ISO Tank Storage Coverage Form

ISO TANK STORAGE COVERAGE FORM ANALYSIS

(April 2024)

 

Introduction

Policy Construction

IH DS 83–Tank Storage Declarations

IH 00 83–Tank Storage Coverage Form Analysis

Introduction

A. Coverage

   Covered Property

   Property Not Covered

   Covered Causes of Loss

   Additional Coverages

B. Exclusions

C. Limits of Insurance

D. Deductible

E. Additional Conditions

F. Definitions

Endorsements

Underwriting Considerations

INTRODUCTION

The Insurance Services Office (ISO) Tank Storage Coverage Form insures various kinds of bulk liquid storage tanks and their contents. Coverage applies to storage tanks the named insured owns or leases from others at designated locations. It also covers bulk liquids the named insured owns and similar property of others in its care, custody, or control, but only when contained in a tank. Dry tank commodities such as grain, oilseeds, rice, and flour are not eligible for this coverage. Coverage can be provided on a scheduled or blanket basis. Tank storage facilities range from a single tank at a location to tank farms that contain many tanks.

POLICY CONSTRUCTION

Tank Storage Coverage requires at least the following six forms:

Related Article: IL 00 17–Common Policy Conditions Analysis

Related Article: CM 00 01–Commercial Inland Marine Conditions

IH DS 83–TANK STORAGE DECLARATIONS

The advisory Tank Storage Declarations does not have spaces for the named insured, its mailing address and other named insured information, the policy period, or the description of the insured business. That information is on the Common Policy Declarations. IH DS 83 contains the following information:

Insurance Company and Producer Name

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

Location(s)

The storage tank location or locations are entered in the space provided.

Limits of Insurance

This section has four subsections.

The first has spaces to enter the following for up to three different tanks:

The second has spaces to enter the following:

The third requires an aggregate limit that applies over All Covered Property in Any One Occurrence. This limit is a cap that applies to both blanketed items and scheduled items.

The fourth has spaces to enter the separate sub-limits of insurance that apply to the following:

There are two limits. One is per occurrence. The other is an aggregate for a single policy year.

There are two limits. One is per occurrence. The other is an aggregate for a single policy year.

Fire Department Service Charge

This section has a space to enter a higher limit than the $1,000 limit in the coverage form.

Coinsurance

This section has spaces to enter the coinsurance percentage(s) that apply. Coinsurance does not apply to blanket coverage on tanks and their contents.

Deductibles

This section has spaces to enter deductibles for the following:

Two entries are required:

Rates and Premiums

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

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

Special Provisions

Any special provisions are entered in the space provided.

IH 00 83–TANK STORAGE 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. The reader is also pointed to the Definitions section because certain words or terms used in the form have a more broadened or restricted meaning.

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.

 

Tank

Covered property and conditions of coverage are very narrow, especially with respect to contents that consist of bulk liquids. Coverage applies only when the liquid is in the tank. Manufacturing facilities treat this property as stock during the processing phase until it is transferred into the tank and tank storage coverage begins. Coverage ends as soon as the bulk liquid is removed from the tank into a tanker truck, rail tank car, or a pipeline. The property’s value changes as it moves through the manufacturing or processing phase into storage and then out to market as a sold commodity. While the storage arrangement is relatively quiet and inert, other factors make the commodity value and the coverage arrangements active and dynamic.

 

1. Covered Property

Covered property is the property listed and described on the declarations, but only if it meets the following criteria:

a. Storage tanks that are at a location or locations listed on the declarations. They must be owned by the named insured or leased by the named insured from others

b. Bulk liquids the named insured own and bulk liquids of others in the named insured’s care, custody, or control. However, both owned and non-owned bulk liquids are covered only while they are contained within a tank that is described in the declarations.

2. Property Not Covered

The following described property is not covered:

a. Land or water. The land where the covered property is located is specifically not covered.

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

Note: Many of the types of property that other coverage forms and policies usually exclude are not listed. The reason is simply that the specific nature of the property covered functionally excludes virtually all of them.

