AAIS Musical Instruments Coverage

AAIS MUSICAL INSTRUMENTS COVERAGE ANALYSIS

(August 2024)

 

Introduction

Eligibility

Policy Construction

IM1255–Schedule of Coverages–Musical Instruments

IM 1250–Musical Instruments 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

   Other Conditions

Endorsements

Underwriting Considerations

INTRODUCTION

The American Association of Insurance Services (AAIS) Musical Instruments Coverage Form is designed for professional musicians, businesses, commercial enterprises, and educational institutions that own musical instruments to use them. Musical instruments, sheet music, instrument cases, music stands, and related accessories and supplies are covered as well as stationary organs. Property of others in the named insured’s care, custody, or control similar to the named insured’s musical instrument items can also be covered. Coverage can be written as blanket scheduled property.

ELIGIBILITY

Professional musicians are usually the first type of commercial enterprise that comes to mind in terms of who needs this coverage. However, many other operations own and use such equipment. Schools need this coverage, especially considering the broad definition of territory. This coverage form can also insure symphony orchestras, bands, and other organizational musical performers, as well as individual musicians in a variety of settings. Eligible property is so broadly defined that contraband is the only property excluded.

POLICY CONSTRUCTION

AAIS Musical Instruments Coverage requires at least these four forms:

CL 0100–Common Policy Conditions

IM 1255–SCHEDULE OF COVERAGES–MUSICAL INSTRUMENTS

This Schedule of Coverages is used with IM 1250–Musical Instruments Coverage. IM 1255 contains the following information:

Blanket Coverage

Coverage can be written on a blanket basis that covers all musical instruments under a single limit of insurance. That limit is entered in the space provided.

Note: If items are specifically scheduled, the value of those items should be removed from the blanket to prevent a duplicate charge. Items that are part of the blanket coverage are subject to 100% coinsurance.

Scheduled Property

Coverage can be written on a scheduled basis. Each musical instrument's description and limit is entered in the spaces provided.

Note: The value of items that are scheduled should be removed from the blanket amount to prevent a duplicate charge. Items scheduled are not subject to coinsurance.

Deductible

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

Optional Endorsements

IM 1251–Named Perils Coverage is the only optional endorsement available. If selected, it changes Perils Covered in the coverage form from risks of direct physical loss to only the perils of fire, lightning, windstorm, flood, and theft.

Note: There are only five named perils, which means that coverage is significantly reduced when this endorsement is used. However, the perils covered are the primary perils most insureds would be concerned about.

Rates and Premium

Musical Instruments Coverage is usually written on a non-reporting basis. This section has spaces to enter the annual premium, the non-reporting rate per $100, and any minimum premium that applies.

IM 1250–MUSICAL INSTRUMENTS COVERAGE 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. Nine terms are defined:

1. You and your

The parties that are specifically named on the declarations as insureds.

2. We, us, and our

The insurance company that is providing the coverage.

3. Limit

The amount of coverage that applies.

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

4. 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.

5. Schedule of coverages

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

6. 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.

7. 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.

8. Terms

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

9. 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. 

 

Examples of musical instruments and related property

Property Covered

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

1. Scheduled Property

a. Coverage

Direct physical loss that a covered peril causes to the named insured’s musical instruments and similar property of others in its care, custody, or control that are scheduled on the schedule of coverages with a description and a limit.

b. Coverage Limitation

Only the musical instruments and similar property of others that are listed on the schedule of coverages are covered.

2. Blanket Coverage

a. Coverage

Direct physical loss that a covered peril causes to musical instruments and similar property of others in the named insured's care, custody, or control are covered when there is a limit for blanket coverage on the schedule of coverages.

b. Coverage Limitation

Coverage is limited to only the following:

 

Property Not Covered

There is no coverage for the following property:

Contraband

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

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.

 Newly Acquired Musical Instruments

1. Coverage

Coverage for physical damage to covered property, when caused by a covered peril, applies automatically for newly acquired musical Instruments.

2. Limit

The limit is no more than $10,000 or 25% of the highest limit shown on the schedule of coverages, whichever is less.

3. Time Limitation

While coverage for the newly acquired instruments is automatic, it applies for no more than 30 days. During the time period, the acquisition must be reported to the insurance company. If not reported, coverage ends no later than the end of thirty days. However, coverage ends before 30 days is up if the policy expires or when the new acquisition has been reported to the insurance carrier.

4. Additional Premium Due

This is not free coverage. The premium for the newly acquired instrument(s) is calculated based on the date on which it was acquired.

5. Coverage Limitation

This coverage is part of the limit for the coverage described under Property Covered, not in addition to it.

Example: The musical instrument coverage at Findley’s School District is $75,000. The estate of a local musician offers Findley’s Elementary School all his musical instruments. Paul, the superintendent, accepts the gift immediately. He and the district band director catalog all the instruments before reporting the gift to the insurance carrier. During the 15 days it took to catalog and value the items, coverage is limited to the lesser of $18,750 (.25X $75,000) or $10,000. Fortunately, no loss happened because the total value of the gift was $50,000.

