Summary: Insurance Services Office (ISO) has developed a market segments program providing specialized coverages for certain specialty insurance markets. This program offers wrap-around endorsements that are used to enhance the coverages provided by standard coverage forms like the commercial property and general liability forms.

Eligible risks for the restaurants segment run the gamut of eating establishments, including smaller coffee shops and delis to family-style restaurants to fine dining.

This article provides information on the Restaurants form, MS RS 01 07 13. The endorsement modifies the CGL forms, the Building and Personal Property Coverage form, and the Causes of Loss – Special form. These policies are analyzed in the following articles: CGL Coverage Form—Coverage A; CGL Coverage Form—Coverage B; Medical Payments; General Provisions of the CGL; Building and Personal Property Coverage Form; and Causes of Loss.

Topics covered: Introduction Changes to the commercial property form Changes to the causes of loss—special form Changes to the CGL form Definitions Endorsements

Introduction

Endorsement MS RS 01 07 13, the Restaurants endorsement, modifies the CGL form, the Building and Personal Property Coverage form, and the Causes of Loss – Special form. The modifications tailor these forms to the needs of the restaurant risk. The endorsement adds property and crime coverages and modifies the premium audit section of the CGL form. Endorsements are available to add mechanical breakdown coverage, hired and non-owned auto, and legal liability coverage for damage to customers' cars.

Changes to the Commercial Property Form

The Building and Personal Property Coverage Form, (CP 00 10 10 12), covers the building and business personal property of the insured and property of others that the insured has in his care.

The CP 00 10 also specifies several items as property not covered. One category of property not covered in the CP 00 10 is accounts, bills, deeds, evidences of debt, money, notes, and securities. The MS RS 01 adds an exception to that category by providing some money and securities coverage. The restaurant endorsement adds coverage for loss of money or securities used in the insured's business while at a bank, within the insured's or any of the insured's partner's or employee's living quarters, at the described premises or in transit between any of these places. The MS RS 01 emphasizes that the insurer will cover only theft, disappearance, or destruction of such property. The form specifies that the most the insurer will pay for all loss in any one occurrence is $25,000 unless a different limit of insurance for money and securities is shown in the declarations.

The MS RS 01 also provides an additional coverage (up to $15,000) for fire extinguisher systems expense, which pays the cost of recharging such systems if they are discharged in or on the building described in the declarations or within 100 feet of the building or within 100 feet of the premises described in the declarations, whichever distance is greater . The MS RS 01 also pays for damage done by such a discharge to covered property. However, the endorsement adds the caveat that no coverage applies if the discharge occurs while the system is being installed or tested.

A reward payment of up to $5,000 is insured for information that leads to the conviction of anyone damaging covered property and for the return of stolen covered property when the loss is caused by theft. The insurer will not pay more than the lesser of the actual cash value of the covered property at the time of loss or damage, but not more than the amount to repair or replace it, or the amount determined by the loss settlement procedure applicable to the covered property under the loss payment condition.

The restaurant endorsement adds additional coverage for money orders and counterfeit paper currency in the amount of $1,500, as well as $2,500 coverage for forgery or alteration of checks, drafts, promissory notes, or similar written promises, orders, or directions to pay a sum of money that are made or drawn upon the insured or made or drawn by one acting as the insured's agent.

The endorsement also adds $5,000 for damage to outdoor signs at the described premises owned by the insured or owned by others but in the insured's care, custody, or control.  

$25,000 is insured for employee dishonesty under MS RS 01. The insurer will pay for direct loss of or damage to the insured's business personal property, money, and securities resulting from dishonest acts committed by the insured's employees and for loss of or damage to money, securities, and other property sustained by the insured's customer resulting directly from theft committed by an employee.

The endorsement states that the insurer will also pay “reasonable costs” incurred by the insured to remove brands and labels from damaged merchandise.

MS RS 01 also adds that covered equipment will be repaired or replaced if subject to an ordinance or law, including the cost to reclaim refrigerant, the cost to retrofit equipment so that it can use the newer refrigerants, and the cost to recharge the system.