3. Covered Causes of Loss

Covered causes of loss are direct physical loss or damage to covered property with the exception of causes of loss that are 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 it takes 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:

TankFarm

Example:

Maize Products processes and refines raw corn to produce syrup and other liquid corn products for both industrial and consumer use. Maize has ten tanks on its tank farm that it uses to store liquid corn products after they are refined and processed and before they are shipped out on rail tank cars. Due to the sluggish economy, Maize has only used five of the tanks for the past eight years. It entered into a quick contract with a neighbor who needed a storage location because of overproduction. Maize has coverage for that product in its care, custody, and control for up to 30 days.

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:

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.

The property removed must be moved back to the covered location or the temporary location must be added to the policy within 30 days from the date of the move. Otherwise, all coverage ends after 30 days.

This additional coverage does not increase the limit of insurance.

Notes: There are several important points to consider:

Example: A massive fire in a grain elevator at Maize Products threatens to spread and involve the entire facility. Maize transfers all the liquid contents from the storage tanks on its tank farm into its fleet of rail tank cars. It then has the county truck railroad located two miles away come in and move those tanker cars to the railroad's yard until the fire is extinguished, the property is cleaned up, and normal operations resume. If any of the product sustained loss or damage from ANY cause of loss during this time period, this additional coverage pays for that loss.

 

d. Pollutant Clean Up and Removal

The insurance company pays to clean up pollutants caused by or resulting from a covered cause of loss that occurs during the policy period. The most paid is $10,000 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 extracting of pollutants process from either land or water.

This limit is an additional amount of insurance.

e. Fire Department Service Charge

The insurance company pays up to $1,000 when the fire department is called to save or protect covered property from a covered cause of loss. This limit can be increased on the declarations. The limit is an occurrence limit that applies regardless of the number of responding fire departments, fire units, or the number or type of services performed.

This coverage applies to only the named insured's liability for fire department service charges it either contractually assumes before a loss occurs or that a local ordinance or law requires. This additional coverage is not subject to any deductible.

This limit is an additional amount of insurance.

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 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 that results from any of 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 that is 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.

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. Unexplained disappearance

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

c. 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."

d. Leakage of tank contents

Loss or damage that is due to the contents of a covered tank leaking, discharging, dispersing, seeping, migrating, releasing, or escaping from. The only exception is when any of these were due to covered direct physical loss or damage to the tank as a result of a covered cause of loss.

 

Example: Corn syrup is all over Maize’s tank farm.

Scenario 1: Thomas, a new employee, did not completely close the spigot on the tank after filling a tanker. The resulting loss of corn syrup and the cleanup of the tanks and peripheral equipment are also not covered.

Scenario 2: Thomas, a new employee, was directing the tanker truck to the tank for the fill-up, but he became distracted by an incoming text, turned away to respond and forgot to motion the tanker to stop. The crash resulted in a crack in the tank that allowed contents to escape. The loss is covered because a tanker striking a tank is a covered cause of loss.

e. Deterioration or contamination of covered property

Loss or damage to covered property because of it becoming contaminated or deteriorated.

Notes:

Deterioration means to grow worse, weaken, disintegrate, decay, or diminish in quality or value over time.

Contamination means to make impure or unclean by contact or mixture with other materials or to expose to or permeate with foreign substances. Contamination is a term closely related to pollution but could mean only the unexpected and undesired introduction of any product that dilutes the liquid’s purity.

Example: Thomas was fired after only working at Maize for three weeks. He is angry and decides to exact revenge by introducing motor oil into the corn syrup tanks. Maize has no coverage when they must destroy the corn syrup due to the contamination.

f. 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.

g. Processing or work upon the property

This is loss or damage caused by or resulting from the actual processing or work done on the covered property. There is one exception. If the processing or work done causes a fire or explosion to occur, the loss or damage that fire or explosion causes is covered. One limitation is that the fire or explosion must be otherwise covered by this coverage form.

h. Pollution

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

Note: Section F. Definitions 2. Specified Causes of Loss has a list of the covered causes of loss that apply to the exception to this exclusion.

i. Voluntary parting

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

j. Unauthorized instructions

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

k. Neglect

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

l. 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 a 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 a tank (or any part of it) breaking down, malfunctioning, or failing to operate.

