AAIS Floor Plan Merchandise Coverage

AAIS FLOOR PLAN MERCHANDISE COVERAGE ANALYSIS

(August 2024)

 

Introduction

Eligibility

Policy Construction

IM 1105–Schedule of Coverages–Floor Plan Merchandise

IM 1100–Floor Plan Merchandise Coverage Analysis

   Agreement

   Definitions

   Property Covered

   Property Not Covered

   Coverage Extensions

   Perils Covered

   Other Coverages–Collapse

   Perils Excluded

   What Must Be Done in Case of Loss

   Valuation

   How Much We Pay

   Loss Payment

   Reporting Conditions

   Other Conditions

Endorsements

Underwriting Considerations

INTRODUCTION

The American Association of Insurance Services (AAIS) Floor Plan Merchandise Coverage automatically covers dealers’ stock and other merchandise financed through banks or other lending institutions. Merchants involved with high-value merchandise such as mobile equipment and expensive household objects like refrigerators and other appliances often borrow money from banks or finance companies on the collateral of their stock or specifically identified property "on the floor" for sale. This coverage is unique because the items are automatically covered if they are stock or merchandise identified as specifically encumbered to the bank or other lending institutions. This identified merchandise is not permitted to be sold until the financial institution releases its encumbrance. This coverage form is very flexible and can be written as a single interest contract applying to only the named insured dealer or the lending institution, or it can be written as a dual interest contract covering both.

ELIGIBILITY

Eligibility is both broad and conditional. If coverage is written on a single interest basis, either the dealer that has the stock or the financial institution that finances it can be covered. If coverage is written on a dual interest basis, the dealer with the stock is the named insured, and the financial institution is the secured lender. To be eligible, the relationship between the dealer and the secured lender must be such that both retain a financial interest in the stock until it is sold. However, the dealer may not be a manufacturer or a processor.

The Nationwide Inland Marine Definition clearly states the difference between insuring owned inventory and providing floor plan coverage. The floor plan covered property must be encumbered to a financial institution, and the financial institution must release the covered property from the encumbrance before the named insured can sell it.

The Nationwide Inland Marine Definition also specifically states that Floor Plan coverage cannot be used to insure automobiles and other motor vehicles.

POLICY CONSTRUCTION

AAIS Floor Plan Merchandise requires at least these four forms:

Related Article: AAIS Filed Inland Marine Coverage Forms Overview

Related Article: CL 0100 AAIS Commercial Lines Common Policy Conditions

Related Article: AAIS Filed Inland Marine Coverage Forms Overview

IM 1105–SCHEDULE OF COVERAGES–FLOOR PLAN MERCHANDISE

This Schedule of Coverages is used with IM 1100–Floor Plan Merchandise Coverage. IM 1105 contains the following information:

Interests

A box must be checked to show if coverage applies to a single interest or dual interests.

Described Merchandise

A description of the merchandise covered must be entered in the space provided.

Name of Secured Lender

The name of the secured lender must be entered in the space provided.

Schedule of Locations

The location number, address, description of the covered location and the limit of insurance are entered in the spaces provided.

Limits for the following must be entered in the spaces provided if these coverages are desired:

Note: The Catastrophe Limit caps the limit for all coverages at all locations and should be reviewed and updated whenever all locations limits are increased.

Deductible

The deductible amount the named insured retains for each covered loss must be entered in the space provided.

Optional Endorsements

Two optional endorsements are available. They are available only when the named insured is a lending institution and coverage is limited to only its single interest. An entry on the schedule of coverages is required if they apply.

This endorsement amends How Much We Pay to pay losses only when the lender's interest is impaired.

This endorsement amends Other Conditions with respect to Subrogation. It prohibits the insurance company from taking action to recover for a loss from a dealer without the insured lender's consent.

Rates and Premium

This coverage is always written on a reporting basis. The deposit premium, minimum premium, and monthly reporting rate per $100 of property value are entered in the spaces provided.