Also, the endorsement adds $5,000 for repair or replacement of locks, due to loss or theft of keys. A $100 per occurrence deductible applies.

MS RS 01 also provides $50,000 for spoilage of perishable stock. This coverage does not apply if the spoilage results from earth movement, governmental action, nuclear hazard, war and military action, water, the disconnection of any refrigerating, cooling or humidity control system from the source of power, the deactivation of electrical power caused by the manipulation of any switch or other device used to control.

The endorsement adds coverage for damage to computers caused by artificially generated electrical current, if such loss or damage is caused by or results from an occurrence that took place within 1,000 feet of the described premises or interruption of electric power supply, power surge, blackout, or brownout.

The endorsement provides business income coverage for the actual loss of business income due to suspension of operations caused by a covered cause of loss to property at the described premises. The previous edition of the form required that damage be to covered property. “Premises” includes the area within 100 feet of the building or within 100 feet of the premises described in the declarations, whichever distance is greater, with respect to damage or loss of personal property in the open or in a vehicle.

The endorsement also provides business income and extra expense coverage for twelve months following a loss and business income from dependent properties is insured up to $10,000. A dependent property is one upon whom the insured depends to do things like deliver supplies or services, accept the insured's products or services, or to attract customers to the insured's business.

Also added is $10,000 for business income, $10,000 for extra expense, and $5,000 for additional advertising expenses incurred as a result of food contamination.

The MS RS 01 provides the following changes and additions to coverage extensions:

1.Under the newly acquired or constructed property provision, the period of coverage provision is changed to add a section for computers—the coverage ends when specific insurance for computers is obtained at the newly acquired premises.

2.The limit is $5,000 for personal effects of others as opposed to $2,500 in the CP 00 10.

3.The property off-premises provision is extended to cover computers in transit.

4.The limit is $5,000 for outdoor property, including fences and retaining walls not part of a building; $15,000 for outdoor antennas; and $5,000 for trees, shrubs, and plants other than stock or that are part of a vegetated roof (but not more than $500 for any one tree, shrub or plant). The CP 00 10 limits are $1,000 and $250 per tree.

5.The limit is $5,000 for any one occurrence for accounts receivable at each described premises; $1,500 for any one occurrence for accounts receivable not at a described premises. The CP 00 10 does not contain a coverage extension for accounts receivable.

6.The limit is $10,000 for on-premises and $5,000 off-premises for valuable papers and records (other than electronic data). This coverage is limited to the specified perils, as defined on the CP 10 30 10 12: fire; lightning; explosion; windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire extinguishing equipment; sinkhole collapse; volcanic action; falling objects; weight of snow, ice,  or  sleet; and water damage.

Changes to the Causes of Loss—Special Form

The ordinance or law exclusion does not apply to the ordinance or law – equipment coverage additional coverage. The utility services exclusion does not apply the additional coverages for business income, business income from dependent properties, extra expense, or spoilage coverage. The mechanical breakdown exclusion does not apply to loss or damage to computers.

The following exclusions apply to loss to personal property: dampness or dryness of atmosphere, changes in or extremes of temperature (unless such loss results from physical damage caused by a covered cause of loss to an air conditioning unit or system, including parts and equipment, that is part of or used with a computer), or marring or scratching.

For computers only, the following exclusions apply: errors or omissions, electrical disturbance, computer-related losses, and computer advice or consultation.

For the employee dishonesty additional coverage, only the following exclusions apply: governmental action, nuclear hazard, and war and military action. The same exclusions apply to the outdoor signs additional coverage, as well as wear and tear, rust or other corrosion, decay, deterioration, hidden or latent defect or any quality that causes it to damage or destroy itself, and mechanical breakdown.

