ISO Market Segments Program

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 treatment provides information on the restaurants coverage form, MS RS 01 05 07. 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 pages: see CGL Coverage Form—Coverage A; see CGL Coverage Form—Coverage B; see Medical Payments; see General Provisions of the CGL; see Building and Personal Property Coverage Form; and see 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, the restaurant endorsement, modifies the CGL form, the commercial property 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. These endorsements are discussed later in this treatment.

Changes to the Commercial Property Form

The commercial property 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 adds $5,000 for fire department service charge, and provides additional coverage (up to $15,000) under fire extinguisher systems expense. Like the CP 00 10, it pays the cost of recharging such systems if they are discharged on the premises. The MS RS 01 also pays for damage done by such a discharge to covered property – something not covered by the CP 00 10. However, the restaurant 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, etc.

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.  

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.

$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 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 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.

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 restaurant 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 coverage extension, as well:

1$5,000 for personal effects of others ($2,500 in the CP 00 10).

2.$10,000 on premises and $5,000 off-premises for valuable papers and records. 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; water damage.

3.Property off premises is extended to cover computers for up to ninety days.

4.$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 (but not more than $500 for any one tree, shrub or plant).

5.$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.

Changes to the Causes of Loss— Special Form

Since the MS RS 01 gives coverage for ordinance or law, utility services, and mechanical breakdown of computers, the endorsement removes these exclusions from the CP 10 30. It also adds the following exclusions that apply only to computers:

1.Errors and omissions in the processing of data. It does give back coverage for direct loss from fire or explosion.

2.Electrical disturbance, but the endorsement does specify that damage caused by lightning is covered.

3.Computer-related losses, which includes “failure, malfunction, or inadequacy” of hardware, software, operating systems, networks, chips, etc.

4.Computer advice or consultation. Any efforts to test for or repair computer-related losses described above are also not covered.

Changes to the CGL Form

The MS RS 01 adds two liability coverage agreements: delivery errors and omissions and merchandise withdrawal expenses. Delivery E&O covers the insured in the event that the insured or any employee fails to deliver an item or misdelivers such item. The policy agrees to pay any damages the insured is obligated to pay as a result of such misdelivery. Also insured for this coverage is any concessionaire who is trading under the insured's name. 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.

Three exclusions apply to the delivery E&O coverage:

1.Intentional error or misdelivery.

2.BI, PD, or PI. (Indicates that the only damages the coverage responds to are economic damages.)

3.Discrimination.     

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 product must be withdrawn because it has a known or suspected defect. Or, it must be withdrawn because it has already caused (or is expected to cause) injury or damage. 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. But 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 known defect.

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 definition of insured for liability is changed, as well. The restaurant form gives insured status to someone if the liability arises out of that person's financial control of the insured or premises the insured leases from that person.

The endorsement goes on to detail 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.

Definitions

The MS RS 01 adds the following definitions:

1.Computer: programmable electronic equipment that the insured uses to store, process, or retrieve 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: operated by others whom insured depends on to deliver materials or services to you, or to others for your account, to accept your products or services, manufacture products for delivery to your customers under contract of sale or to attract customers to your business. This does not include properties delivering water supply services, power supply services or communication supply services.

5.Employee: includes persons furnished temporarily to the named insured to substitute for a permanent employee or to meet seasonal demand. Also includes any person leased to the insured under a written agreement between the insured and a labor leasing firm, to perform duties related to insured's business. The definition of employee also includes former employees, partners, managers, etc. retained on consultant basis, as well as interns and students of the business. Further, employee also includes managers, directors, etc. performing acts within the scope of the usual duties of an employee or while acting as member of an elected committee. The definition of employee does not include agents or brokers.

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: a director for an LLC.

8.Member: an owner of an LLC represented by its membership.

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

10.Merchandise withdrawal: recall of items held for sale by the insured. The recall must be due to a known or suspected defect. If the withdrawal is due to product tampering, the definition of “merchandise withdrawal” is limited to just those products which the insured knows (or suspects) have been tampered with.

11.Merchandise withdrawal expenses include the following eight items:

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, non-salaried employees.

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.

h. Costs of proper disposal of the insured's products or products containing insured's products that can not be used.

12.Money: currency, coins and bank notes in current use and having face value, as well as travelers checks, register checks and money orders.

13.Occurrence: As respects several coverages under the endorsement (including money and securities and forgery or alteration), means either an individual act, the combined total of all separate acts whether or not related or a series of acts whether or not related.

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

15.Other property: 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: a period of time that begins 72 hours after the time of direct physical loss or damage for business income coverage or immediately after the time of direct physical loss or damage for extra expense coverage caused by or resulting from any covered cause of loss at the described premises.

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

18.Profit: as respects merchandise withdrawal expenses coverage, means the positive gain from business operation after subtracting all expenses.

19.Securities: includes tokens, stamps, redeemed lottery tickets, evidences of debt, etc. but does not include money.

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: as respects employee dishonesty coverage, means the unlawful taking of property to the deprivation of the insured's customer.

Endorsements

The restaurant program offers the insured the opportunity to purchase three endorsements: mechanical breakdown, hired auto and non-owned auto liability, and loss or damage to customers' autos – legal liability.

Mechanical Breakdown: Endorsement MS RS 02 11 02 is available for boilers and pressure vessels, as well as for air conditioning/refrigerating units 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 CP 10 30 10 12—Special Causes of Loss form, do not apply to this endorsement.

Hired Auto and Non-Owned Auto Liability: Under 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. Non-owned auto liability applies to bodily injury or property damage arising out of the use of a non-owned 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 non-owned 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. Non-owned 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.”

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.”