Values must be reported for each location listed on the schedule of coverages. This section includes a provision that any additional premium developed after expiration based on reports of value submitted is due on the date on the billing invoice.

IM 1100–FLOOR PLAN MERCHANDISE COVERAGE FORM ANALYSIS

This analysis is of the 01 05 edition.

AGREEMENT

This section states that the insurance company provides the coverage described in return for the named insured paying the required premium. This agreement is subject to all the coverage form’s terms, the schedule of coverages, and any additional conditions that apply. Endorsements or additional schedules identified on the schedule of coverages also apply.

A statement that certain words and phrases identified in bold print in the coverage form are defined in the Definitions section that is immediately following this Agreement.

Note: There is no clearly marked space on the schedule of coverages to list endorsements or additional schedules that apply at inception.

DEFINITIONS

Defined words are used throughout the coverage form. When these terms are used in the coverage form, the meaning provided in this section must be applied. Ten terms are defined:

1. You and your

The parties specifically named on the declarations as insureds.

2. We, us, and our

The insurance company that is providing the coverage.

3. Flood

Flood is flood, but it is also surface water, waves, tidal water, and other overflow of bodies of water. It may or may not be wind driven. Spray from any of these is also flood, regardless if driven by wind or not.

4. Limit

The amount of coverage that applies.

Note: There is no reference as to what it applies; it just applies.

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 labeled as such that contains coverage information, including declarations or supplemental declarations.

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. Sinkhole collapse does not include either the land’s value or the cost to fill sinkholes.

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 does not include loss to personal property stored in the open. It also does not include damage to the interior of buildings or personal property stored in buildings unless a falling object first breaches the building's exterior.

Water damage is the sudden or accidental discharge or leakage of water or steam. However, it must be a direct result of a part of the system or appliance that holds the water or steam cracking or breaking.

9. Terms

These are all provisions, limitations, exclusions, conditions, and definitions that apply to this coverage.

10. Volcanic action

An airborne volcanic blast or shock wave. It is also ash, dust, and particulate matter along with any lava flow. The term does not include the cost of removing dust, ash, or particulate matter from the covered property unless there is direct physical damage to the property. 

Example of floor plan merchandise held for sale

Property Covered

The insurance company covers property that is described below unless it is excluded or subject to limitations.

1. Single Interest

This applies when Single Interest is selected on the schedule of coverages.

Direct physical loss to the property described on the schedule of coverages and caused by a covered peril is covered only if both of the following apply:

2. Dual Interest

This applies when Dual Interest is selected on the schedule of coverages.

Direct physical loss to the property described on the schedule of coverages and caused by a covered peril is covered only if all the following apply:

3. Off Premises

Direct physical loss to the property described on the schedule of coverages and caused by a covered peril is covered only if the following apply:

If property is in transit when this policy is cancelled, coverage continues to apply to the property until it reaches its destination. This applies only if a limit of insurance for transit is entered on the schedule of coverages.

Example: Harold's Home Furnishings’ Floor Plan Coverage is cancelled effective May 6. At the time of cancellation, a truckload of product is on its way from a supplier located at the far west end of the state. The truck is involved in a major collision when it is 100 miles from its destination. The property is destroyed when the overturned truck catches fire. Even though coverage was cancelled the previous day, the goods in the truck are still covered because of this provision.

Note: This coverage form is unique and unusual because Property Covered does not describe particular types of property. Because of the very "open end" nature of this arrangement, any property that involves a lender with a financial interest in it can be covered. This consideration can create interesting selling opportunities as well as complicated and perplexing underwriting situations.

Property Not Covered

There is no coverage for the following property:

1. Contraband

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

2. Interest in Property Ends

Immediately upon the named insured’s interest in the property ending, that property is no longer covered property.

3. Property Sold, Delivered, or Disposed of

When property has been sold, delivered, or disposed of it is no longer covered property.

Note: This wording is ambiguous because it does not explain what happens if the item is sold pending delivery. Does coverage end with the sale or with the delivery? It also does not explain what disposed of means.