Note: There are many reasons this could happen, and none are covered unless they are a direct result of a covered cause of loss.

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 or 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 that affects different forms of property and can have other effects on the same and other forms of property.

4. Intentional Acts

If an insured intentionally causes a tank to leak, discharge, disperse, seep, migrate, or release its contents there is no coverage for expenses incurred or the resulting loss or damage.

Note: This would apply even if the insured took an action that was meant to be very minor but ended up being much more major.

Example: Paul opened up the spigot to begin the flow for the next tanker truck. Paul noticed the tanker truck was coming too fast and jumped out of its direction. He had a loud discussion with the driver that resulted in the driver being escorted off the premises and a phone call to the dispatcher to never allow the driver back on the premises. It was only fifteen minutes later that Paul realized the spigot continued to flow.

Scenario 1: Paul is considered an insured. There is no coverage for the expenses or damages from the spill.

Scenario 2: Paul is not considered an insured. This exclusion would not apply, but the neglect exclusion could come into play.

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. If earthquake and/or water damage is covered, the separate limits on the declarations for those coverages that apply.

Note: This coverage form refers to the Earthquake and Water Damage limits as separate limits. However, the declarations refer to them as sub-limits. This is ambiguous and should be clarified.

Example: An earthquake occurs at Maize. The earthquake damages some of the tanks, and it causes a fire that damages other tanks. The Blanket Limit for all tanks is $1,000,000, and the blanket limit for all contents is $1,000,000. The Earthquake sublimit is $1,000,000. The earthquake damage is $700,000, and the fire damage is 1,000,000 for the tanks and $1,000,000 for the contents.

Scenario 1: If the earthquake is a separate limit, the $700,000 is paid and then the full limits remain available to pay for the fire limits. Maize is fully covered following the deductible being paid.

Scenario 2: If the earthquake is a sublimit, the $700,000 is paid and if the damage is evenly split between the tanks and contents only $650,000 remains to pay for the damage to the tank and $650,000 to pay for the damage to the contents. The named insured must pay $700,000 of the loss outside of the deductible. 

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) exceeds the deductible on the declarations. It then pays the amount of the adjusted loss or damage that exceeds the deductible up to the applicable limit of insurance.

When both scheduled and blanket covered property are damaged, only the higher of the two deductibles on the declarations apply to the loss. Similarly, when both tank and contents are the result of a single occurs, only the larger of the deductibles apply to that occurrence.

All earthquake shocks that occur within 168 consecutive hours after the initial earthquake are treated as a single earthquake event.

Note: This 168-hour statement appears to be in the wrong place because the statement being made here would cause it to apply only to the deductible. There is no such limitation in the direct damage portion of the policy, which could mean that each earthquake aftershock is a separate occurrence.

E. Additional Conditions

1. Valuation

This condition replaces the Valuation General Condition in the Commercial Inland Marine Conditions.

a. Property you own or lease

This value is established at the time the loss or damage to the tank and/or its contents occurs.

b. Sold property–bulk liquids

The value of this property that is sold but that has not yet been delivered is a calculated value. It is the net selling price for the property reduced by any allowances and discounts that would have been provided for that property.

c. Property of others–bulk liquids

The value of the covered property of others that is in the named insured's care, custody, or control is the smaller of the following:

·         The agreed value

·         The property’s market value at the time of loss or damage

Note: Market value is not a defined term.

2. Other Conditions

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

a. Coverage Territory

The coverage territory is the United States of America, its territories and possessions, Puerto Rico, and Canada.

b. 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 1. 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 2. Divide the limit of insurance for the covered property at the location where the loss or damage occurred by Step 1.

Step 3. Multiply the total amount of loss or damage at the loss location by Step 2. before applying the deductible (if any).

Step 4. Subtract the amount of deductible from Step 3.

The insurance company pays the lesser of Step 4. 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.

This condition does not apply to coverage on tanks and their contents written on a blanket basis.

F. Definitions

There are four definitions.