The valuable papers and records (other than electronic data) and the accounts receivable coverage extensions are subject only to the following exclusions and their accompanying exceptions and restrictions: governmental action; nuclear hazard; war and military action; computer-related losses; computer advice or consultation; continuous or repeated seepage or leakage of water over a period of fourteen days; water or other liquids that leak of flow from plumbing, heating, air conditioning, or other equipment caused by freezing; weather conditions; acts or decisions; faulty, inadequate, or defective planning, zoning, development, surveying, siting, design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction, materials used in repair, construction, renovation, or remodeling, or maintenance. The accounts receivable coverage extension also adds the following exclusions: loss or damage caused by or resulting from alteration, falsification, concealment, or destruction of records of accounts receivable done to conceal the wrongful giving, taking, or withholding of money, securities, or other property; loss or damage caused by or resulting from bookkeeping, accounting, or billing errors or omissions; and any loss or damage that requires an audit of records or an inventory computation to prove its existence.

The limitations section of the CP 00 10 is changed as follows: in regards to the breakage of chinaware, the limitation for payment for loss or damage to fragile articles does not apply; and, the special limit for furs, fur garments, and garments trimmed with fur is increased to $10,000—the limit is $2,500 on the CP 10 30.

For the additional coverage extension for property in transit, the limit is $10,000—the limit is $5,000 on the CP 10 30.

Changes to the CGL Form

The MS RS 01 adds two liability coverage agreements: services errors and omissions and merchandise withdrawal expenses. Services E&O covers the insured in the event that the insured, any employee, or any concessionaire trading under the insured's name fails in providing facilities, goods, or services, including failure to deliver or misdelivery of items the insured holds for sale. The agreement allows the insurer to investigate and settle any claim at its discretion. This coverage is subject to an annual aggregate limit of $10,000 and a per occurrence deductible of $250.

Four exclusions apply to the services E&O coverage:

1.   Intentional error or intentional failure to provide the service;

2.Intentional error or intentional misdelivery or failure to deliver your product;

2.   Bodily injury, property damage, or personal and advertising injury (indicates that the only damages the coverage responds to are economic damages);

3.Discrimination based on a customer's race, color, national origin, religion, gender, marital status, age, sexual orientation or preference, physical or mental condition, or residence location.

Sometimes a restaurant owner faces a merchandise withdrawal, such as the withdrawal of contaminated food. Even though there is no coverage for the actual merchandise that has to be withdrawn, the MS RS 01 does cover the insured's expenses that result from the withdrawal.

The withdrawal may be initiated either by the insured or by government order. This coverage has a per occurrence limit of $25,000 and a $250 deductible.

Merchandise withdrawal expense coverage is subject to the following exclusions:

1.Failure of the product to accomplish its intended purpose. This includes breach of warranty. However, the exclusion does not apply if the product has caused (or may cause) bodily injury.

2.Infringement of intellectual property rights.

3.If the product just transforms chemically. This exclusion does not apply in the event of an error in the manufacturing, design, processing, or transportation of the product nor if the product has been tampered with.

4.If the shelf-life of a product has been exceeded.

5.Withdrawal due to any defect known prior to the issue date of the coverage.

6.Recall expenses for any product that is otherwise excluded.

7.Recall expenses for any product that has been banned from the market by the government.

8.Any suit against the insured for withdrawal expense.

9.The costs of regaining goodwill, market share, revenue, or profit, or the costs of redesigning the product.

The endorsement details the insured's duties in the event of loss under either one of the added coverages. Both require the insured to notify the insurer, to record the names of witnesses, and to cooperate with and assist the insurer.

The definition of “who is an insured” for liability is changed, as well. The endorsement includes as insureds persons or organizations that franchise to the insured and persons or organizations with liability as a concessionaire trading under the insured's name and with the insured's permission.

Definitions

The MS RS 01 adds the following definitions:

1.Computer: programmable electronic equipment that the insured uses to store, process, or retrieve electronic data. It includes other equipment used with the computer but does not include data or media.

2.Counterfeit money: an imitation of money that is intended to deceive and to be taken as genuine.

3.Defect: defect, deficiency, or inadequacy that creates a dangerous condition.

