August 2002
American Association of Insurance Services
Summary: The American Association of Insurance Services (AAIS) has developed a contractors and developers form (DOP) that adapts a commercial output style policy to the needs of developers, contractors, or builders who work on commercial, industrial, residential, or institutional structures. The advantage to this approach is that the chance for gaps in coverage is decreased.
Following is an overview of the program and eligibility.
Topics covered: Overview Eligibility Program highlights Construction and insuring agreement Definitions Property covered Computers Property in the course of construction Mobile equipment Property not covered Additional coverages Supplemental coverages Perils covered Perils excluded Other exclusions Exclusions applying to computers Additional property not covered or subject to limitations Other building property and business personal property coverages What must be done in case of loss Valuation and how much we pay Loss payment Other conditions Endorsements
|Overview
The contractors and developers output program (DOP) is designed for contractors, builders, and developers who work on residential, commercial, institutional, or industrial buildings or structures. The program offers four categories of coverage:
1.Scheduled or blanket commercial property coverage for buildings and business personal property (including property in the course of construction);
2.Time element coverage options;
3.Inland marine coverages for mobile equipment, scaffolding, forms, etc.; and
4.Supplemental coverages.
The policy covers on an open perils basis. The insured may choose to combine the DOP coverage part with optional coverages, such as income and extra expense coverage, and coverage for soft costs. Soft costs arise out of a delay in construction that results from a covered peril. Such costs include, for example, overtime, additional realty taxes, and additional interest on money borrowed to finance the project.
The optional coverage parts are:
1.Contractors and developers output program—income coverage part (DOP-205);
2.Contractors and developers output program—extra expense coverage part (DOP 206); and
3.Contractors and developers output program—soft costs and rental income coverage part (DOP-211).
As with the commercial output program the common policy conditions must be attached to the policy. See Common Policy Conditions.
Coverage may be written for individuals, partnerships, or corporations. A separate division of an organization may also be written, if the division and organization would each be eligible for the DOP. In addition, the division and the organization must be physically separated and maintain separate accounting records.
Eligible operations include:
1.Industrial;
2.Institutional;
3.Commercial; and
4.Habitational or residential contractors, builders, or developers.
Other eligible classes include mill wrights and miners. Operations associated with mill wrights and miners are also eligible. Such operations include: related transportation, rigging, warehousing, and drilling. Organizations whose principal business is agriculture are not eligible. As always, if there is a question as to eligibility, the insurer should be contacted.
As noted, the DOP features—in one package—coverages commonly needed by the contractor or builder. The policy covers building property, business personal property, computers, property in the course of construction, mobile equipment, and various additional and supplemental coverages. The contractors and developers output program (DOP) may be issued as a monoline policy, or may be packaged with other coverage forms such as crime, auto, and general liability.
As a monoline, the DOP-100 contractors and developers output program—property coverage part is combined with the declarations page, the common policy conditions (CL-100), and any state amendatory endorsements or other DOP endorsements. When written as part of a package, the DOP-100 is combined either with the common policy conditions or provisions in other forms that relate to cancellation, changes or modifications, assignment or transfer of rights or duties, inspections, and examination of books and records. State amendatory endorsements, and any other desired coverages, are attached.
A distinct feature of the DOP is that coverage for flood and earthquake may be added by endorsement. Also, the DOP includes supplementary coverages for expediting expenses, employee tools, and rental reimbursement.
The policy may be written for either a one- or three-year term. The minimum deductible is $250; however, the policy can be issued so that deductible amounts vary by covered peril or by types of property, locations and job sites covered.
The DOP-100 form is constructed somewhat differently from the Insurance Services Office (ISO) forms. The definitions are followed by property covered. Then comes property not covered, followed by additional coverages and supplemental coverages. The exclusions follow; followed in turn by still other property coverages. When determining whether or not coverage applies to a loss, one must be careful to review the entire policy.
In the insuring agreement, the insurer provides the coverage as described if the insured pays the premium. The declarations, since they may show any additional endorsements, become an important part of the policy.
The definitions reflect much of the coverage provided in the DOP—computer breakdown; sinkhole collapse; fine arts; mobile equipment; and valuable papers and records, for example. Note that “covered locations” means any location or premises where the insured has building property or business personal property. So, for example, if the insured has business personal property temporarily stored while working on a construction site, the storage location becomes a covered location. Blanket coverage applies when a limit is shown on the declarations; however, locations and job sites may be scheduled by endorsement.
The definition of mobile equipment encompasses virtually all equipment (other than, say, pickup trucks that carry small tools) that a contractor or builder might use. The equipment may be of a mobile or movable nature—so that cranes that must be mounted on a flatbed truck are covered, as are self-propelled cranes. Presumably, if the flatbed is designed and used primarily to move a crane it is covered by this definition as well. Front-end loaders, bulldozers, and any other equipment designed for use on public highways but not operated on public roads are covered. For example, an insured may have a dump truck used strictly on the insured premises, or a trailer set up as an office. These items would be covered as mobile equipment.