1. 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.

2. Specified causes of loss

The named perils of fire, lightning, explosion, windstorm, hail, smoke, aircraft, vehicles, riot, civil commotion, vandalism, leakage from fire extinguishing equipment, sinkhole collapse, volcanic action, falling objects, weight of ice, sleet, or snow and water damage. Two terms need further explanation:

3. Tank

This is a storage container or receptacle that holds or stores liquids. It includes pumps, piping, and other related equipment and devices that make up part of the tank, that connect tanks with each other, or that are within 100 feet of tanks listed and described on the declarations.

4. Water Damage

This means the following:

a. Flood, surface water, waves, tides, tidal water, tidal waves, tsunamis, overflow of any body of water (including spray from any of these), all whether wind driven or not. It also includes storm surge.

b. Mudslide or mudflow

c. Water that backs-up, overflows, or in any way discharges from a sewer, drain, sump, sump pump, or any related equipment

d. Water below the ground’s surface that exerts pressure on or flows or seeps through foundations, walls, floors, paved surfaces, paved or unpaved basements, doors, windows, and other openings

e. Waterborne material that any of the above move or carry in any way

ENDORSEMENTS

ISO has not developed any specific endorsements for exclusive use with the Tank Storage Coverage Form. ISO has developed three other endorsements that can be used to respond to specific situations.

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 the coverage form.

IH 99 14–Mortgageholders

This endorsement is used to outline the mortgagee’s rights and duties when the covered property is subject to a mortgage.

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.

UNDERWRITING CONSIDERATIONS

Manufacturers, distributors, shippers, and processors are businesses most likely to have tank storage facilities. However, many different classes of business may have an incidental or single storage tank exposure.

The type of contents in the tank is usually the most important underwriting consideration. In addition to simple storage, some tanks are used to hold base blending components or finished products. Others are used to blend two or more liquids together. Blending tanks usually have more auxiliary machinery and equipment, higher values, and are more expensive.

Storage tanks at most tank farms are usually the same size and height so that operators can easily move from the top of one tank to another using a network of catwalks and platforms. The space between tanks is an important issue based on their contents, tank capacity, operations, piping design, and access by maintenance personnel. Spills can be expected, and tank farms must provide concrete or earthen dike walls around each tank as well as the entire farm. Tank filling operations should always be attended to, and the site should be equipped with alarm boxes that activate a signal in the control room if there is a spill or a fire.

The tank’s design and construction details must be evaluated to determine if it can actually contain the intended contents. Construction, type, age, size, contents stored, and its flashpoint are important points to evaluate.

Underwriting tank storage coverage also involves evaluating a number of location-based criteria.

All areas of the tank farm should be accessible to fire-fighting equipment, preferably by paved roads, so that each tank can be reached with water or foam. These roads should be higher than the bottom of the tank enclosures, and the earthen or concrete walls of the containment should be high enough to protect firefighters from radiant heat. Depending on the tanks’ contents, minimum distances may be required to keep a burning tank’s heat radiation from igniting another tank. Local codes usually determine the height of dike walls, but they should be high enough to contain 110% of the tank's capacity. They should also have an additional allowance for the accumulation of rainwater.

Theft, vandalism, and mysterious disappearance are also issues that must be considered. Access to tank storage areas should be controlled, and unauthorized access restricted by fences. Security cameras and video recording equipment should be used to constantly monitor the entire area. Adequate locks on doors and windows should restrict unauthorized access to buildings. Approved central station burglar alarms systems should be installed and maintained if the circumstances of a specific risk warrant doing so.

Flood, earthquake, hurricanes, tornadoes, and other weather or climatic conditions may be factors at certain tank storage facilities. Areas subject to flooding or in active earthquake zones may require additional construction features to reduce or eliminate loss or damage from these causes of loss. Facilities built on formerly swampy or filled ground require special attention.

Ownership and management of these facilities are also important. The named insured’s experience, number of years in business, and financial condition influence other areas, such as facilities maintenance and repair, loss experience, formal written safety policies and procedures, employee education and training, tank loading and unloading procedures, and inspection programs.