4.Dependent property: property operated by others on whom the insured depends to deliver materials or services to the insured, or to others for the insured's account. This does not include properties delivering water supply services, power supply services, wastewater removal services, or communication supply services. Also included is property operated by other on whom the insured depends to accept its products or services, manufacture products for delivery to the insured's customers under contract of sale, or to attract customers to the insured's business. A road, bridge, tunnel, waterway, airfield, pipeline, or other similar area or structure is not included in this definition.

5.Employee: for money and securities and employee dishonesty coverage only, “employee” means any natural person while in the insured's service and for the first thirty days after termination of service unless termination is due to theft or any dishonest act. The employee must be compensated directly by the insured by salary, wages, or commissions, and the insured must have the right to direct and control the employee while he performs services for the insured. Temporary workers who substitute for permanent employees on leave or to meet seasonal or short-term workloads are also considered employees. Leased workers who work under a written contract between the insured and the leasing firm are also employees, as well as former employees who perform consulting services, interns, employees obtained in a merger prior to the coverage being issued, and managers, directors, or trustees while performing acts within the scope of an employee's usual duties or while acting on any committee to perform specific directorial acts on the insured's behalf. The following are not considered employees under this definition: agents, brokers, factors, commission merchants, consignees, independent contractors, or their representatives.

6.Forgery: signing the name of another person or organization with intent to deceive. It does not include signing one's own name with or without authority.

7.Manager: for employee dishonesty coverage only, is a director for a limited liability company.

8.Member: for employee dishonesty coverage only, is an owner of an LLC represented by its membership interest; may also serve as a manager.

9.Merchandise tampering: Intentional alteration of insured's product that has caused or is reasonably expected to cause bodily injury. When this is known, suspected, or threatened, merchandise withdrawal is limited to batches of the insured's product that are known or suspected to have been tampered with.

10.Merchandise withdrawal: recall or withdrawal of items held for sale by the insured from the market or from use by any other person or organization. The recall must be due to a known or suspected defect or product tampering that has caused or is reasonably expected to cause bodily injury.

11.Merchandise withdrawal expenses are the following reasonable and necessary extra expenses paid and directly related to merchandise withdrawal:

a.Costs of notification;

b.Costs of stationery, envelopes, production of announcements, and postage or facsimiles;

c.Costs of overtime paid to the insured's regular, nonsalaried employees, and costs incurred by employees, including transportation and accommodations;

d.Costs of computer time;

e.Costs of hiring independent contractors and other temporary employees;

f.Costs of transportation, shipping, or packaging;

g.Costs of warehouse or storage space; and

h.Costs of proper disposal of the insured's products or products containing insured's products that cannot be used. The costs cannot exceed the purchase price or cost to produce the products.

12.Money: currency, coins, and bank notes in current use and having face value, as well as travelers checks, register checks, and money orders held for sale to the public.

13.Occurrence: With regards to money and securities coverage and money orders and counterfeit money coverage, an occurrence is an individual act (also an event for money orders and counterfeit money coverage only), the combined total of all separate acts (or events) whether related or not, or a series of acts (or events) whether related or not, all committed by a person acting alone or in collusion with other persons, or not committed by any person, during the policy period, before such policy period, or both. The definition is the same for forgery or alteration coverage except that the occurrence may also involve one or more instruments. For employee dishonesty coverage, the acts must be committed by an employee, as opposed to the other coverages' requirement of a person.

14.Operations: insured's business activities occurring at the described premises.

15.Other property: for customers property under employee dishonesty coverage only, other property is tangible property other than money and securities that has intrinsic value but does not include any property specifically excluded under the policy.

16.Period of restoration: with regards to premises other than dependent property, is a period of time that begins seventy-two hours after the time of direct physical loss or damage for business income coverage, or immediately after the time of loss for extra expense coverage. The damage must be caused by or result from a covered cause of loss at the described premises. The period ends the earlier of the date when the property should be repaired, rebuilt, or replaced with reasonable speed and similar quality or the date when the business is resumed at a new permanent location. The period of restoration does not include any increased period required due to the enforcement of or compliance with any ordinance or law regulating the construction, use, repair, or requires the tearing down of the property or that requires testing, monitoring, cleanup, removal, containment, treatment, detoxification, or neutralization of pollutants. The expiration of the period of restoration does not cut the policy period short.