Coverage Extensions

There is one coverage extension. 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.

Emergency Removal

a. Coverage

This covers direct physical loss to covered property removed from the scheduled location to avoid loss or damage from an impending covered peril. The loss can occur while in transit between the scheduled location and the sanctuary location. This coverage is unique because the property that is being moved is not subject to any exclusion while in transit or at a sanctuary location. However, the reason for moving the property must be due to a covered peril.

b. Time Limitations

The named insured must notify the insurance company within ten days after it moves the property. Coverage does not extend past the expiration date. However, there is no other time limitation.

c. Coverage Limitation

This coverage is part of the applicable limit for coverage as Property Covered describes, not in addition to it.

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

Perils Covered

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

Other Coverages–Collapse

1. Coverage

Loss to covered property when caused by a direct physical loss that involves collapse of a building or structure or any part of a building or structure containing covered property.

2. Covered Perils

The only collapse coverage provided is collapse caused by one or more of the following:

3. Collapse Means

Collapse is the sudden and unexpected falling in or caving in of a building or structure (or any part of it) that prevents the building from being occupied for its intended purpose.

4. Collapse Does Not Mean

The following buildings and structures are not considered to be in a state of collapse:

5. Coverage Limitation

This coverage does not provide any increase in the limit for covered property.

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 that results from any of these events.

a. Civil Authority

There is no coverage for loss that results from an order any civil or government authority issues. These orders may include seizure, confiscation, destruction, or quarantine of property, but this exclusion is not limited to only these. The only exception is when a civil authority destroying property as a means of controlling a fire causes the loss or damage. This exception applies only if the fire is the result of a covered peril.

b. Flood

The insurance company does not pay for loss or damage caused by flood.

There are two exceptions:

Note: This means that coverage applies to covered property in transit and at unlisted premises.

c. Nuclear Hazard

The insurance company does not insure against loss or damage from any nuclear reaction, radiation, or contamination, whether the nuclear incident was controlled or not or was caused by any means. Any loss caused by the nuclear hazard is not treated as a loss caused by fire, explosion, or smoke. However, coverage applies to direct loss or damage caused by fire that results from the nuclear hazard.

d. Sewer Backup and Water below the Surface

Coverage does not apply to loss or damage that any of the following causes:

There are two exceptions:

Note: This means that coverage applies to covered property in transit and at unlisted premises.

e. 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 is the result of 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. Acts or Decisions

There is no coverage for loss caused by or resulting from any acts or decisions by any person, organization, or government entity. This also includes failing to act or decide.

This exclusion has an exception. The act or decision, or the failure to act or decide, may result in a covered peril. In that case, the loss or damage that peril causes is covered.

b. Bankruptcy or Foreclosure

Coverage does not apply to loss caused by bankruptcy, foreclosure, or related or similar proceedings.

Note: This coverage form does not identify which entity is in bankruptcy or foreclosure.

Example: Zachary finances his stock of appliances through a floor plan arrangement with a major appliance manufacturer. Unfortunately, that manufacturer’s appliances have a history of breakdowns that make them unpopular with Zachary’s customers. This leads to flat sales. Zachary figures his only option is to simply declare bankruptcy. His creditors swoop in and take the inventory as collateral against unpaid debts. Coverage does not apply to Zachary’s monetary loss as a result of this action.

c. Breakage, Marring, Scratching, or Exposure to Light

Loss or damage caused by the breaking of glass objects or items made mostly of glass is excluded. When loss or damage is caused by property being marred, scratched, or exposed to light there is also no coverage.

This exclusion has three exceptions.

d. Collapse

Loss caused by collapse is excluded.

This exclusion has two exceptions.

e. 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. This exclusion has an exception. When contamination or deterioration results in a covered peril, the loss or damage that covered peril causes is covered.

f. Criminal, Fraudulent, Dishonest, or Illegal Acts

Coverage does not apply to loss caused by or that results from criminal, fraudulent, dishonest, or illegal acts committed by any of the following 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 a carrier for hire.

g. Electrical Currents

There is no coverage for loss or damage due to artificially generated electrical currents damaging electrical apparatus or wiring inside the insured property. This exclusion applies only to the property that artificially generated the current.

