ISO BOAT DEALERS COVERAGE FORM ANALYSIS

The Insurance Services Office (ISO) Boat Dealers Coverage Form insures boat dealers that sell various boats, motors, trailers, equipment, and accessories. The type of stock usually associated with these operations ranges from motorized watercraft to sailing vessels. It also includes pontoon boats and personal watercraft, such as jet skis. Coverage applies to the named insured's sold and unsold merchandise and similar property of others in its care, custody, or control on consignment and held for sale.

POLICY CONSTRUCTION

Boat Dealers 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 65–Boat Dealers Declarations
IH 00 65–Boat Dealers Coverage Form

IH DS 65–BOAT DEALERS DECLARATIONS

The advisory Boat Dealers 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 65 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.

Limits of Insurance

This section has spaces to enter Limits of Insurance for the following:

Property At Your Premises
Property At Any One Unnamed Premises
Property At Any One Exhibition or Trade Show
Property in Transit

By Land
By Water

Property Waterborne for Demonstration Purposes
All Covered Property in Any One Occurrence

The following items are listed as Optional Coverage, and a limit must be added if coverage is desired.

Note: There is no Optional Coverages section within the coverage form that changes these items from Not Covered to Property to Covered Property because a limit is entered. Instead, IH 99 25–Additionally Covered Property endorsement must be attached, which explains the coverage being provided.

· Furniture, Fixtures, and Office Supplies

· Machinery, Tools, and Fittings

· Patterns, Molds, Dies, and Models

· Improvements and Betterments

Coinsurance

This section has a space to enter the coinsurance percentage that triggers the coinsurance additional condition if coinsurance applies.

Deductible

This section has a space to enter the amount of deductible that applies.

Rates and Premiums

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

Rate per $100
Premium

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

Rate per $100

Deposit Premium
Minimum Premium
Reporting Period
Premium Adjustment Period
Premium Base
Total Premium

Special Provisions

Any special provisions are entered in the space provided.

IH 00 65–BOAT DEALERS 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 broader or restricted meaning.

A. Coverage

The insurance company pays for direct physical loss or damage to covered property from any covered cause of loss.

1. Covered Property

Covered property includes the following:

a. Boats, boat motors, trailers, marine equipment, and accessories that are the stock in trade of the named insured.

b. Property that is like that described in item a. except that it is owned by others and in the named insured's care, custody, or control

Note: Dealers primarily involved with marine supplies and not boats should consider the Marine Supplies Dealers Coverage Form.

Example: Henderson's Boatland is a boat dealership. It sells its own merchandise stock but also some boats of others on consignment. Henderson's is in a small town at the foot of the Rockies and takes immense pride in its facility and the fact that it is the only operation of its kind with access to the many small lakes and rivers that dot the region. This coverage form insures Henderson’s stock and the boats on his premises being sold on consignment.

2. Property Not Covered

The following described property is not covered:

a. Automobiles, motor trucks, motorcycles, and aircraft

Note: Licensed vehicles are properly covered under commercial auto coverage forms and policies.

b. Property while it is being manufactured

Note: This type of property is more properly covered under commercial property coverage forms and policies.

c. Property that has been leased, rented, or sold to customers

This property stops being covered as soon as it leaves the named insured’s custody. The one exception is when the named insured uses a carrier for hire to deliver the property and retains ownership until the purchaser accepts it. In this situation, coverage ends when it leaves the carrier for hire’s custody.

Property sold under deferred payment sales agreements is considered sold and is not covered.

Note: Coverage for property subject to dual ownership under deferred sales agreements is available under other coverage forms.

AAIS Installment Sales Coverage Form

ISO Installment Sales and Leased Property Coverage Form

d. Property that consists of the following:

· Furniture, Fixtures, and Office Supplies

· Machinery, Tools, and Fittings

· Patterns, Molds, Dies, and Models

· Improvements and Betterments

Note: There is no Optional Coverages section within the coverage form that changes these items from Not Covered to Covered Property when a limit is entered on the Declarations. Instead, IH 99 25–Additionally Covered Property endorsement must be attached, which explains the coverage being provided.

e. Property that is being raced

Note: Coverage for the property being raced is available from specialty carriers under their own coverage forms and policies.

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

3. Covered Causes of Loss

Covered causes of loss are direct physical loss or damage to covered property apart from causes of loss listed in the exclusions section.

4. Additional Coverages

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

a. 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.

b. 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:

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.

c. 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 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.

d. Collapse

This additional coverage is here because of the Collapse Exclusion. The only type of collapse covered is as described below.

(1) Only an abrupt falling or caving in of building or part of a building is considered collapse. An additional part of this definition is that the building must not be able to be occupied as intended following that collapse.