17.Perishable stock: stock that might suffer a loss if controlled conditions change.

18.Profit: with regards to merchandise withdrawal expenses coverage, means the positive gain from business operation after subtracting all expenses.

19.Securities: negotiable and nonnegotiable instruments or contracts representing money or other property. Securities include tokens, tickets, revenue, other stamps in current use, and evidences of debt issued in connection with credit or charge cards not issued by the insured.

20.Suspension: slowdown of cessation of the insured's business activities, or that a part or all of the described premises is rendered untenantable, if coverage for business income applies.

21.Theft: with regards to employee dishonesty coverage, means the unlawful taking of property to the deprivation of the insured's customer.

Endorsements

Restaurants – Mechanical Breakdown Coverage

The Restaurants – Mechanical Breakdown Coverage endorsement, MS RS 02 11 02, is available for boilers and pressure vessels, as well as for air conditioning/refrigerating units and piping with at least a 60,000 Btu capacity. The endorsement pays for direct damage to covered property caused by accident to an object on the insured's premises and owned by the insured or in the insured's care, custody, or control.

The mechanical breakdown endorsement defines accident as “a sudden and accidental breakdown of the Object or part of the Object. At the time the breakdown occurs, it must manifest itself by physical damage to the Object that necessitates repair or replacement.” The endorsement also lists several situations that are not accidents, such as wear and tear and the breakdown of various apparatuses.

An object includes a variety of boiler and pressure vessels and air conditioning and refrigerating units and piping. The endorsement also lists various apparatuses that are not considered an object under this form.

Coverage is not available for an accident to an object that is being tested, as well as for losses caused directly or indirectly by the failure, inadequacy, or malfunction of computer hardware, software, networks, microprocessors, or any other computerized or electronic equipment, due to the inability to correctly recognize, process, distinguish, interpret, or accept dates or times. Also excluded is loss or damage caused by advice, consultation, design, evaluation, inspection, repair, installation, maintenance, replacement, or supervision conducted by or for the insured to fix any problems with the computer-related equipment and accessories listed earlier in the paragraph. The exclusions apply regardless of any other cause or event that contributes to the loss. However, if excluded damage results in an accident to an object, damage caused by the accident to the object is covered. The cost to repair, replace, or modify the computer-related equipment and accessories listed earlier in the paragraph to correct deficiencies or change features is not covered.

Coverage may be suspended if an object is found to be in or exposed to a dangerous condition.

The exclusions for mechanical breakdown and explosion of steam pipes, steam boilers, steam engines, or steam turbines on the Causes of Loss – Special form, CP 10 30 10 12, do not apply to this endorsement.

Restaurants – Hired Auto and Non-Owned Auto Liability Insurance

Under the Restaurants – Hired Auto and Non-Owned Auto Liability Insurance endorsement, MS RS 03 03 07, hired auto liability applies to bodily injury or property damage arising out of the maintenance or use of a hired auto by the insured or its employees in the course of business. Nonowned auto liability applies to bodily injury or property damage arising out of the use of a nonowned auto by any person in the course of the insured's business.

Bodily injury or property damage for which the insured is obligated to pay damages due to assumption of liability in a contract or agreement is excluded, but not liability the insured would have assumed without the contract or agreement or if the liability was assumed in an insured contract. Bodily injury to an employee, arising out of and in the course of his employment or while performing business-related duties, and to the spouse, child, parent, or sibling of an employee as a consequence of the employee's employment or business-related duties, is not covered. The exclusion does not apply to liability the insured assumes under an insured contract or to bodily injury to domestic employees not entitled to workers compensation benefits.

Property damage to property owned or being transported by or rented or loaned to the insured or property in the insured's care, custody, and control is also excluded.

The following are insureds under the endorsement: the insured; any other person using a hired auto with the insured's permission; for non-owned autos, any partner or executive officer of the insured's only while the auto is being used in the insured's business; any other person or organization with respect to their liability because of the insured's acts or omissions under the endorsement's exclusions.