This exclusion has an exception. Electrical currents may result in a fire or explosion. In that case, the loss or damage the fire or explosion causes is covered.

Example: Megan’s Appliances has fifteen refrigerators on the showroom floor. One of those refrigerators starts to sizzle and emit smoke before it erupts into flames. All the refrigerators and the rest of the store sustain smoke damage, but the two refrigerators on either side of the sizzling refrigerator sustain fire damage.

  • The sizzling refrigerator is not covered because the loss is due to artificially generated electrical current. However, the fire damage to the refrigerator is covered because of the exception.
  • The damage to all the other refrigerators and the smoke damage throughout the store is covered because the exclusion applies to only the property that generates the current.

h. Fault, Defect, or Error

Loss or damage due to errors, faults or defects in planning, zoning, surveying, site plans, grading, compacting, land use, or development is not covered. Loss or damage due to property related design, blueprint, specification, workmanship, building, maintaining, installing, renovating, remodeling, or the repairing errors, faults or defects are also excluded.

An important provision is that this exclusion applies both on and away from the designated premises and applies regardless of negligence.

This exclusion has an exception. One of these events may result in a covered peril. In that case, the loss or damage that peril causes is covered.

i. Loss of Use

There is no coverage for loss that is the result of delay, loss of use, or loss of market.

j. Mechanical Breakdown

Loss that is due to mechanical breakdown is excluded. The only exception is when such an excluded loss causes a covered peril, and then the resulting loss from that covered peril is covered.

k. Pollutants

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

l. Rain, Sleet, Ice, or Snow

Loss or damage to covered property outside of the building or structure is not covered when the cause of the loss is because of rain, sleet, ice, or snow. This exclusion has an exception. It does not apply to property in transit.

m. Unauthorized Instructions

Coverage does not apply if a loss occurs because property was given to another person or sent to another place based on unauthorized instructions.

n. Voluntary Parting

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

Example: Zachary is excited when Marked Down Appliances contacts him about taking some of his stock. They reach an agreement to which both sign. Marked Down provides a cashier’s check as a down payment and loads up the agreed upon stock. A week later Zachary is informed that the cashier’s check was not honored. Zachary calls Mark Down’s cell phone, and it has been discontinued. Zachary turns in a claim with his insurance carrier, which is denied because he had voluntarily surrendered the property to Marked Down.

o. Wear and Tear

Loss or damage caused by wear and tear is excluded.

This exclusion has an exception. Wear and tear may result in a covered peril. In that case, the loss or damage that peril causes is covered.

p. Weather

Loss or damage due to weather conditions is excluded but only when the loss is caused by a weather condition combined with a cause of loss excluded in 1. Primary Exclusion above.

 This exclusion has an exception. The weather conditions may result in a covered peril. In that case, the loss that peril causes 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 to do so if the named insured maintains 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 with respect to the property involved, including liens and mortgages. Any changes in the title to the property during the policy period must be disclosed, in addition to providing any other reasonable information, including inventories, specifications and estimates the company may require in settling the loss.

4. Examination

Examination of the named insured 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

Both 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 and to inspect it.

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 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 insurance company decides when and if it will take ownership of the named insured’s property. The named insured is, therefore, not permitted to abandon damaged property to the insurance company until the insurance company agrees in writing to accept it.

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. Property Valuation

The valuation of covered property is as follows, subject to 2. Pair or Set and 3. Loss to Parts below:

a. Property That Is Sold

Property that has been sold but has not yet been delivered is valued at its selling price. The selling price is then reduced by all standard discounts and allowances.

b. Property That Is Not Sold

Property not yet sold is valued at its purchase price. Transportation charges are added to that price if they were separate from the purchase price.

