November 2007

Summary: The contractors equipment form provides open perils coverage for mobile machinery, equipment, and tools that contractors use in their trade. Because the form does not restrict coverage to a particular location, it can cover contractors equipment at job sites, owned locations, or in transit.

Two different forms are available from AAIS for contractors equipment, IM-7000 and IM-7001. The differences lie in the property covered, perils excluded, and additional coverage sections. This treatment examines in detail form IM-7000, with notes as to the differences in form IM-7001. Both forms were updated in 2004, and those changes will be highlighted.

Topics Covered: Underwriting and rating Insuring agreement and definitions Property covered Property not covered Coverage extensions Supplemental coverages Perils and exclusions Insured's duties in case of loss Valuation How much we pay Loss payment Reporting conditions Other conditions Endorsements

Underwriting and Rating

A contractors equipment floater covers the machinery, equipment, and tools that contractors use in the performance of their trade. According to the 1976 Nationwide Marine Definition such equipment must be of a “mobile or floating nature” and cannot be: 1. on sale or consignment; 2. in the course of manufacture; or 3. designed for highway use.

The following information about the contractor is necessary in order to properly underwrite the risk:

1. type of contractor and work performed;

2. a schedule of equipment that includes the following information:

a. the value of each item

b. name of manufacturer

c. year of manufacture

d. model and identification numbers

e. serial number

f. full descriptive data

3.  number of years the applicant has been in business

4. financial condition of the risk

5. loss prevention measures employed

6. loss experience of the risk

A contractors equipment floater is rated based on the total value of the equipment being insured. The base rate may then be modified with credits or debits for the following: deductible, loss experience, management, security, and fire protection.

Insuring Agreement and Definitions

In return for “your” payment of the required premium, “we” provide the coverage described herein subject to all the “terms” of the contractors Equipment Coverage. This coverage is also subject to the “schedule of coverages” and additional policy conditions relating to assignment or transfer of rights or duties, cancellation, changes or modifications, inspections, and examination of books and records.

Endorsements and schedules may also apply. They are identified on the “schedule of coverages.”

Refer to Definitions for words and phrases that have special meaning. These words and phrases are shown in quotation marks or bold type.

1.The words “you” and “your” mean the persons or organizations named  as the insured on the “declarations”.

2.The words “we”, “us”, and “our” mean the company providing this coverage.

3.”Contractors' equipment” means machinery, equipment, and tools of a mobile nature that “you” use in “your” contracting, installation, erection, repair, or moving operations or projects.

“Contractors Equipment” also means:

self-propelled vehicles designed and used primarily to carry mounted equipment; or

vehicles designed for highway use that are unlicensed and not operated on public roads.

4.”Equipment schedule” means a schedule of “contractors' equipment” that is attached to this policy and that describes each piece of covered equipment.

5.”Jobsite” means any location, project, or work site where “you” are in the process of construction, installation, erection, repair, or moving.

6.”Limit” means the amount of coverage that applies.

7.Pollutant” means:

a.any solid, liquid, gaseous, or thermal, or radioactive irritant or contaminant, including acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Waste includes materials to be recycled, reclaimed, or reconditioned, as well as disposed of; and

b.electrical or magnetic emissions, whether visible or invisible, and sound emission.

8.”Schedule of coverages” means:

a.all pages labeled schedule of coverages or schedules which pertain to this coverage; and

b.declarations or supplemental declarations which pertain to this coverage.

9.”Sinkhole collapse” means the sudden settlement or collapse of earth supporting the covered property into subterranean voids created by the action of water on a limestone or similar rock formation. It does not include the value of the land or the cost of filling sinkholes.

10.”Specified perils” means aircraft; civil commotion; explosion; falling objects; fire; hail; leakage from fire extinguishing equipment; lightning; riot; “sinkhole collapse”; smoke; sonic boom; vandalism; vehicles; “volcanic action”; water damage; weight of ice, snow, or sleet; and windstorm.

Falling objects does not include loss to:

a.personal property in the open; or

b.the interior of buildings or structures or to personal property inside buildings or structures unless the exterior of the roofs or walls are first damaged by a falling object.

Water damage means the sudden or accidental discharge or leakage of water or steam as a direct result of breaking or cracking of a part of the system or appliance containing the water or steam.

11.”Terms” means all provisions, limitations, exclusions, conditions, and definitions that apply.

12.”Volcanic action” means airborne volcanic blast or airborne shock waves; ash, dust, or particulate matter; or lava flow.

Volcanic action does not include the cost to remove ash, dust, or particulate matter that does not cause direct physical loss to the covered property.

Analysis

The AAIS contractors equipment promises to provide the coverage described in exchange for payment of the premium. The agreement goes on to make the coverage subject to the declarations, policy conditions, and any attached endorsements and schedules. In the 2004 form, the term declarations is removed and is replaced with “schedule of coverages.”

The terms defined are defined as in most other property policies: you and your; we, us, and our; limit; pollutant; sinkhole collapse; specified perils; terms; and volcanic action.

There are new terms defined in the 2004 policies. “Contractors' equipment” is defined and

indicates that mobile equipment that the insured uses in contracting, installation, erection, repair, or moving projects is considered contractors' equipment. Also included in the definition is self-propelled equipment that is used to carry other mounted equipment, or vehicles designed for highway use that are unlicensed and not used on public roads. Equipment was not defined before, so virtually anything could be construed as contractors' equipment previously; now it has been defined and limited.

“Equipment schedule” is another new term, and simply identifies that a schedule attached to the policy that describes each piece of covered equipment is considered to be the equipment schedule.

“Jobsite” has been defined to identify exactly what is a jobsite; it's defined as any location, project or worksite where the insured is in the process of construction, erection, repair, or moving. While this appears to be a broad definition, remember that it was not identified before, so this really restricts what can be considered a jobsite even though it is quite broad.

“Schedule of coverages” is a new term that replaces declarations. The schedule includes the declarations pages, and also includes all pages labeled schedule of coverages or schedules which pertain to this coverage. Therefore this is broader than the normally used declarations; now any schedules are included in the term.

Note that the terms earth movement and flood are not defined, as in other policies. The AAIS contractors equipment floater does not exclude these perils, thus they are not defined.

Like the AAIS EDP floater see Electronic Data Processing (EDP) Coverage, the contractors equipment floater employs a broader definition of “pollutant.” This has been broadened even further in the 2004 forms. Now radioactive irritants are included, as well as acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Also included are visible or invisible electrical or magnetic emissions, and sound emissions.

The contractors equipment floater defines sinkhole collapse as the sudden settling or collapsing of earth supporting covered property into voids in the earth. By virtue of this definition, sinkhole collapse does not include the value of the ground, itself, nor the cost of filling sinkholes.

The definition of “specified perils” is similar to the broad form causes of loss supported by ISO and includes aircraft; civil commotion; explosion; falling objects; fire; hail; leakage from fire extinguishing equipment; lightning; riot; sinkhole collapse as defined in the policy; smoke; sonic boom; vandalism; vehicles; volcanic action as defined in the policy; water damage; weight of ice, snow, or sleet; and windstorm.

The definition of volcanic action is comparable to the term as used in standard ISO property policies. It includes airborne shock waves, ash, dust, and lava flow. However, it does not include clean-up costs of ash or dust if there hasn't been any direct physical loss to covered property. Dirt from a volcanic eruption is not included in this peril unless the dirt causes direct physical loss to covered property. Specified perils and volcanic action have been revised in the 2004 forms for clarity purposes.

Property Covered