Apartment Building Owners
May 5, 2014
ISO Market Segments Program
Summary: The 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.
This article provides information on the apartment building owners coverage form, MS AB 01 07 13. This endorsement modifies the CGL forms, CG 00 01 04 13 and CG 00 02 04 13; the building and personal property coverage form, CP 00 10 10 12 and the cause of loss—special form CP 10 30 10 12.
Topics covered:
Introduction
MS AB 01 07 13 is an endorsement that modifies the CGL forms, the commercial property form, and the causes of loss—special form; the provisions of these forms apply to the risk except as otherwise provided in MS AB 01 07 13. This endorsement enhances the coverages provided by the standard forms by offering additional property coverages, some crime coverages, and other coverages particularly associated with apartment building risks; examples of this latter item are tenant move back expenses and tenants property legal liability, both of which will be discussed later in this article.
The limits of insurance offered by MS AB 01 07 13 are base limits that can be increased through the use of a supplemental schedule, MS AB DS 07 13. There are also other coverages offered under this program—equipment breakdown protection coverage, legal liability for tenants' autos, and fine arts coverage—which will be more fully discussed later.
The building and personal property coverage form offers up to $1,000 for the insured's liability for fire department service charges assumed by contract or required by local ordinance. MS AB 01 07 13 increases this amount to $5,000.
The property form also offers (at most) $10,000 for the expenses to clean up and remove pollutants from land or water at the described premises. MS AB 01 08 05 increases this limit to $25,000.
There are eleven coverages that this endorsement adds to the additional coverages section of the commercial property form.
Money and Securities. The insurer will pay for loss of money and securities used in the named insured's business while at a bank or savings institution, within the living quarters of the named insured or employees, at the described premises, or in transit between any of these places. The coverage is for loss due to theft, disappearance, or destruction. The exclusions for this coverage are as follows: loss resulting from accounting or arithmetical errors; loss due to the giving or surrendering of property in any exchange or purchase; or loss of property contained in any money-operated device. As an example of this last exclusion, if the insured has coin-operated laundry facilities on the premises, and someone breaks into the soap dispensing device and steals the money, MS AB 01 07 13 does not offer coverage for this loss of money.
The most that will be paid under this additional coverage for loss in any one occurrence is $25,000 (unless a different limit is shown in the declarations) for money and securities while in or on the described premises or within a bank. The most that will be paid for loss at any other location is $10,000. So, for example, if the insured has collected the monthly rents from his tenants and places the payments in his desk at his living quarters, the most MS AB 01 07 13 will pay if the rents are stolen is $10,000.
Fire Extinguisher Systems Expense. This endorsement will pay the cost of recharging or replacing (whichever is less) the named insured's fire extinguishers and fire extinguishing systems if they are discharged on or within 100 feet of the described premises. If an accidental discharge of chemicals from a fire extinguisher or extinguishing system damages covered property, that loss or damage is also covered. The most that will be paid is $10,000 in any one occurrence, and no deductible applies.
Reward Payment. This coverage provides reimbursement to the named insured of up to $5,000 for rewards paid. The rewards are paid to eligible persons for the following: providing information leading to the arrest and conviction of any person committing a crime resulting in loss to covered property from a covered cause of loss; and for the return of stolen covered property when the loss is caused by theft. However, there are many restrictions to this coverage.
No reward will be reimbursed unless and until the person committing the crime is convicted or the covered property is returned. Despite the $5,000 figure noted, the insurer will pay no more than the lesser of the actual cash value of the covered property at the time of loss, or the amount determined by the loss settlement procedure described in the loss payment condition of this endorsement. And, for a person to be considered an eligible person, he has to meet the definition as noted in the endorsement. An eligible person cannot be the following: the named insured or any family member; an employee of the named insured; an employee of a law enforcement agency; an employee of a business engaged in property protection; any person who had custody of the covered property at the time a theft was committed; or any person involved in the crime.
Money Orders and Counterfeit Money. If a tenant pays the rent with counterfeit money or a money order that is not honored upon presentation, MS AB 01 07 13 will pay for the loss the insured suffers from having accepted those items in good faith. The most that the insurer will pay for any loss in any one occurrence is $5,000, unless a different limit is shown in the declarations page.
Forgery or Alteration. The insurer promises to pay for loss resulting directly from forgery (a defined term) or alteration of checks, drafts, promissory notes, or similar written promises to pay a sum certain in money. As an example, if a manager of the apartment building forges the signature of the owner of the building, or if an accountant alters the amount of a check that is to be drawn against the apartment building, and the building owner loses money due to the fraud, the insurer will pay for the loss. The most to be paid in any one occurrence is $2,500; this amount includes legal expenses that may be incurred due to the occurrence. Of course, this amount can be altered by putting a different amount on the declarations page for this particular coverage.