There is coverage for sinkhole collapse, as evidenced by the definition. The coverage does not include the cost of filling the sinkhole, or the value of the land if, for example, the insured is forced to relocate.
The definition of pollutant is similar to that found in the Insurance Services Office (ISO) forms, but with a difference. The AAIS form includes within the definition any electromagnetic or sound emission.
This is the first of the basic coverage parts of the DOP. Included within the definition of “buildings and structures” are:
1.The buildings themselves including any additions thereto;
2.Fixtures and equipment that are a permanent part of the building;
3.Outdoor fixtures;
4.Personal property that is used to service a covered building;
5.Building glass, awnings, canopies, or fences within 1,000 feet of a covered building; and
6.Signs, whether or not attached to covered buildings or structures.
Although the DOP is comparable to the ISO building and personal property coverage form (CP 00 10 04 02) with the builders risk coverage form (CP 00 20 04 02) attached, there are significant differences. These differences reflect the nature of the AAIS program, which combines commercial with inland marine coverages. The ISO CP 00 10 contemplates the commercial exposure having a substantial fixed base of operations.
The DOP, on the other hand, recognizes that, for the builder, contractor, or developer, the bulk of the exposure is at the building site. For example, note that the DOP does not limit coverage for signs that are not attached to buildings, as does the CP 00 10, to a maximum of $1,000. The contractor or builder does not usually have a large, ornate, and, in many cases, glass, sign (or signs) on the insured premises, but does have signs (usually wood, not glass) that can be affixed to a particular construction project. The ISO form covers unattached signs on a named peril basis; the AAIS form covers them on an open perils basis.
The DOP provides an unrestricted amount of building glass coverage, for breakage from the perils of the policy. Again, this reflects the nature of the insured risk. Most contractors and builders do not have elaborate buildings with considerable glass; the glass exposure will be in the building under construction.
The DOP covers awnings or canopies and fences that are on or within 1,000 feet of a covered building or structure. By contrast, the ISO CP 00 10 does not geographically limit coverage, but covers on a named perils basis as opposed to the AAIS open perils. However, the limit for fences within 1,000 feet of an insured building or structure might prove troubling if the insured maintains a large yard for equipment. Since the cost of much large construction mobile equipment is extremely high, most owners protect their investment with, at the least, a chain-link fence. Care should be taken that proper coverage is provided.
The coverage provided for business personal property applies at covered locations. A covered location may encompass the insured premises, as well as the job site(s) where the insured is working. Coverage extends to within 1,000 feet of covered locations, so that business personal property located, say, in a near-by pickup truck is covered.
The DOP also covers the insured's use interest in improvements or betterments to a building that the insured rents or leases. Leased personal property, other than mobile equipment, for which the insured has a contractual responsibility to insure, is covered. The insured's interest in the personal property of others, to the extent to which it includes the insured's material, labor, or services, is covered.
An interesting coverage is for personal property of others that has been sold under an installation agreement, but the insured's responsibility continues until the buyer has accepted the property. So, for example, the insured contractor could be installing electric ovens in a new restaurant, but until the new owner takes possession of the premises, the insured is responsible for insuring them. Note, however, that mobile equipment of others is not included in the coverage grant. Coverage for mobile equipment that is leased or rented to the insured may be added by endorsement.
The DOP covers computer hardware and software for open perils. This coverage is extremely broad. Computers are exempt from the exclusion of coverage for loss resulting from off-premises power or utility service (although not from the exclusion for electrical or power disturbance).
This coverage grant reinforces the intent of the DOP to cover the property used in construction or installation by building contractors or related organizations. This portion of the form is closer to inland marine coverage than to standard commercial property. For example, it provides coverage for scaffolding or construction forms when the scaffolding or forms are at a building or structure under construction, alteration, or repair. (If this property is located at a covered location it is considered business personal property.) Materials and supplies which will become a permanent part of the building, structure, or permanent fixture or foundation are covered. Materials, equipment, and supplies used for and located on or within 1,000 feet of buildings under construction, alteration, or repair are covered.
The DOP does cover a temporary structure—the contractor's on-site office, perhaps—used for and located on or within 1,000 of the building under construction, repair, or alteration.
A contractor engaged in a construction project that is not a building, should be made aware of the possible coverage limitations. For example, a contractor may be engaged in constructing a large public plaza, which is a structure, but not a building. Coverage would not appear to apply. Since there are two references to structures, coverage for any project not a building appears ambiguous. However, perhaps the most reasonable approach is to view the intent of the entire policy, which is to provide coverage for such undertakings.
There is coverage for installation projects, including materials, supplies, fixtures, machinery, and equipment on or within 1,000 feet of the installation, fabrication, or erection project.