(2) Direct physical loss or damage to covered property due to such an abrupt collapse is paid only it is the result of one of the following:

(a) Building decay that is not visible. This does not apply if an insured knew about such decay before the collapse.

(b) Damage from insects or vermin that is not visible. This does not apply when an insured knew about such damage before the collapse.

(c) Defective materials or methods that are used in a construction, remodeling, or renovation project. This applies only when the collapse occurs during that project.

(d) Defective materials or methods used in a construction, remodeling, or renovation project that cause the collapse after the construction, remodeling, or renovation is complete. This applies only if one of the following is responsible for the collapse:

A cause of loss in (a) or (b) above
Fire, lightning, windstorm, hail, explosion, smoke, aircraft, vehicles, riot, civil commotion, vandalism, leakage from fire extinguishing devices, sinkhole collapse, volcanic action, breakage of building glass, falling objects, weight of ice, sleet or snow, or water damage. Each cause of loss applies only when this insurance would cover that cause of loss
Weight of personal property or people
Weight of water that accumulates on a roof

(3) This additional coverage does not increase the limits of insurance that this coverage form provides.

5. Coverage Extensions

Coverage extensions must be reviewed carefully to determine if they represent additional amounts of insurance.

a. Theft Damage to Buildings

This is a conditional extension. If the named insured owns the building or is legally responsible for the type of damage covered by this extension, coverage will apply.

Theft damage to the part of the building that contains covered property is covered. In addition, such damage to the building maintenance or service equipment inside that building is covered. A specific exclusion applies. Any theft damage caused by fire or damages glass or the lettering/artwork on the glass is excluded.

The limit for this coverage extension is included in the limit of insurance. It is not an additional amount of insurance.

b. Money

Up to $2,500 coverage is available for theft of money from within the named insured’s premises. This extension provides such coverage only if the stolen money was inside locked safes or vaults that had been broken open.

The limit for this coverage extension 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 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 that results from any of these events.

a. Earthquake

This exclusion does not exclude earth movement. It excludes ONLY earthquake. There are two exceptions:

If the earthquake starts a fire, the loss or damage caused by the fire is covered. Coverage applies only if this insurance covers that fire.
The exclusion applies to only property at the named insured’s premises.

Note: This exception is important. It means earthquake coverage applies when the property is in transit, at exhibitions, or anywhere else away from the described premises.

b. 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.

c. 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.

d. 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 action a government takes to respond to such actions is also considered war.

e. Water

Water is flood, surface water, waves, tidal water, tidal waves, tsunami, overflow of any body of water, or their spray, all whether wind-driven or not. It also includes storm surge. Loss or damage from waterborne material that any of this water described in the first sentence moves or carries is also excluded.

This exclusion applies even if an act of nature or another event causes any of the above.

There are two exceptions:

If any activity of water described above results in fire, explosion, or theft, coverage applies to the loss or damage that fire, explosion, or theft causes. This applies only if the coverage form otherwise covers the fire, explosion, or theft.
The exclusion applies to only property at the named insured’s premises.

Note: This exception is important. It means that coverage for water damage applies when the property is in transit, at exhibitions, or anywhere else away from the described premises.

2. Secondary Exclusions

The second group of exclusions applies to loss or damage caused by or that result 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 result from any of these events.

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

These are consequential or indirect losses that develop because 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 because 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."

Example:

Henderson's Boatland’s employees place items available during the summer for rent into a storage facility after the summer season is over. They return in March to move the items back so they can begin offering rentals for the new season. When the items are returned, an inventory is taken, and they discover four motors are missing. Because the only evidence that a loss occurred is the inventory shortage, there is no coverage available.

StorageFacility1

d. 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.

e. Processing or work upon the property

When work performed on the property results in loss or damage there is no coverage. The only exception is when the work performed on the property results in a fire or explosion. This coverage then covers only the damage caused by the fire and explosion but not that caused by the performed work.

f. 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 item in which the disturbance occurs

g. Voluntary parting

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

h. Unauthorized instructions

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

i. 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.

j. 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 that is 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 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. Collapse

Collapse is excluded. This means the following property conditions are also excluded:

(1) Any type of sudden caving in or falling down

(2) When the building’s structural integrity is lost or compromised. The evidence of this could be parts of the property separating from the rest of the building or the building appearing to be in danger of caving in or falling down.

(3) Cracking, sagging, expansion, settling, shrinking, bulging, or bending, but only as they relate to items (1) and (2) above

This exclusion has two exceptions. Coverage applies to the following:

Loss or damage that 4. Additional Coverages d. Collapse covers
Collapse that is caused by fire, lightning, windstorm, hail, explosion, smoke, aircraft, vehicles, riot, civil commotion, vandalism, leakage from fire extinguishing devices, sinkhole collapse, volcanic action, breakage of building glass, falling objects, weight of ice, sleet or snow, water damage, weight of personal property or persons, or weight of water that accumulates on a roof

f. 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 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 applicable limit of insurance.

