Summary: Many businesses possessing valuable papers and records—such as blueprints, manuscripts, deeds, maps, historical documents, or everyday business records—avoid the financial consequences of physical loss to such items simply by maintaining duplicates at another location. Insureds who are able to do so may have little or no need for valuable papers and records insurance. Other insureds possess property or have operations of such a nature that they cannot make or maintain duplicates. For example, an original Thomas Jefferson letter is irreplaceable, and the existence of a photocopy at another location would not mitigate the loss. Or, an architect may at any given time have many thousands of dollars' worth of uncompleted drawings and sketches that have not yet been copied and stored elsewhere.

There are two methods of insuring valuable papers and records (other than money, securities, and most electronic data) under the commercial lines program of Insurance Services Office. The first method is to rely on the limited valuable papers and records coverage provided in the Building and Personal Property Coverage Form (or, in the case of a condominium unit owner, on the same coverage provided by the Condominium Commercial Unit Owners Coverage Form). The second method is to arrange coverage under the separate Valuable Papers and Records Coverage Form, CM 00 67 01 13. Although the first method is briefly noted here, the main thrust of this article is an examination of CM 00 67, with its coverage agreement, exclusions, and conditions. Updates have been made in the 2013 form and they are highlighted here.

Topics covered: General information Coverage Exclusions Limits of insurance Deductible Additional conditions Definitions

General Information

There are two aspects to valuable papers and records coverage under the building and personal property form (as well as the unit owners form). First, the cost of blanks and the cost of copying over duplicate records to the blanks are covered subject to the full limit of insurance on personal property, also subject to coinsurance requirements. In addition, there is an extension, not subject to coinsurance, that provides up to $2,500 (unless a higher limit is shown in the declarations) for the costs of reconstructing valuable papers or records of the insured for which there are no duplicates.

Although the coverage may be deemed adequate for a particular insured's needs as far as limits are concerned, there is the further consideration that even if the insured purchases the building and personal property form on an open perils basis (Causes of Loss—Special form), valuable papers and records are covered only for certain specified causes of loss: 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.

In contrast, the separate valuable papers and records coverage form, CM 00 67, uses the broader open perils approach of other inland marine forms and can be written for whatever limit of insurance is desired. Moreover, the inland marine form covers both property of the insured and property of others in the insured's care, custody, or control. Property may be insured on either a specific, scheduled basis or for a blanket amount, or both. Property that cannot be replaced with other property of like kind and quality—i.e., irreplaceable items like the Jefferson letter mentioned earlier—should either be insured specifically or not insured at all, since the form excludes such property unless insured specifically. The advisory declarations page contains spaces for indicating limits of insurance for scheduled items at the insured's premises, for all other property at the insured's premises (this is the blanket item), and for property away from the insured's premises.

The advisory declarations page includes a schedule for describing receptacles for which the insured has received a rate credit. These rate credits range from 10 to 40 percent, depending on the Underwriters Laboratories exposure rating for the container. Insureds sometimes willingly forgo a rate credit for a qualifying safe or vault because if the rate credit is allowed, the coverage form obligates the insured to keep all covered property in the receptacle whenever the insured is not open for business and while the insured is not actually using the property. This condition should be carefully explained to any insured eligible for the rate credit.

When the valuable papers and records coverage form is used for a library, the Libraries endorsement (CM 67 02 09 00), is attached to the policy. The endorsement excludes property while away from the insured's premises and in the care, custody, or control of a borrower or renter; loss resulting from failure of a borrower or renter to return property; vandalism or mutilation by anyone using the property within the insured's premises; unexplained disappearance; and loss that can be proven only by audit or inventory.

The Valuable Papers and Records Coverage form is issued (on a nonreporting basis only) in conjunction with the Commercial Inland Marine Conditions form and the Common Policy Conditions form. Complete rules and rating procedures for the coverage form are in the Inland Marine Division of the Commercial Lines Manual.

Coverage

We will pay for direct physical loss of or damage to Covered Property from any of the Covered Causes of Loss.

1.Covered Property, as used in this Coverage Form, means “valuable papers and records” that are your property or property of others in your care, custody or control.

2.Property Not Covered

Covered Property does not include:

a.Property not specifically declared and described in the Declarations if such property can not be replaced with other property of like kind and quality;

b.Property held as samples or for delivery after sale;

c.Property in storage away from the “premises” shown in the Declarations; or

d.Contraband, or property in the course of illegal transportation or trade.

3.Covered Causes Of Loss

Covered Causes of Loss means direct physical loss or damage to covered property except those causes of loss listed in the Exclusions.