2. Pair or Set

The value of a loss that involves damage or loss of one part of a pair or set is based on a reasonable proportion of the value of the entire pair or set. However, the loss of one part of a pair or set is not considered a total loss.

Note: This recognizes that the value of the whole is greater than the value of individual parts but that the remaining parts still have value as separates.

3. Loss to Parts

The value of a lost or damaged part of 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.

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

a. The insurance company pays the least of the following:

These are all subject to the other items in this section.

b. Catastrophe Limit

This applies only if a catastrophe limit is entered on the schedule of coverages.

When a covered peril causes loss or damage at more than one premises that is listed on the schedule, the most paid in a single occurrence is the lowest of either of the following:

Note: Whenever a catastrophe limit is entered it is very important to adjust it any time the other limits on the declarations are increased to prevent an inadvertent capping.

4. Insurance under More Than One Coverage

Two or more coverages in the coverage form may cover the same loss. In that case, the insurance company does not pay more than the actual value of the claim, loss, or damage sustained.

5. Insurance under More Than One Policy

a. Proportional Share

The named insured may have other coverage subject to the same terms as this coverage form. In that case, this coverage form pays only its share of the covered loss. That share is the proportion that its limit of insurance bears to the limits of insurance on 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 item 5. a. above. In that case, this coverage form pays on an excess basis. It pays only the amount of covered loss that exceeds the amount due from the other coverage, whether it can be collected 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 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 of 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. The only exception is when a loss payee is on the policy.

b. Conditions for Payment of Loss

The insurance company pays a covered loss within 30 days after it receives a properly prepared proof of loss and the amount of loss is established. The amount of loss is determined either through 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 to either the named insured 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

1. Reports

Reports are required to be in writing. The reports are to provide the full amount of the named insured's interest in the described property as it appears on the last day of the month. The full reported value may exceed the limit on the schedule of coverages.

Note: An unusual feature of this reporting form is that the named insured reports its full amount of interest in the property instead of reporting values.

2. When Reports Are Due

Reports are due within 30 days following the end of the month to which the report applies.

Note: This means the January report is due by March 2. The February report is due on March 30.

3. The Reports Must Show

a. Reports for single interest coverage must provide the total unpaid balances when the lender is the named insured. When the dealer is the named insured, the reports are to be for the total amount of the payments made to the lender.

b. When coverage is for dual interests, the report is to provide the total values of the insured property.

4. Coverage Limitation

The total amount reported may exceed the limit on the schedule of coverages. The limit continues to apply, though, if a loss occurs.

Note: The amounts reported are used to determine the earned premium. The limit on the schedule of coverages is the most paid, regardless of the amount reported. As a result, if the amounts reported exceed the limit, the named insured pays premium based on the amounts reported but receives only the limit in case of loss or damage.

5. If Coverage Is Cancelled

If coverage is cancelled, the report must include the named insured’s full interest in all covered property as of the cancellation date. This amount reported does not change the limit on the schedule of coverages.

6. Premium Adjustment

The deposit premium on the schedule of coverages is an estimate and is subject to adjustment. The actual earned premium is determined by multiplying the amount reported each month by the monthly rate. If the total premium determined exceeds the deposit premium, the named insured pays the insurance company the difference. If it is less than the deposit, the insurance company refunds the difference to the named insured, subject to any minimum premium.

7. Limitations on the Amount We Will Pay

a. Full Reporting Requirement

The named insured must report to the insurance company the full amount of its interest in all described property. If it does not report the full amount, the company pays only part of a loss. That part is determined by dividing the amount last reported by the named insured's actual full interest in the property on the date the report was prepared. This percentage is applied to the adjusted loss to determine the amount paid.

b. Late Reports

A report may be late and not be received when due. In that case, the insurance company does not pay more than the amount on the last report it received before the loss. If the loss occurs before the first report is generated, the company does not pay more than 90% of the loss otherwise payable.

Other Conditions

1. Appraisal

The insurance company and the insured may not always agree on a covered claim’s value. This condition provides one method to resolve disputed claims.