If the insured is sued for refusing to pay any instrument (like a check or promissory note) on the basis that it has been forged or altered, and the insured gets the written consent of the insurer to defend against the lawsuit, the insurer agrees to pay any reasonable legal expenses.
Outdoor Signs. The insurer will pay for direct physical loss of or damage to all outdoor signs at the described premises. The signs have to be owned by the named insured or, at least, in his care, custody, or control. The most that will be paid here is $5,000 in any one occurrence.
Employee Dishonesty. This additional coverage applies to direct loss or damage to the named insured's property and money and loss or damage to tenants' property.
The insurer agrees to pay for loss or damage to the business personal property, the money, and the securities of the named insured resulting from dishonest acts committed by any employee. The employee has to have the manifest intent to cause the named insured to sustain loss or damage, and must obtain financial benefit from the action in order for this coverage to apply.
As for tenants' property, MS AB 01 07 13 will pay for loss or damage to money, securities, and other property sustained by a tenant resulting directly from a theft committed by an identified employee. This part of the employee dishonesty coverage is a bit different than the coverage afforded for loss or damage to the named insured's property. This part of the coverage speaks only of theft and not dishonest acts. The employee has to be identified. And, the property has to be in a covered building at the premises described in the declarations. Furthermore, this coverage is for the benefit of the named insured only. It provides no rights or benefits to any other person or organization, including the tenant.
The most that will be paid for this coverage is $10,000 in any one occurrence, unless a different limit is shown for employee dishonesty coverage in the declarations. The coverage applies to loss or damage the named insured sustains through acts committed or events occurring during the policy period; no limit of insurance cumulates from year to year or policy period to policy period. The insurer will pay only for covered loss or damage discovered no later than one year from the end of the policy period.
Artificially Generated Electrical Current. This endorsement will pay for loss or damage to computers due to artificially generated electrical current if such loss or damage is caused by or results from the following: an occurrence that took place within 1,000 feet of the described premises; or an interruption of electric power supply, power surge, blackout, or brownout, if the cause of such an occurrence took place within 1,000 feet of the described premises.
The payment of a loss in this event is described on the endorsement as follows: if such loss or damage exceeds in any one occurrence the applicable deductible shown in the declarations, the insurer will pay the amount of loss or damage in excess of the deductible, up to the applicable limit of insurance for the equipment.
Lock Replacement. The insurer will pay for the cost to repair or replace locks at the described premises due to theft or other loss to keys. The most that will be paid here is $5,000 in any one occurrence, with a per occurrence deductible of $100.
Ordinance or Law—Equipment Coverage. If a covered cause of loss occurs to equipment that is covered property, the insurer will pay the costs to repair or replace the equipment as required by law. For example, if a covered cause of loss occurs to air conditioning equipment, the insurer will pay for the cost to reclaim the refrigerant as required by law, the cost to retrofit the equipment to use a non-CFC refrigerant as required by the Clean Air Act of 1990, and the increased cost to recharge the system with a non-CFC refrigerant. The terms of this coverage apply separately to each piece of covered equipment. Also note that the coinsurance condition does not apply to this coverage.
Tenant Move Back Expenses. The insurer will pay for expenses that the named insured incurs to move the tenants back to the described premises from a temporary location in the event that the tenants had to temporarily vacate the covered building due to untenantability. This vacating of the premises must be due to a direct physical loss or damage to the covered property caused by a covered cause of loss. For example, if a fire damages the insured apartment building and the tenants have to leave temporarily, this coverage will pay for the insured's expenses in moving the tenants back to the restored apartment building.
What this coverage applies to is the following: expenses for packing, transporting, and unpacking of tenants' property; and the net cost to reestablish the tenants' utility and telephone services. The expenses have to be incurred within sixty days of the date that the damaged building has been repaired or rebuilt. And, the most that the insurer will pay in any one occurrence at each described premises is $15,000. So, the payment made is on a per occurrence basis and not per tenant.
MS AB 01 07 13 makes several changes to the coverage extensions section of CP 00 10 10 12.