Note the broad coverage for materials, equipment, and supplies at temporary storage areas. This property need not be located at a covered job site, but must be intended to become a part of the building(s) under construction or the installation project. So, for example, the insured might have bricks and lumber stored near to, but not at, the covered job site. So long as the bricks and lumber are intended to become part of the building under construction, they are covered.
Since contractors and developers must move their mobile equipment to job sites in order to carry out their operations, the DOP covers this equipment at any location, on an open perils basis. It is important to remember that the mobile equipment must be owned by the named insured. If the insured rents or leases mobile equipment from others, or if the insured rents or leases mobile equipment to others, then coverage must be arranged by endorsement to the policy through endorsement DOP-203 or DOP-202.
The exclusions reflect the intent to provide coverage in accordance with the contractor's, developers, or builder's needs. In many instances, coverage is best provided through other means. For example, there is no coverage for automobiles, since the business auto form is the proper means to insure this exposure. However, mobile equipment, which includes self-propelled vehicles designed and used primarily to carry mounted equipment, is covered.
Although land and water (both underground and surface) are not covered, the cost of excavations, grading, or filling for buildings under construction is covered.
There is no coverage for money and securities, although coverage for this property may be added by means of endorsement DOP-232.
It is not uncommon for contractors and builders to lease mobile equipment, since the investment in ownership is often prohibitive. It is important to be aware that, if this is the situation, then the appropriate endorsement must be added. If the insured leases or rents equipment from another, then endorsement DOP-203 must be attached. If the insured leases or rents equipment to another, then endorsement DOP-202 must be attached. It is also important to be aware that borrowed mobile equipment is not covered.
An interesting exclusion is for property more specifically insured. Coverage for such property is excluded; however, the DOP will respond on an excess basis if the amount of coverage on the specifically insured property is inadequate.
Although coverage for property sold and delivered is excluded, this does not apply to property sold under an installation agreement. For example, if the insured has contracted to build a cafeteria addition to a school, and part of the contract calls for the insured to install appliances, the appliances are considered to be insured property until the cafeteria is finally accepted by the school even though the school may have paid for the equipment.
There is an exclusion of coverage for towers and antennas; however, the supplemental coverages allow for up to $10,000 for loss to such property. This coverage is discussed later.
Although the additional coverages appear similar to those of the ISO commercial form CP 00 10 with CP 00 20 attached, there are significant differences in keeping with the nature of the property insured under the AAIS DOP-100.
The coverage for emergency removal—in which covered property must be moved to protect it from loss caused by a covered peril—applies only for ten days, and then will only protect against a peril not excluded. (The ISO form provides up to thirty days” coverage and covers any direct physical loss.) However, since much of what might need to be moved is the builder's or contractors mobile equipment, and since the form provides open perils coverage with coverage for flood and earthquake available by endorsement, this may not present a problem.
Coverage in the amount of up to $10,000 is available on an annual aggregate basis for clean-up of pollutants arising out of a covered peril at a covered site or location. The expenses are paid only if reported to the insurer within 180 days from the date the covered peril occurs. (Likewise, debris removal expenses are paid only if the insurer is notified within 180 days from the date of direct physical loss to covered property.)
Since building or construction sites left unattended can present a particular hazard, the DOP-100 provides up to $2,500 as a reward for information leading to a conviction for arson.
A broad grant of coverage is for up to $100,000 or 10 percent of the limit shown on the declarations, whichever is less, for underground foundations, boilers, machinery, piers, wharves, docks, retaining walls, etc. Remember that such property is excluded in the ISO CP 00 10, although the builders risk CP 00 20 covers foundations. Again, remember that the purpose of the DOP is to provide the broad range of inland marine coverages required by the builder or contractor. There is a significant property exposure in construction projects, whereas the buildings actually owned by the builder or contractor may be but a small percentage of the total exposure.
The DOP provides up to $50,000 to cover expenses incurred as a result of loss or damage by a covered cause of loss to accounts receivable. Since many contractors and builders operate on a narrow margin, often financing the on-going operation with income received on that operation, a loss could cause serious problems. This coverage provides a remedy. Note that coverage also applies at covered locations, so that a loss at a covered site is covered just as a loss at the insured's office is.
The contract penalty coverage approximates a surety bond, in that it responds to failure to fulfill a contract. However, the failure to fulfill the contract must result from a covered cause of loss. Certain exclusions apply, such as earth movement (unless this coverage has been added by endorsement).
It is common for skilled workers to own their own tools. If a covered peril damages these tools, the DOP responds to the loss. Again, certain exclusions apply. There is no coverage, for example, for loss to the tools caused by war or by mechanical breakdown.
If the builder or contractor is in the midst of construction, and a covered peril causes damage or destruction to the building under construction, then this coverage responds to loss resulting from enforcement of any ordinance or law. Of particular importance is the coverage for demolition and clearing of the site. It is common that, if a building is more than 50 percent damaged, it must be demolished. Note, however, that if the building under construction is repaired or replaced, then the lesser of the amount actually spent to demolish, repair, or replace, or $50,000 will be paid. If the covered building is not repaired or replaced, then the lesser of the amount actually spent to demolish and clear the site plus the cost to repair or replace with other property of like kind and quality, or $50,000 will be paid.