The following are not insureds under the endorsement: any person engaged in the employer's business with respect to bodily injury of a co-employee injured in the course of employment; any partner or executive officer with respect to his own auto or the auto of anyone in his household; any person employed in or engaged in performing duties related to an auto business other than an auto business operated by the insured; the owner or lessee of a hired auto, the owner of a non-owned auto or any agent or employee of such owner or lessee; or any person or organization with respect to the conduct of a past partnership, joint venture, or limited liability company that is not shown as a named insured in the declarations.

The most the endorsement pays for all damages resulting from one occurrence is the applicable limit of insurance, regardless of the number of hired or nonowned autos, insureds, premiums paid, claims made, or vehicles involved.

The insurance is excess over primary insurance for hired or nonowned autos.

Three definitions are added by this endorsement:

1. Auto business is “the business or occupation of selling, repairing, servicing, storing or parking 'autos.'”

2. Hired auto is “any 'auto' you lease, hire, rent or borrow. This does not include any 'auto' you lease, hire, rent or borrow from any of your 'employees', your partners or your 'executive officers', or members of their households.”

3. Nonowned auto is “any 'auto' you do not own, lease, hire, rent or borrow which is used in connection with your business. This includes 'autos' owned by your 'employees', your partners or your 'executive officers', or members of their households, but only while used in your business or your personal affairs.”

Restaurants – Loss or Damage to Customers' Autos (Legal Liability Coverage)

The Restaurants – Loss or Damage to Customers' Autos (Legal Liability Coverage) endorsement, MS RS 04 03 07, applies to loss or damage to customers' autos parked at the described premises. The form promises to pay for sums the insured must legally pay as damages for direct physical loss or damage to autos or auto equipment in the insured's care, custody, or control while attending to the autos on premises or temporarily away from the premises. Payment for loss or damage is for the account of the auto owner only.

The loss must be caused by a covered cause of loss, which is defined on the form as any cause of loss not excluded. The endorsement lists two exclusions: contractual obligations—liability resulting from any agreement by which the insured accepts responsibility for direct physical loss of or damage to autos left in the insured's care—and theft—loss or damage due to theft or conversion caused by any insured.

The insured has a right and duty to defend the insured against a suit asking for damages for which the insurance applies and within the policy limits.

Insureds under the form are the named insured and the named insured's partners, executive officers, and employees.

In addition to the limit of insurance, the form also pays for the insurer's expenses; the cost of bonds to release attachments; all reasonable expenses incurred by the insured—at the insurer's request—to assist in the investigation or defense of the claim or suit (up to $250 per day) due to time off work; costs taxed against the insured in a suit; prejudgment interest; and all interest on the full amount of any judgment that accrues after entry of the judgment and before the insurer pays, offers to pay, or deposits payment with the court.

The most the form pays for autos left in the insured's care, custody, or control is the limit of insurance, minus the deductible for loss or damage by collision, theft, or mischief or vandalism, regardless of the number of autos. The maximum deductible stated in the declarations is the most that will be deducted for any one event caused by theft or mischief or vandalism.

Under the endorsement, auto is “a land motor vehicle, trailer or semitrailer.”

Restaurants – Exclusion of Loss due to Virus or Bacteria

The Restaurants – Exclusion of Loss due to Virus or Bacteria endorsement, MS RS 08 07 13, modifies the commercial property coverage part of the Restaurants form. The endorsement excludes loss or damage caused by or resulting from any virus, bacterium, or other microorganism that induces or is capable of inducing physical distress, illness, or disease.

The endorsement does not apply to loss or damage caused by or resulting from fungus or wet or dry rot. It also does not apply to the provisions of the food contamination additional coverage.

The exclusion supersedes exclusions relating to pollutants. The exclusion removes reference to bacteria from the exclusion of fungus, wet or dry rot, and bacteria and the additional coverage for limited coverage for fungus, wet or dry rot, and bacteria.