Newly Acquired or Constructed Property. The change here is to the period of coverage for newly acquired or constructed property. MS AB 01 declares that coverage will end when any of the following first occurs: the policy expires; thirty days expire after the named insured acquires the property or begins construction; or with respect to computers, when specific insurance at the newly acquired premises is obtained; or when the named insured reports values to the insurer. The insurer will charge the insured additional premium for values reported from the date the named insured acquires the property, or begins construction of that part of the building that would qualify as covered property.
Personal Effects and Property of Others. This coverage extension offers up to $5,000 in any one occurrence for loss or damage to personal effects owned by the named insured and to personal property of others (except tenants) in the care, custody, or control of the named insured. This extension of coverage does not apply to loss or damage caused by theft.
Valuable Papers and Records. When it comes to valuable papers and records (other than electronic data), MS AB 01 extends coverage to such papers and records that the named insured owns, or that are in the named insured's care, custody, or control. Coverage is for loss caused by or resulting from a covered cause of loss, and the coverage includes the cost to research lost information on valuable papers and records for which duplicates do not exist. The most that the insurer will pay for this coverage extension is $10,000 in any one occurrence at each described premises, or $5,000 for valuable papers and records not at a described premises. This extension does not apply to property held as samples or for delivery after sale, or to property in storage away from the premises shown in the declarations.
Property Off-Premises. The named insured may extend coverage to covered property while it is away from the described premises under certain conditions. The property must be temporarily at a location the named insured does not own, lease, or operate; the property must be in storage at a location leased by the named insured; or the property must be at a fair, trade show, or exhibition. This extension also applies to computers while in the course of transit (although not to other property in transit). The most the insurer will pay for loss or damage under this extension in any one occurrence is $10,000.
Outdoor Property. MS AB 01 will pay for loss or damage to fences and retaining walls that are not a part of a building; the most that will be paid in any one occurrence is $10,000. The endorsement will pay for loss or damage to outdoor radio, TV, satellite, or other antennas; the most to be paid for this extension is $5,000 in any one occurrence. Covered also are trees, shrubs, and plants other than stock; the most paid here is $10,000 for any one occurrence, but not more than $500 for any one tree, shrub, or plant. This coverage for outdoor property applies only for the following covered caused of loss: fire, lightning, explosion, riot or civil commotion, or aircraft.
Accounts Receivable. The insurer will pay up to $10,000 for loss or damage to the named insured's records of accounts receivable in any one occurrence at each described premises. The amount paid is up to $1,500 for accounts receivable not at a described premises. This coverage extension applies to: all amounts due from the named insured's tenants that cannot be collected; interest charges on any loan required to offset amounts that are not able to be collected; collection expenses in excess of the normal collection expenses made necessary by loss or damage; and other reasonable expenses that the named insured incurs to reestablish the records of accounts receivable.
Endorsement MS AB 01 modifies the causes of loss—special form, CP 10 30 10 12, in many ways.
Through the use of MS AB 01, the mechanical breakdown exclusion in the causes of loss form does not apply to loss or damage to computers.
The paragraphs pertaining to personal property in the exclusions section of the causes of loss form are changed by MS AB 01. These paragraphs now state that the insurer will not pay for loss or damage to personal property caused by dampness or dryness of atmosphere or changes in or extremes of temperature, unless such conditions result from a covered cause of loss to an air conditioning unit that is used with or is a part of computers. Also there is no coverage for loss or damage caused by marring or scratching.
MS AB 01 also adds some exclusions to the causes of loss form, but these apply only to coverage for computers. There is no coverage for loss or damage caused directly or indirectly by any of the following: errors or omissions; electrical disturbance; computer-related losses; computer advice or consultation. The coverage is deleted for loss or damage due to errors or omissions in processing, recording or storing electronic data on computers. Loss cause by electrical or magnetic injury or an erasure is not covered. And, the failure, malfunction, or inadequacy of computer hardware, software, or any other computerized components is not covered.
Another change is that the exclusions section in the causes of loss form does not apply to the coverages for employee dishonesty, outdoor signs, valuable papers and records, and accounts receivable that MS AB 01 provides. However, the endorsement's coverage does not apply to loss or damage cause by or resulting from alteration, falsification, concealment, or destruction of records of accounts receivable that is done to conceal the wrongful giving, taking, or withholding of money, securities, or other property. Also not covered are losses due to bookkeeping or accounting errors, or a loss that requires any audit of records or any inventory computation to prove its factual existence.
There are several coverages added to the CGL form through the use of MS AB 01 07 13.