Certain exclusions apply; among these is the exclusion for loss resulting from negligent design, specifications, construction, workmanship, or planning. Therefore, a developer or builder must be sure plans are in accordance with all pertinent codes in force at the time the plans are approved by the local government, since this coverage will not respond to loss resulting from enforcement of ordinance or law the insured should have known about but failed to follow.
As was the case with the coverage for property in the course of construction, the language in this supplemental provision could prove troublesome. If a builder is constructing, say, concrete bleachers for a stadium, and a covered loss occurs, enforcement of ordinance or law may require demolition. Yet, the coverage refers to buildings under construction. Only later in the coverage provision does the word structure appear. However, since the overall intent of the policy appears to cover buildings or structures, this may not be a problem.
The insured may elect increased ordinance or law coverage through the additional coverages endorsement DOP-200. There is also a time coverage endorsement, DOP-236, that may be used for any increase in time required to repair or replace because of enforcement of any ordinance or law.
There is no coverage for ordinance or law governing the testing for or clean up of pollutants; however, as noted earlier, if a covered loss occurs, there is up to $10,000 available for the expense to extract pollutants from land or water.
If a covered loss renders covered equipment inoperable, the policy pays to rent similar equipment for the insured. The coverage is subject to a seventy-two hour time deductible. If a covered loss destroys the insured's supply of spare parts and fuel, there is coverage to replace the property. Both coverages are limited to a maximum of $10,000.
While business personal property, or property that will become a permanent part of the building or structure under construction, or property that will become a permanent part of an installation project is in transit, up to $50,000 applies if this property is damaged because of a covered cause of loss. Coverage applies on a per occurrence basis.
Up to $50,000 is available for the cost to research and restore information on valuable papers and records. Note that the coverage applies while such property is at a covered location. Therefore, if loss or damage to such property occurs while it is in, for example, an accountant's office away from the insured premises, there is no coverage.
The DOP covers loss to mobile equipment while waterborne for up to $10,000. Under Property Not Covered, airborne or waterborne property is excluded from coverage unless the property is being transported by regularly scheduled airlines or ferry service. Presumably, therefore, this supplemental coverage may be triggered if the insured is engaged in a project involving construction over water, such as a shore-side restaurant, and a covered loss occurs to the mobile equipment.
The open perils coverage of the DOP is similar to the ISO causes of loss special form (CP 10 30), except that the AAIS DOP applies specifically to external risks of direct physical loss. Possibly the inclusion of this wording is to prevent coverage for loss associated with computer program failure, such as Y2K, or other inherent property weakness.
The DOP contains exclusions, which apply to all covered property and are prefaced by the concurrent causation language, which is intended to preclude coverage when a loss is caused by more than one peril, one an insured cause of loss and the other excluded. For more information on the concurrent causation doctrine, see Concurrent Causation. The exclusions are similar to those found in the ISO causes of loss—special form CP 10 30 04 02. Note, though, that in keeping with the intent of the DOP-100 to provide inland marine coverage, covered computers, property in transit, and mobile equipment are exempt from these exclusions.
Also, the DOP-100 provides coverage for loss resulting from sinkhole collapse, and so this cause of loss is excepted in the excluded peril of earth movement. Note as well that the AAIS form includes mudslide and mudflow within the earth movement exclusion, and not within the water exclusion, as does the ISO form. Coverage for earthquake and flood may be purchased.
The second set of exclusions is not preceded by the concurrent causation language, and therefore some resulting losses, as noted in the exclusions themselves, are covered. For example, loss caused by animals is excluded, but if a loss caused by a specified peril results, that loss is covered. So, for example, if mice chew through insulation on wiring and a fire results, the fire loss is covered.
Many of the exclusions do not apply to computers or to loss caused by computer breakdown. The exclusion of loss caused by deterioration or contamination does not apply to computer breakdown, which is defined as “mechanical breakdown or malfunction, component failure, faulty installation, or blowout.” Had the exception to the exclusion not been included, computer breakdown could have fallen under the exclusion as “deterioration… or weakness in covered property.” Note also that if malfunction of air conditioning equipment that services the insured's computers occurs with the result that the computers are damaged by mold, mildew, or rust, etc., this loss is covered. Similarly, if a covered cause of loss causes the air conditioning system that services the insured's computers to malfunction, a resulting loss to the computers is covered. The exclusion for change in temperature or humidity will not apply in this instance. Thus, the DOP provides computers with broad inland marine coverage.
The next set of exclusions applies specifically to building property and business personal property, with some exceptions noted within certain exclusions. Coverage for collapse is excluded, except as provided under the Other Building Property and Business Personal Property Coverages, which follow the exclusions. (Preceding the exclusions are the property coverages, additional coverages, and supplemental coverages.) Therefore, the form needs to be read carefully before determining what is covered and what is excluded.