E. Additional Conditions

1. Valuation

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

a. Unsold property is valued at the least of the following:

The property’s actual cash value
The reasonable costs to restore the property to the condition it was in just before the loss or damage
The costs to replace the property with identical or very similar property

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

c. There is a two-step process to value property of others in the named insured's care, custody, or control. The first step is to determine the value of the labor and materials the named insured added to the property of others. The lower of the following is then added to that amount:

The amount for which the named insured is liable
The property’s actual cash value

The value of lost or damaged property is determined at the time of the loss or damage.

2. Other Conditions

The following conditions apply 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. Coverage applies to property wherever located within these places.

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.

c. Records and Inventory

The named insured is required to maintain accurate records for the insured business and to hold them for at least three years after the policy expires. The records that must be maintained are the following:

Itemized inventories of stock that is used in the business. A physical inventory must be taken at least once a year.
All purchases and sales
Property of others that are in the named insured’s care, custody, or control
All other property that is sent to others who are away from the premises for whatever reason

d. Protective Safeguards

If the named insured states in the application that a protective safeguard is in place at a premises, that protective safeguard must be maintained and operational whenever the premise is not open for business.

If that safeguard is not operational when the premise is closed, all coverage at the premise is suspended until it becomes operational again.

Note: This is a very important warranty that removes all coverage, regardless of the cause of loss, when the protective safeguard goes down. There are no exceptions.

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 Boat Dealers 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 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 25–Additionally Covered Property

Furniture, fixtures, office supplies, machinery, tools, fittings, patterns, dies, molds and models and improvements and betterments can be added to the policy by attaching this endorsement. It has an unusual valuation condition and is subject to coinsurance. A better approach may be to use a standard commercial property coverage form.

UNDERWRITING CONSIDERATIONS

Boat dealers usually occupy permanent locations and are exposed to the common causes of loss that affect fixed locations. There may be a significant transit exposure from the property sold and shipped to the dealers' customers.

Location factors to consider and evaluate include building construction, occupancy, protection, and exposures. The better the construction, fire protection, and water supply, the better the risk. Property and merchandise not displayed for sale should be stored separately, preferably in storage areas physically removed or effectively cut off from the main facility. Fire extinguishers should be strategically placed throughout the premises and used to extinguish small fires. Automatic sprinkler systems effectively minimize damage from fires that get out of control. However, they must be evaluated from the standpoint of water damage to certain kinds of property when the system activates or in cases of accidental discharge. If any stock is highly susceptible to water damage, storing it separately in a nonsprinklered area should be considered. In addition, stock susceptible to water damage should never be stored below grade level. If it must be, it should be stored on shelves to elevate it at least some height above the floor.

Wind is a significant concern for boat dealers. Wind exposures differ based on the part of the country. States bordering the Gulf of Mexico and the Atlantic Ocean are susceptible to hurricanes and tropical storms in summer and the early fall months of the year. Most of the Midwest and parts of the Northeast and Southeast are susceptible to tornadoes and severe storms, especially in the spring.

Buildings located in earthquake-prone areas should be designed and built to withstand earthquake damage. Stock storage in earthquake-prone areas should also be considered, and items susceptible to breakage should be stored or displayed in a way that reduces or eliminates loss or damage due to breakage.

Losses due to theft must be considered. Many boat dealers are in rural areas where central station response time may be longer than in urban areas. An evaluation of the response times and alternatives, such as sounding at the owner’s home, etc., and audible alarms, should be made.

Stock stored outside the building or in the open should be completely enclosed by fencing, and such areas should be illuminated at night. Under certain circumstances, surveillance cameras should also be used.

Off premises exposures should be evaluated. Some dealers may have exhibits in shopping center parking lots or at trade shows. The exhibits and transit exposure should be considered.

Transit could be a major exposure. The types of vehicles used for transport, the value of the items shipped, and the radius of operations are all important considerations.

Waterborne exposures are unique to this class of business and should be evaluated carefully. Property afloat must be described accurately. Demonstrations are like Trip-Transit exposures in that each one is unique and must be evaluated individually. Boats delivered by water both to the dealer and the customer must be evaluated from the standpoint of being towed by another watercraft or arriving under their own power.

Management issues include the dealer's financial condition, experience, years in business, and labor relations. The named insured's attitude toward loss control and loss prevention and use of formal written safety programs and procedures cannot be overemphasized. Adequate and appropriate record keeping of all kinds is equally important.