The first added coverage is tenants property legal liability. The insurer agrees to pay those sums the insured becomes legally obligated to pay as damages because of property damage to a tenant's property. This coverage applies while the property is inside the tenant's leased unit, apartment, or storage in the covered building described in the declarations. So, if the insured apartment building owner is somehow held responsible for the tenant's property stored in a storage bin being burned or stolen, then this coverage will pay the damages for which the insured is liable. There is a $250 deductible here, so the damage to the tenant's property has to exceed $250 before this coverage applies. The most the insurer will pay for the sum of all damages in any one occurrence here is $10,000; this amount applies separately to each premises described in the declarations.
There are some exclusions that pertain to this particular coverage. The insurance does not apply to property damage to any land motor vehicle, trailer, or semi-trailer. It does not apply to property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. It does not apply to liability arising out of intentional property damage or dishonest or criminal acts by the insured. And, it does not apply to liability arising out of the named insured's sale and disposal operations (which is a defined term that will be discussed later).
However, MS AB 01 then offers sale and disposal liability coverage under a separate insuring agreement. The insurer agrees to pay those sums the insured becomes legally obligated to pay as damages because of acts or omissions arising out of a lock-out (a defined term), or the sale, removal, or disposal of tenants' property in the course of sale and disposal operations. The coverage is excluded for liability for damages which the insured assumes in a contract, and for liability arising out of the dishonest or criminal acts of the insured. The most the insurer will pay under this insuring agreement is $5,000 in any annual period starting with the beginning of the policy period shown in the declarations. This limit applies separately to each premises described in the declarations.
The final added coverage is for heating or air conditioning loss reimbursement. Here, the insurer agrees to reimburse the insured for payments made voluntarily or because of a demand for a per diem remuneration of rent from a tenant as a result of the complete loss of heat or air conditioning to a leased unit or apartment. There has to be a complete loss of heat or air conditioning and it must be due to mechanical breakdown or electrical failure at the described premises. Furthermore, the named insured has to receive a notarized notification of a demand for a per diem remuneration of rent from a tenant within ninety days after the breakdown or failure. This insurance does not apply to expenses for repair or replacement of the heating or air conditioning system, and it does not apply to bodily injury, property damage, or personal and advertising injury. The most that will be reimbursed to the insured is $5,000 as the result of any one mechanical breakdown or electrical failure, and $10,000 in any annual period.
There are thirteen definitions listed on MS AB 01 07 13.
Computer. A computer is defined as the named insured's programmable electronic equipment that is used to store, retrieve, and process electronic data. A computer includes component parts and dedicated air conditioning, fire suppression equipment, and electrical equipment used exclusively in the named insured's computer operations. It also includes associated peripheral equipment that provides communication, including input and output functions. However, a computer does not include electronic data and media.
Counterfeit Money. This means an imitation of money that is intended to deceive and to be taken as genuine.
Employee. This term is defined with respect to coverage provided under the money and securities and employee dishonesty clauses. An employee is any natural person while in the service of the named insured (or for thirty days after termination), who the named insured compensates directly by salary or wages or commission, and who the named insured has the right to direct and control while performing services for the named insured. An employee also includes any natural person who is furnished temporarily to the named insured to substitute for a permanent employee who is on leave, or to meet seasonal or short term work load conditions. An employee does not include any agent, broker, person leased to the named insured by a labor leasing firm, or independent contractor. Any manager, director, or trustee is not an employee except while performing acts coming within the scope of the usual duties of an employee.
Forgery. Forgery is the signing of the name of another person or organization with intent to deceive. It does not mean a signature that consists in whole or in part of one's own name signed with or without authority, in any capacity, or for any purpose.
Lock-out. A lock-out is denying a tenant access to the tenant's property or the occupancy of an apartment the tenant is renting, leasing, or otherwise occupying. The definition does not list any reasons for a lock-out, such as not paying the rent or otherwise breaking the lease agreement; it is just keeping the tenant out of his space or away from his own property.
Manager. This term is defined with respect to employee dishonesty coverage only and means a person serving in a directorial capacity for a limited liability company.
Member. As respects the coverage provided under section I of MS AB 01 for employee dishonesty only, a member is an owner of a limited liability company represented by its membership interest who may also serve as a manager.
Money. Money is currency, coins, and bank notes in current use and having a face value, and travelers checks and money orders held for sale to the public.
Occurrence. This is a defined term only as respects the following coverages: money and securities; money orders and counterfeit money; forgery or alteration; and employee dishonesty. For money and securities, an occurrence is all loss caused by one or more persons and involving a single act or series of related acts. For money orders and counterfeit money, an occurrence is an act or series of related acts involving one or more persons. For forgery or alteration, occurrence means all loss caused by any person or in which that person is involved, whether the loss involves one or more instruments. And for employee dishonesty, an occurrence is all loss caused by, or involving one or more employees, whether the result of a single act or series of acts.
