to be recycled, reconditioned, or reclaimed.

ENDORSEMENTS

ISO has not developed any specific endorsements for exclusive use with the Machinery and Equipment Coverage Form. ISO has developed four other endorsements that can be used to respond to specific situations.

IH 99 06–Schedule

Additional items can be listed on this schedule when they do not fit on the Declarations.

IH 99 07–Replacement Cost

The Machinery and Equipment Coverage Form is usually written on an actual cash value basis. This endorsement is added to cover all property on a replacement cost basis or only certain described property identified on the declarations.

IH 99 08–Value Reporting Form

This endorsement converts coverage from a non-reporting to a reporting basis. Reports of value can be provided on a daily, weekly, monthly, quarterly, or policy year basis, depending on the terms of each form.

IH 99 19–Additional Covered Property

This endorsement is used to include coverage for types of property ordinarily excluded.

IH 99 20–Additional Property Not Covered

This endorsement is used to exclude certain types of property the coverage form insures.

IH 99 22–Loss Payable

Loss payees with insurable interests in covered property are listed on this endorsement along with the property in which they have that interest.

Note: No commitment is made to notify them of any cancellation.

UNDERWRITING CONSIDERATIONS

This coverage form insures specific items or types of mobile property that are subject to being moved from one location to another. This means underwriting must address location-specific issues when the property is on the named insured’s premises for storage and/or maintenance, location-specific issues when the property is at the site where it is used and transit exposures between the two locations.

The named insured’s premises is where the highest concentration of the property may be found. It is important to establish the highest value that could be at that location. Basic property underwriting issues of construction, occupancy, public and private fire protection, and surrounding exposures must be evaluated. If theft is an issue, security must be evaluated and appropriate protective systems incorporated where needed.

When there are a significant number of sites where the named insured’s equipment is kept, such as vending machines, a procedure must be in place to identify where the equipment is so that periodic maintenance can be performed and equipment can be monitored. The property itself can vary widely in its damageability, size, and value, and a single machine can have all of these variable elements. Vandalism damage to the machines can become significant depending on the location and circumstances where the machine might be placed. Vending machines inside buildings are safer than vending machines in the open or near public walkways.

Transit is a significant exposure because the property must be moved from one location to another.

Loss history must be carefully reviewed, and the longer period of time available, the better. Anticipating the types of losses that can occur and applying effective loss prevention encourages the named insured to take all reasonable steps to prevent them from happening. In some cases, underwriting may require high deductibles, special handling, packaging, or security systems and alarms as a condition of coverage.