The exclusion for loss resulting from arcing or electrical current other than lightning must be remembered in regards to computers. For, although the exclusion of loss caused by utility failure away from covered locations excepts computers, the exclusion for loss caused by electrical current (1.c.) does not. And, as will be discussed in the exclusions applying to computers, loss resulting from electrical and power supply failure is excluded.
As is common with commercial property policies, there is no coverage for loss caused by explosion of steam boilers, pipes, turbines, or engines that the insured owns, leases, or controls. However, if fire or combustion explosion results, or if gas or fuel explodes in a firebox, combustion chamber, or flue, that loss is covered. Coverage for steam boilers requires more specialized forms.
Finally, if weather conditions contribute to a loss excluded in paragraph 1. under All Covered Property, such as flood, then the ensuing loss is excluded. So, for example, if torrential rains cause flooding with the result that covered property is damaged, the loss is excluded. The insured cannot argue that rain, and not flood, was the cause of the loss and therefore it should be covered. However, if weather conditions are such that thunderstorms produce lightning and covered property is damaged by the lightning, that loss is covered.
The DOP provides supplemental coverage for testing, and additional coverage for hot testing of furnaces may be purchased; however, by means of exclusions, coverage for steam boilers is eliminated. In other words, if the insured is installing an elevator, and in the course of testing the elevator it falls and is damaged, that damage is covered. If the insured installs a boiler, and in the course of testing it the boiler ruptures, there is no coverage.
If one or more of the final set of exclusions cause loss or damage, that loss or damage is not covered. However, if loss by a covered peril results, that loss is covered. For example, if a defect in material used to construct a building results in a collapse during construction, the collapse loss is covered under Other Building Property and Business Personal Property Coverages. But if the defective material results in the prospective owner requiring the defective material be removed and replaced with other material, that requirement is not a covered cause of loss, and is not covered.
The exclusions for error in materials and workmanship, and settlement, cracks, and shrinkage, do not apply to property in transit or to mobile equipment.
As noted earlier, although computers are exempt from the off-premises utility failure exclusion, two of the above exclusions preclude coverage for loss caused by electrical disturbance or power supply disturbance. “Electrical disturbance” means electrical or magnetic damage, disturbance of electronic recordings, or erasure of electronic recordings.” Power supply disturbance means interruption of power supply, power surge, or blackout. If these disturbances are caused by an event occurring more than 500 feet from any premises where computers are located, a resulting loss is not covered.
Although obviously the insurer will not wish to pay for a loss to computers if the terms of the insured's lease or rental agreement do not require such payment, it is unusual for a form to make reference to the “terms” of another contract, as exclusion 1.b. does.
Although computers are exempt from the off-premises utility failure exclusion, two of the above exclusions preclude coverage for loss caused by electrical disturbance or power supply disturbance.
Many of the DOP exclusions are common to commercial property forms. However, the DOP modifies or amends many of them so that coverage applies to equipment, materials, or supplies the insured might use in the insured business. For example: the policy does not cover missing property when the only proof of loss is mysterious disappearance, but that exclusion does not apply to property in the custody of a hired carrier. Another exclusion removes coverage for loss to personal property in the open damaged by rain, snow, ice, or sleet. Similarly, that exclusion does not apply to mobile equipment or to property in the custody of a hired carrier.
Similar to the exclusion of coverage for loss caused by fraudulent taking of property is the exclusion of coverage for transfer of business personal property to a place away from covered locations on the basis of unauthorized instructions. If a worker tells a driver delivering copper piping to drop the piping at the worker's home rather than the job site, and later the piping is found to be missing, the piping is not covered unless the worker was authorized to specify the delivery to his home.
An interesting limitation of coverage is $10,000 for any one occurrence for loss by theft of precious or semi-precious stones or precious metals. The comparable ISO commercial property special causes of loss (CP 10 30) limits such property to $2,500. Presumably a builder or developer might have decorative items of silver in a model being shown; this provision would provide some coverage.
The DOP contains two additional coverages that are similar to those found in the ISO CP 10 30 – collapse and tearing out and replacing; however, the coverage for collapse differs. The ISO form provides coverage for collapse after construction, remodeling, or renovation is complete if the collapse is caused in part by one of the enumerated causes of loss. The AAIS form does not make this exception. By way of contrast, however, the AAIS form does not contain outdoor radio or television antennas and lead-in wires in the list of property not covered unless the direct cause of loss is collapse of a building or structure. Note: the ISO form states that damage to such property as outdoor swimming pools, retaining walls, outdoor fixtures, etc., is covered only when directly caused by collapse of a “building insured under this coverage form; and the property is covered property under this coverage form.” The AAIS form, on the other hand, does not require that such property be damaged by a covered building or structure.
