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 Hardware and Home Improvement Stores Coverage Form, MS HI 01 07 13. The endorsement modifies the Commercial General Liability forms, the Building and Personal Property Coverage form, and the Causes of Loss—Special form. These policies are analyzed in the following pages: 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 Additional coverages Coverage extensions Changes to the causes of loss form Changes to the CGL form Definitions Endorsements

Introduction

MS HI 01 is an endorsement that modifies the CGL forms, the Building and Personal Property Coverage Form, and the Causes of Loss—Special form; the provisions of these forms apply to the risk except as otherwise provided under MS HI 01. The endorsement enhances the coverages provided by the standard forms by offering additional property coverages, some crime coverages, and home improvement design and delivery errors and omissions coverage.

Also offered through this market segments program are coverages for equipment breakdown protection, hired and nonowned auto liability, and direct primary coverage for loss or damage to customers  autos.

Changes to the Commercial Property Form

The commercial property coverage form considers personal property of others as covered property under certain conditions. MS HI 01 adds the following to that list: property sold under an installment agreement where the named insured's insurable interest continues until the purchaser for whom the project is to be performed accepts the property.

So, if a customer buys a water softening system or a large TV/stereo sound system from the insured hardware store and pays for the systems with some money down and the remainder to be paid upon final installation, MS HI 01 will protect the insured's interest in those systems until the customer accepts the finished product. The insured's interest is protected from the same causes of loss as the insured has for building and business personal property.

Additional Coverages

The 2013 revision to the form removed the additional coverage for debris removal. ISO explained that the CP 00 10 debris removal now equals the additional limit that this endorsement provided, so the additional coverage is no longer necessary.

The fire department service charge when the department is called to save or protect covered property from a covered cause of loss is increased by MS HI 01 to $5,000 from the $1,000 that CP 00 10 offers.

There are ten other coverages that MS HI 01 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 business of the named insured, either on or off the described premises. The coverage is for loss due to theft, disappearance, or destruction. The most that the insurer will pay for all loss in any one occurrence is $10,000, unless a different limit for money and securities is shown on the declarations page. MS HI 01 notes that all loss caused by one or more persons and involving a single act or series of related acts is considered one occurrence. So, for example, if an employee steals cash out of the cash register over a period of several months before being discovered, that is considered one occurrence for payment of loss purposes.

Fire Extinguisher Systems Expense. The endorsement offers up to $5,000 in payment of the cost of recharging or replacing (whichever is less) fire extinguishers and extinguishing systems. The discharge must occur 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 $5,000 is also available to pay for loss or damage to covered property if the loss is the result of an accidental discharge of chemicals from a fire extinguisher or extinguishing system. No deductible applies to this coverage.

Reward Payment. The insured can be reimbursed for rewards paid up to $5,000. This coverage is for an eligible person for information leading to the arrest and conviction of any person committing a crime that results in loss to covered property from a covered cause of loss. An obvious example would be a reward paid for information leading to the arrest and conviction of someone who started an arson fire in the insured's store.

There are some restrictions to note under this coverage. The person eligible for the reward cannot be the named insured, a family member, an employee, an employee of a law enforcement agency, or an employee of a business engaged in the business of property protection. And, no reward will be reimbursed unless and until the person who committed the crime is convicted, or the covered property is returned. So, if an employee of the named insured reports a theft and helps the police arrest a suspect, MS HI 01 will not reimburse the named insured if it gives the employee a reward for his efforts. Similarly, if a customer of the insured store reports a crime and helps the police arrest a suspect, but there is no conviction, MS HI 01 will not reimburse the named insured if it has given the customer a reward.

Money Orders and Counterfeit Paper Currency. If a customer pays his store bill with a money order and that money order is not honored upon presentation, or if a customer uses counterfeit money to purchase something from the insured store, MS HI 01 will pay for the loss the insured suffers. The most that will be paid is $1,500 in any one occurrence.

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 clerk in the store forges the signature of the manager, or if an accountant alters the amount of a check that is to be drawn against the hardware store, and the insured store loses money due to the fraud, the insurer will pay for the loss. The most to be paid in any one occurrence is $5,000. This amount includes legal expenses of the insured in case the insured is sued for refusing to pay the forged or altered instrument. For example, if the clerk used the check with the forged signature to purchase some item, and the store put a stop payment order on that check for when it was presented for payment, leading to a lawsuit against the store, MS HI 01 will pay any reasonable legal expenses incurred by the store in its defense (after the insurer has consented to the defense against the lawsuit).