Sale and Disposal Operations. This is all activities that the named insured conducts to reclaim an apartment or storage space when a tenant's rent is delinquent or unpaid. Such activities would include a lock-out of the tenant or the sale or disposal of a tenant's property.
Securities. Securities are negotiable and nonnegotiable instruments or contracts representing either money or other property. The term includes tokens, tickets, revenue and other stamps in current use, and evidences of debt issued in connection with credit or charge cards. The term does not include money.
Tenant. A tenant is anyone who is lawfully residing in a leased unit or apartment of a covered building. A person is lawfully residing if he is in compliance with the terms of a written lease with the named insured, and if he is a permanent resident of a unit or apartment during the term of the lease.
Tenants' Property. This is money, securities, and other tangible property having intrinsic value that belongs to the tenants of the named insured.
There are several endorsements to the apartment building owners market segments program to discuss.
The apartment building owners supplemental schedule, MS AB DS 07 13, can be used in conjunction with the declarations pages of the commercial property form and the CGL form. The supplemental schedule allows the insured to list his covered premises and then a chosen limit of insurance for the following coverages: money and securities; money orders and counterfeit money; forgery or alteration; outdoor signs; employee dishonesty; valuable papers and records; and accounts receivable. This schedule allows the insured to choose limits that differ from the ones that MS AB 01 offers in its standard provisions.
The supplemental schedule also allows the insured to schedule specified deductibles and waiting periods for the equipment breakdown protection coverage and specified limits of liability and deductibles for the legal liability coverage for the autos of tenants. The insured can also list specific premises for the fine arts coverage in this supplement.
MS AB 02 08 05, the equipment breakdown protection coverage endorsement pertains to coverage akin to boiler and machinery losses. This form has the insurer paying for direct loss of or damage to covered property at the premises described in the declarations caused by or resulting from a mechanical breakdown or electrical failure to pressure, mechanical, or electrical machinery and equipment. MS AB 02 08 05 deletes the following exclusions that appear on the causes of loss—special form: the artificially generated electrical current exclusion; the mechanical breakdown exclusion; and the exclusion relating to explosion of steam boilers, pipes, engines, or turbines owned by or leased to the named insured.
Under this equipment breakdown coverage endorsement, the insurer declares that it will not pay for loss or damage in any one occurrence until the amount of loss exceeds the deductible shown in the declarations. Also, if business income coverage is provided to the insured, the insured has a waiting period during which the insurer will not pay for any business income loss that occurs. This waiting period can be the standard seventy-two hours, or the insured can choose different time periods and list the chosen waiting period hours on the supplemental schedule.
MS AB 02 08 05 also lists some events that are not considered mechanical breakdown or electrical failure. These are: malfunction; leakage at any valve, fitting, or joint; damage to any vacuum tube, gas tube, or brush; and the functioning of any safety or protective device. And, whenever an object is found to be in, or exposed to, a dangerous condition, any of the insurer's representatives may immediately suspend the insurance against loss offered by this endorsement. If is done by delivering or mailing a written notice of suspension to the named insured. If the insurance is suspended, the named insured gets a pro rata refund of the premium charged to the insured.
MS AB 03 08 05 provides legal liability coverage to the named insured for loss or damage to tenants' autos. The insurer promises to pay all sums the named insured must pay as damages for direct physical loss of or damage to autos or auto equipment of tenants or other invitees, while the autos are at a premises shown in the declarations; this coverage includes resulting loss of use. The damage must be caused by a covered cause of loss, but does not apply to the following: liability resulting from any contractual obligations for damage to autos left in the care of the named insured; or loss or damage due to theft or conversion caused in any way by the named insured or any other insured. The duty to defend is also part of this coverage.
The insured is also provided coverage for fine arts. MS AB 04 08 05 declares that the insurer will pay for direct loss of or damage to fine arts, whether owned by the named insured of in his care, custody, or control. Fine arts includes, but is not limited to, antiques, paintings, etchings, drawings, tapestries, sculptures, and fragile property (such as porcelains, china, and marble).
The most that will be paid for loss in any one occurrence is $25,000 at each described premises. And, the value of fine arts will be the least of the following amounts: the actual cash value of that property; the cost of reasonably restoring the property to its condition immediately before loss; or the cost of replacing the property with substantially identical property. In any event, the value of property will be determined as of the time of loss.
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