Gutters and downspouts are covered under this provision only if damaged by collapse of a building or structure. In the previous section the exclusion for damage resulting from weight of ice, sleet, or snow applied only to gutters and downspouts as building property. Therefore, gutters and downspouts as business personal property (as supplies used in construction) appear to be covered for damage by weight of ice, snow, or sleet. Note, however, that this exclusion in the coverage for collapse renders the intent ambiguous.
The other coverage provided in this section is tearing out and replacing. It requires payment for the tearing out and replacing of any part of the building or structure in order to get and repair a loss caused by water, other liquids, powder, molten material.
This section outlines the duties of the insured following a loss. Though these are fairly common to many commercial property forms, there are some differences. For example, although the form does not specifically address credit card coverage (as, say, the homeowners forms do), the insured must nonetheless notify the credit card company if a loss involves a credit card.
The insured must take reasonable steps to protect covered property at and after an insured loss to avoid further loss. Although the prudent insured would, of course take steps to avoid damage to covered property, the form appears to make the insured responsible at the time of a loss for determining whether the loss is, in fact, covered. It is not always easy to determine whether or not a loss is covered at the time it is occurring.
Although other commercial forms require the insured to keep adequate records to document a loss, the AAIS form requires tax returns and bank microfilms of all canceled checks that may relate to the loss.
The insured must not voluntarily make any payments or offer any rewards, but remember that one of the additional coverages is payment of up to $2,500 for a reward leading to an arson conviction. The insured, however, must not of his or her own volition make such payment.
The valuation condition details how a covered loss will be settled. The insured may choose replacement cost for covered property, such as the insured's own office building, by indicating this coverage on the declarations. Buildings under construction, however, are adjusted on a replacement cost basis whether or not replacement cost coverage is indicated. Installation projects are settled on the lesser of the actual cost to repair or replace, or the amount actually spent to repair or replace the damage property. The DOP covers fine arts at market value.
The provisions labeled “How Much We Pay” detail amounts to be paid in event of a covered loss. Reference must be made to the valuation provisions.
Here the DOP details the insurer's options in settling a covered loss. The insurer may elect to: pay the value of the loss; pay the cost to repair or replace the damaged property; rebuild, repair or replace the property with property of like kind and quality to the extent practicable; or take all or part of the property at the agreed or appraised value.
The final section of the DOP contains conditions in addition to those found in the common policy conditions, CL-100. The conditions govern the appraisal process, if an appraisal to determine the amount of a loss is necessary, and describe how a mortgagee's interest in covered property will be protected in the event the policy is canceled. The rights of the deceased insured pass to a legal representative, but only with respect to the insured property.
If the insured or the insurer recovers lost or damaged property, there are provisions for the return of the property. Following a covered loss, all limits of the policy are restored.
As is common with builders risk forms, coverage ceases on buildings or structures under construction, or on installation projects, when the first of the following occurs: 1) the building is accepted by the purchaser; 2) the building has been completed for more than ninety days; 3) the policy expires or is canceled; 4) the insured's interest in the building ceases; or 4) the insured abandons construction.
It is important to note that, if construction is suspended for any reason, covered losses may be subject to a reduction in payment. The unoccupancy period that triggers this reduction is the greater of sixty consecutive days, or the usual or incidental unoccupancy period for the covered location.
AAIS offers many different endorsements that may be used to modify coverage under the DOP.
Additional Coverages Endorsement—DOP 200. With this endorsement, the insured may purchase the following additional coverages:
1.Recharge of Fire Protection Equipment – provides money to recharge such equipment if it is discharged as the result of a covered peril.
2.Ordinance or Law, Building Property – this is an additional amount of coverage over that provided in the policy. It has three components:
a.Enforcement of law: a law in force at the time of the loss that requires the undamaged portion to be demolished or that regulates the construction or repair of the damaged structure.
b.Increased cost of construction: the added cost of rebuilding a damaged structure, due to the enforcement of building or zoning codes.
c.Cost to demolish and clear: the added cost of demolishing the undamaged portion of the building.
The repairs must be made within two years of the date of loss and the policy does not pay under this coverage until the repairs are actually made. The policy pays the lesser of the property's ACV or the amount the insured spends to rebuild or demolish.
3.Fine Arts—a schedule of fine arts coverage at covered locations.
4.Property on Exhibition—covers such property at a location the insured does not regularly occupy.
5.Sales Representative Samples—covers such items while in the custody of the named insured or the named insured's sales representative; and while in transit between covered locations and the sales representatives.
6.Brands or Labels Expense—covers the insured's expense to remove or relabel personal property that the insurer takes at the agreed or appraised value. If the insurer is going to re-sell the property, the insured will probably want the buying public to know that the property is “salvage.” This coverage provides money so that the insured may label such property as salvage; or so that the insured may remove its labels from the property.
7.Inventory and Appraisals Expenses—covers the insured's expense to take inventory, if the insurer so requests.
8.Trees, Shrubs, and Plants—provides an additional amount of coverage for these items. These items are covered for loss from the following perils:
a.fire;
b.lightning;
c.explosion;
d.riot or civil commotion;
e.falling objects.