Perils Covered

Coverage applies to risks of direct physical loss or damage 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 the 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. 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.

c. 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 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. Animal Nesting, Infestation, or Discharge

Coverage does not apply to loss or damage due to nesting, infestation, discharge, or release of waste products or secretions by animals. The term animal includes birds, insects, and vermin but is not limited to only these.

This exclusion has an exception. If any of these excluded events results in a covered peril, the loss or damage that peril causes is covered.

 

Example: Findley School District has limited space to store its instruments. One fall season, when some of the brass instruments were retrieved, the band director was very surprised to find that some mice families had taken up residence. A professional had to dismantle and clean the instruments. When the claim was presented, it was declined because of this exclusion.

c. Collapse

Loss caused by collapse is excluded.

This exclusion has two exceptions.

d. 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.

 

Example: The band director was discouraged when he found three trumpets and a snare drum outside and underneath the bleachers. He realized that they must have been stashed there following the graduation ceremony. The damage to the instruments was repairable, but the cost would be the district's responsibility and not the insurance company because of this exclusion.

e. 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.

f. 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.

g. Loss of Use

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

 Example: Findley’s band program is partially subsidized by programs they provide to the local shopping mall during the Christmas season. An October fire in the band room renders many instruments in need of repair, so Findley cannot perform. The loss of the shopping center income is not covered.

h. Pollutants

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

 i. Unauthorized Instructions

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

Example: The band director receives a call from the secretary of Paul, the district superintendent. She tells him that Paul wants him to gather all the gifted instruments together. Paul was sending a truck to bring the instruments to the district office for a major photo opportunity. The band director did as instructed and even helped load the truck. Unfortunately, neither the secretary nor the trucker was legitimate. The loss of the instruments due to unauthorized instructions was not covered.

j. 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.

k. 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.

l. 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 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 mortgage. 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 canceled checks, but records are not limited to just these.

6. Damaged Property

Damaged and undamaged property must be made available for the insurance company's inspection as often as reasonably necessary. It must also be allowed to take samples of the property 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. Actual Cash Value

Covered property is valued its actual cash value at the time of loss. Actual cash is replacement cost new minus depreciation. However, this valuation is subject to items 2., 3., and 4 that follow.

2. Scheduled Items

Covered property listed as scheduled on the schedule of coverages is valued on the limit shown with that scheduled property.

3. 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.

4. 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

The insurance company pays the least of the following, subject to items 1., 2., 3. and 5. in this section:

4. Coinsurance

This provision applies to only covered property that is written on a blanket basis.

The insurance company does not pay the full amount of any loss if the value, at the time of the loss, of all covered property, except for property in transit, exceeds the limit of insurance. The following are the steps the insurance company takes to determine the amount it pays:

Step 1: Determine the value of items, at the time of the loss, of all covered property that is subject to coinsurance except for that which is in transit.

Step 2: Multiply Step 1 by the coinsurance percentage of 100%.

Step 3. Divide the limit for the covered property that is subject to coinsurance by the result determined in Step 2.

Note: Stop here if the result is 1.00 or higher because no coinsurance penalty applies. Go to Step 4 only if the result is less than 1.00.

Step 4. Multiply the total amount of loss, prior to the application of a deductible, by the percentage determined in Step 3.

Step 5. Subtract the applicable deductible from Step 4.

The insurance company does not pay more than the amount determined in Step 5. or the limit of insurance, whichever is less. It does not pay any remaining part of the loss.

5. 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.

6. 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.

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 that has 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 has custody 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 that relates 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 that 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 when 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 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

There are no territorial limits because the property is covered wherever it is located.

 

ENDORSEMENTS

AAIS has developed one endorsement to use with Musical Instruments Coverage.

IM 1251–Named Perils Coverage

This endorsement changes Perils Covered in the coverage form from risks of direct physical loss to only fire, lightning, windstorm, flood, and theft perils. An important limitation on the peril of theft is that theft from vehicles is provided only if the vehicle was locked with windows closed when the theft occurred and visible marks of forced entry.

UNDERWRITING CONSIDERATIONS

Covered property is not restricted to specific locations, and coverage literally applies anywhere in the world. As a result, the biggest issue is developing a profile of the equipment and describing how it is normally used and where it is usually kept. It may usually be kept at one location. It may be subject to regular movement and be kept at several locations. Records should be maintained that identify who normally has (and is responsible for) certain musical instruments. How the equipment is stored and secured when it is not being used is an issue to examine. The party or parties with access to locked storage areas and the keys to gain entry should be determined. Another issue is when the equipment must be away at other sites and how is it secured and safeguarded from damage or theft while it is at those sites.