4.Additional Coverage—Collapse

The coverage provided under this Additional Coverage – Collapse applies only to an abrupt collapse as described and limited in Paragraphs a. through c.

a.For the purpose of this Additional Coverage – Collapse, abrupt collapse means an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose.

b.We will pay for direct physical loss or damage to Covered Property, caused by abrupt

collapse of a building or any part of a building that contains Covered Property insured under this Coverage Form, if such collapse is caused by one or more of the following:

(1)Building decay that is hidden from view, unless the presence of such decay is known to an insured prior to collapse;

(2)Insect or vermin damage that is hidden from view, unless the presence of such damage is known to an insured prior to collapse;

(3)Use of defective material or methods in construction, remodeling, or renovation if the abrupt collapse occurs during the course of the construction, remodeling, or renovation.

(4)Use of defective material or methods in construction, remodeling, or renovation if the abrupt collapse occurs after the construction, remodeling or renovation is complete, but only if the collapse is caused in part by:

(a)A cause of loss listed in Paragraph (1) or (2);

(b)One or more of the following causes of loss: fire; lightning; windstorm; hail; explosion; smoke; aircraft; vehicles; riot; civil commotion; vandalism; leakage from fire extinguishing equipment; sinkhole collapse; volcanic action; breakage of building glass; falling objects; weight of snow, ice or sleet; water damage; earthquake; all only as insured against in this Coverage Form;

(c)Weight of people or personal property; or

(d) eight of rain that collects on a roof.

c.This Additional Coverage – Collapse will not increase the Limits of Insurance provided in this Coverage Form.

Analysis

The covered property under CM 00 67 is, of course, valuable papers and records. However, the meaning of valuable papers and records is not found in the coverage agreement but in the definitions section (which is discussed later in this article). The property of the named insured is covered as well as property of others that is in the care, custody, or control of the named insured.

Four types of property are not considered to be covered property. The inclusion of contraband in this list is not unusual, but the insured should take special notice of the other three items.

CM 00 67 covers valuable papers of the named insured even if such papers are not specifically described on the declarations page. However, if the valuable papers cannot be replaced with other property of like kind and quality, the insured must specifically describe those papers or CM 00 67 will not consider them as covered property. For example, a personal memo signed by former president Ronald Reagan cannot be replaced with like property and so, should be specifically described and valued on the declarations page.

Property held as samples or for delivery after sale is not covered property under CM 00 67. This is not to say that valuable papers held for sale are never considered covered property under CM 00 67. It is only that property held out as a specimen or an illustration of a larger piece of work that is not considered covered property; the whole piece of work or the complete manuscript is considered the covered valuable papers. And, once the valuable papers have been sold, they are no longer covered property while waiting to be delivered to the buyer. CM 00 67 makes a distinction between property of others in the care, custody, or control of the insured and property of others that the insured is holding awaiting after-sale delivery. The distinction may be a fine line, but the insured should know that once he sells an item, that item is viewed in a different light by the insurer.

Property in storage away from the premises shown in the declarations is deemed property not covered in this section of CM 00 67. Yet, in the coverage extensions section (discussed later), property away from the named insured's premises is covered for up to $5,000 (the insured can get a higher limit of insurance if desired). This seems to be a contradiction in coverage and a possible source of confusion for the insured. Furthermore, coverage territory is defined in the valuable papers form as including premises of others. The key words in this issue is “in storage.” Property is covered under CM 00 67 while away from the named insured's premises as long as that property is not in storage; it has to be away from the premises of the named insured for some reason other than storage.

A prior edition of the form stated that a covered cause of loss was risk of direct physical loss or damage; the policy now states that direct physical loss or damage is covered, not just the risk of such damage.

The additional coverage clause for collapse was substantially revised in 2010. The form provides coverage for direct physical loss or damage to covered buildings or any part of a building that contains covered property caused by an abrupt collapse as described. The prior editions of the policy did not specify that the collapse must be abrupt. “Abrupt collapse” is defined as an abrupt falling down or caving in of a building or any part of a building with the result that the building cannot be used for its intended purpose.

The perils of decay or insect or vermin damage hidden from view and unknown by the insured, and use of defective materials or methods in construction or remodeling as long as the collapse occurs during the course of the construction or remodeling remain the same.

The perils of fire, lightning, windstorm, hail, explosion, smoke, aircraft, vehicles, riot, civil commotion, vandalism, leakage from fire extinguishing equipment, sinkhole collapse, volcanic action, breakage of building glass, falling objects, weight of snow, ice or sleet, water damage, earthquake, weight of people or personal property or weight of rain collecting on a roof apply only if defective materials were used in construction and the building collapsed after construction was finished and if the collapse was in part caused by one of the listed perils. This significantly narrows the covered perils for collapse if the collapse does not occur after the course of construction with defective materials. For more information on the collapse coverage, see Causes of Loss; and see Meaning of Collapse.