9.Consequential Loss—pays when covered property becomes “unmarketable. . . due to a physical loss to another part or parts of the product.”
10.Personal Effects—covers property of the insured, partners, and employees.
Schedule of Additional Coverages—DOP 201. This endorsement is used with the DOP 200 to show the limit of liability applying to each of the above coverages.
Equipment Leased or Rented to Others—DOP 202. The DOP does not cover mobile equipment that the insured loans. leases, or rents to others. With this endorsement, the policy only excludes such equipment that the insured loans to others. The endorsement is subject to a per item and per occurrence limit of liability. This endorsement is necessary for an equipment leasing firm.
Equipment Leased or Rented from Others—DOP 203. The DOP also does not cover mobile equipment that the insured borrows, leases, or rents from someone else. The endorsement is subject to a per item and per occurrence limit of liability. This endorsement provides coverage for borrowed equipment.
Supplemental Limits Endorsement—DOP 204. With this endorsement, the limits on eleven of the twelve supplemental coverages may be increased. The only coverage not subject to increase is testing.
Scheduled Equipment Endorsement—DOP 207. The DOP only covers the insured's mobile equipment owned as of the inception date. There is no provision for newly acquired mobile equipment. This endorsement provides such coverage, limited to the ACV of the new equipment or 25 percent of the current amount, whichever is less. The endorsement provides the coverage for the shorter of the following: the expiration of the policy; sixty days from purchase; or when the insured reports the new equipment.
Additional Equipment Exclusions Schedule—DOP 209; and Additional Equipment Exclusions Endorsement—DOP 210. For a rate credit, the insured may choose to exclude the following perils from coverage on mobile equipment:
1.Puncture, blowout, or road damage to tires. However, the endorsement does cover such damage to tires if caused by one of the “specified perils.” The specified perils are:
a.aircraft;
b.civil commotion;
c.explosion;
d.falling objects;
e.fire;
f.hail;
g.leakage from fire extinguishing equipment;
h.lightning;
i.riot;
j.sinkhole collapse;
k.smoke;
l.sonic boom;
m.vandalism;
n.weight of ice, snow, or sleet; and
o.windstorm.
2.Weight of load.
3.Sinking.
4.Collapse of Bridge or Culvert.
5.Earth movement or volcanic eruption.
6.Flood.
The insured may also choose not to cover the following property: underground mining operations and booms.
Reporting Schedule (DOP 214) and Reporting Conditions (DOP 213). The insured may choose a reporting form basis for premium payments. He may choose to make monthly, quarterly, or annual reports with premium adjustments being made at the same intervals. The insured may choose to report values on the following types of covered property:
1.Business personal property.
2.All covered property.
3.Sales or gross receipts.
4.Buildings under construction.
5.Installation projects (receipts).
6.Other (to be specified).
Loss Payable Options—DOP 215. This endorsement offers three different types of loss payee arrangements:
1.Loss payable – the loss is payable to the named insured and any loss payee shown.
2.Lender's loss payable – this clause functions very much like a mortgagee clause in a homeowners policy. Even if the insured does something that voids the contract, the policy is still in force for the loss payee's interest. If the insurer chooses to cancel or nonrenew the policy, it agrees to give notice to both the named insured and the loss payee.
3.Contract of sale – if the insured has entered into a contract to sell some or all of the covered property, this clause protects both the named insured and the person buying the property.
Covered Locations Endorsement—DOP 217. This endorsement limits coverage to locations named in the schedule. It provides up to $250,000 for a newly acquired building and $250,000 for newly acquired business personal property.
Testing Coverage Endorsement—DOP 218. The DOP provides $10,000 coverage for loss caused by testing of items that are to become a permanent part of an installation project. This endorsement broadens that coverage. It provides coverage for “cold testing” (dry-run conditions); “hot testing” (load or operational conditions); and “commissioning” (the establishment of specification requirements or the training of personnel). The coverage is good only for the number of days specified. The insured must maintain any described protective safeguards. If those safeguards are not maintained, the insurer has no obligation to pay.
Rehabilitation Exclusion Endorsement—DOP 220. With this endorsement, the insurer no longer covers buildings or structures that are being renovated, restored, or rehabilitated.
Occupancy and Use Endorsement—DOP 221. This endorsement voids coverage for any building that is occupied or put to its intended use, without the permission of the insurer.
Flood Endorsement—DOP 224. The insured may purchase flood coverage via this endorsement. It also provides coverage for water that backs up through sewers or drains and water below the surface of the ground. The endorsement is subject to three different limits of liability:
1.Occurrence limit— the amount applicable in any one occurrence at each location or job site.
2.Aggregate limit—the amount applicable to all losses at each location or job site during the policy period.
3.Catastrophe limit—the amount applicable to all losses at all locations and job sites during the policy period.