Either party can request an appraisal to determine a disputed claim’s value. 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

a. Your Death

This applies only when the named insured is an individual. When a named insured dies, the person who has custody of the named insured's property is an insured for that property until a qualified legal representative is appointed. Once the named insured’s legal representative is named, that person is responsible but only for the property covered under this policy.

b. Policy Period is not Extended

This coverage does not extend past the policy’s expiration date.

5. Liberalization

A revision of this coverage form or an applicable endorsement that takes effect during the policy period or within six months of when this coverage takes effect may broaden coverage without an additional premium charge. In that case, the broadened coverage applies to this coverage.

6. 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 any insured engaged in fraud or false swearing with respect to 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 a particular claim being denied.

7. Policy Period

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

8. Recoveries

Payment of 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 incurs 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 other limitation, any recovery is prorated between the named insured and the insurance company, based on the company's respective interest in the loss.

9. Restoration of Limits

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

10. Subrogation

The insurance company acquires the named insured's rights of recovery from third parties after it pays a loss. The named insured must help the company secure those rights. The insurance company is not obligated to pay the loss if the named insured hinders or impairs its rights of subrogation.

The named insured has the right to agree in writing to waive recovery rights from any party if it does so before a loss occurs.

11. Suit against Us

The insurance company cannot be sued by anyone for any coverage until all the terms of the coverage form have been 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 that law’s provisions 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 that relate to that state.

12. Territorial Limits

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

13. Dual Interest

When this policy is issued on a dual interest basis, all interested parties are subject to the conditions of this policy. There is one exception. The secured lender’s interest does not become impaired when the dealer or any other party does not comply with coverage provisions. This applies only if the lender attempts to comply with those provisions.

Note: This is a very important condition. The secured lender’s interest is protected much like mortgagees under commercial property coverage forms. If the dealer does not comply with one or more policy conditions that affect a loss, the lender's interest in the property is not adversely affected. Of course, this protection applies only as long as the lender either did not know or did and then took positive action to comply with those conditions.

Example: Zachary and First Friends are covered under a dual interest coverage form. Zachary turns in a claim but is refusing to cooperate or be subject to an examination. First Friends is willing to do both and attempts to use their influence with Zachary in doing both. The insurance carrier refuses to pay Zachary, but because of First Friends’ attempts, First Friends receives payment for their interest, but Zachary is denied coverage for his interest.

14. Business Records

The named insured is required to maintain business records throughout the policy period and keep them no less than three years after the policy expires. An itemized inventory of stock updated annually through a physical inventory is also required.

The business records the named insured is required to maintain must include all the following:

The insurance company has the right to request access to the business records and inventory as often as it chooses, and the named insured is required to comply. However, such requests must be considered reasonable.

Note: This condition is very unusual because it requires the named insured to maintain records in a prescribed way. It is common in all Inland Marine dealer coverage forms but not in commercial property coverage forms.

ENDORSEMENTS

AAIS has developed two endorsements to use with Floor Plan Merchandise Coverage.

IM 1111–Limit of Loss–Single Interest for Lending Institutions

This endorsement is added to only single interest policies that cover lenders. It modifies How Much We Pay to pay for a loss when the lender's interest is impaired.

IM 1112–Limit of Recovery–Single Interest for Lending Institutions

This endorsement is added to only single interest policies. It modifies Other Conditions with respect to Subrogation and stops the insurance company from attempting to recover for a loss from the dealer without the insured lender's consent.

UNDERWRITING CONSIDERATIONS

This coverage should be underwritten the same way as business personal property. The primary concern is the construction, operations, and common and special hazards of the specific occupancy, public and private fire protection, and exposures presented by neighboring occupancies that affect the named insured’s operation. Theft and vandalism may be other important considerations, depending on the type of merchandise and security measures employed to protect it against theft and vandalism. These perils must be evaluated carefully.

Related Article: ISO Commercial Property Program Underwriting Considerations