Flood Schedule—DOP 223. This endorsement lists locations and covered property subject to flood coverage under form DOP 224. It contains both an occurrence schedule and an aggregate schedule.
Earthquake Endorsement—DOP 225. The insured may purchase earthquake coverage via this endorsement. No coverage is provided for masonry veneer, if the exterior of the structure is more than 10 percent masonry veneer.
Vehicle Coverage Endorsement—DOP 228. With this endorsement, the insured may purchase direct damage coverage for vehicles, including automobiles, motor trucks, tractors, trailers, and what the endorsement describes as “similar conveyances.” Loss to these vehicles is payable on an ACV basis.
Schedule of Vehicles—COP 224. This endorsement lists the vehicles covered by the DOP 228.
Protective Devices Endorsement—COP 238. The insured is required to maintain any protective safeguards shown on the declarations. The insurer will not pay for a loss if the insured does not maintain those safeguards.
Agreed Amount Endorsement—COP 254.
Off-Premises Computer Coverage—COP 257. This endorsement sets a limit for computers that are away from the premises or in transit.
Sewer Back Up and Water Below the Surface—COP 259. For an additional premium, this endorsement provides these coverages.
Multiple Deductible, Scheduled Perils—COP 234. Often an insured may wish different deductibles for various perils. This endorsement shows those deductibles.
Power, Heat, and Refrigeration Exclusion—DOP 229. With this endorsement, business income coverage does not contemplate the cost of these items that are consumed during production.
Automatic Increase—DOP 230. The limit of liability is increased by a percentage indicated on the declarations.
Money and Securities—DOP 232. The DOP provides no coverage for money and securities. With this endorsement, the insured may purchase coverage for such items that he owns or for which he is legally responsible. The items must be inside a building the insured owns or inside any bank. If they are outside of such buildings, the endorsement only covers them while in the possession of: the named insured; his partners, officers, or directors; or his employees. The endorsement also covers money and securities while being conveyed by an armored car. Money and securities are covered for the perils of theft, disappearance, or destruction.
Employee Dishonesty Coverage—DOP 233. For an additional premium, the covered property (including money and securities) may be covered for loss that results from dishonest acts committed by the insured's employees.
The endorsement says that a dishonest act is one committed “with the apparent intent to cause [the named insured] to sustain loss or damage.” The act must also be committed for the “financial benefit” of the person doing it. In other words, if an employee vandalized some of the employer's equipment, that damage would not be covered by this endorsement, because the employee received no financial benefit from the act.
The endorsement adds two important coverages. The first extends the coverage territory to anywhere the dishonest employee may be while committing the act. This extension is good for ninety days.
The second additional coverage is for prior employee dishonesty. If this endorsement replaces prior dishonesty coverage, then it covers dishonesty committed during the previous policy, but only discovered during the current term.
While the endorsement contains the usual exclusions of civil authority, nuclear hazard, and war, it also excludes five other items, unique to this exposure.
1.Inventory shortage—there is no coverage if the only proof available is an inventory or a profit and loss comparison.
2.Discovery of dishonest act—once the employer becomes aware of an employee's dishonest acts, there is no longer any coverage for dishonest acts by that employee.
3.Act by you or your partners—the endorsement does not cover dishonest acts committed by the named insured or any partners.
4.Legal expenses—are not covered.
5.Discovery after the policy period—losses are payable only when discovered within one year of the end of the policy period.
The endorsement values money at face value and securities at their actual cash value on the day the loss was discovered.
The endorsement adds two conditions under “how much we pay.” The first applies the employee dishonesty deductible to any loss. The second limits payment to the amount determined under the valuation provision. It also says that even if the loss continues over several policy periods, the limit of insurance applies only one time. Finally, the named insured must keep records of the covered property so that any loss may be verified.
Equipment Schedule on File Endorsement—DOP 208. This endorsement limits coverage for mobile equipment to that which is on schedule with the insurer. It does provide a 60-day extension for new equipment.
Increased Restoration Period—Ordinance or Law—DOP 236. When a business income loss occurs, the insured may need a longer period of restoration in order to meet new building codes. This endorsement may be purchased to provide such added time.
The endorsement revises the definition of “period of restoration” to include the extra time needed to meet the requirements of the new building code. Note that such a law must be in force at the time of the loss. The endorsement does not cover any extended time needed for testing, evaluating, monitoring, etc. of pollutants.
This premium content is locked for FC&S Coverage Interpretation Subscribers
Enjoy unlimited access to the trusted solution for successful interpretation and analyses of complex insurance policies.
- Quality content from industry experts with over 60 years insurance experience, combined
- Customizable alerts of changes in relevant policies and trends
- Search and navigate Q&As to find answers to your specific questions
- Filter by article, discussion, analysis and more to find the exact information you’re looking for
- Continually updated to bring you the latest reports, trending topics, and coverage analysis
Already have an account? Sign In Now
For enterprise-wide or corporate access, please contact our Sales Department at 1-800-543-0874 or email [email protected]