Outdoor Signs. MS HI 01 offers up to $5,000 for direct physical loss or damage (in any one occurrence) to all outdoor signs at the described premises. The signs have to be owned by the named insured, or owned by others but in the care, custody, or control of the named insured. The policy will not pay for loss or damage caused by or resulting from wear and tear, hidden or latent defect, rust, corrosion, or mechanical breakdown.

Employee Dishonesty. The endorsement will pay for direct loss of or damage to the named insured's business personal property, money, and securities resulting from dishonest acts committed by any of the named insured's employees. The employees must have the manifest intent to cause the named insured to sustain loss and to obtain financial benefit. As an example, the employee intends to—and does—steal spare parts from the hardware storage room in order to sell the parts on the side for cash. The loss suffered by the insured will be paid up to $25,000 in any one occurrence. MS HI 01 declares that all loss or damage caused by one or more employees and involving a single act or series of related acts is considered one occurrence. As an example, if the employee takes five boxes of spare parts over a period of three months, that is considered one occurrence for coverage purposes.

There are several limitations to this coverage.

MS HI 01 will not pay for loss or damage resulting from any dishonest or criminal act committed by the named insured, partners, members, officers, managers, directors, trustees, authorized representatives, or by anyone to whom the named insured entrusts the property that is taken or damaged. This limitation can lead to interesting contrasts. For example, if the employee steals spare parts from the storage room, that is covered; if the employee steals the parts while taking them off premises for repair or transport to another of the insured's store, this is not covered as an employee dishonesty loss.

MS HI 01 will not pay for loss or damage, the proof of which as to its existence or amount is based on an inventory computation or a profit and loss computation.

The endorsement will not pay for loss or damage that the named insured sustains through acts not committed during the policy period, and the coverage will apply only for loss or damage discovered no later than one year from the end of the policy period. The limits of insurance for this type of loss do not cumulate from policy period to policy period.

Finally, this additional coverage does not apply to loss caused by any employee after discovery by the named insured of any dishonest act committed by that employee before or after being hired by the named insured. If the named insured hires someone who it knows has been convicted of theft or fraud, and that employee then proceeds to steal from the named insured after being hired, the loss is not covered by MS HI 01.

Brands and Labels. If branded or labeled merchandise that is covered property is damaged by a covered cause of loss, the insurer promises to pay up to $25,000 in any one occurrence. If such merchandise is damaged, the insurer reserves for itself the right to take all or part of the property at an agreed or appraised value. If that happens, the insured can stamp the word “salvage” on the merchandise or remove the brands or labels (in accordance with law); this is in order to prevent such damaged property from being sold to an unsuspecting public as new goods.

Lock Replacement. MS HI 01 will pay for the cost to repair or replace locks at the described premises due to theft or other loss to keys. The most the insurer will pay for all loss in any one occurrence is $5,000; however, there is a per occurrence deductible of $100. So, if an employee steals the set of master keys, MS HI 01 will pay the cost if the insured wants to have all the locks changed.

Artificially Generated Electrical Current. This endorsement will pay for loss or damage to computers (a defined term) due to artificially generated electrical current is such loss is caused by an occurrence that takes place within 1,000 feet of the described premises. For example, if something caused a power surge from the on-premises electrical generators into the insured's computers, this policy will pay for the damage caused.

Coverage Extensions

MS HI 01 makes several changes to the coverage extensions section of CP 00 10.

Newly Acquired or Constructed Property. The first change is to the period of coverage for newly acquired or constructed property. MS HI 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 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. The coverage extension for personal effects and property of others is also changed. MS HI 01 offers up to $5,000 in any one occurrence for loss or damage to personal effects owned by the named insured, officers, partners, and employees, and to personal property of others in the care, custody, or control of the named insured. This extension does not apply to loss or damage by theft.

Valuable Papers and Records. When it comes to valuable papers and records (other than electronic data), MS HI 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 $25,000 in any one occurrence at each described premises, or $10,000 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 applies to computers for not more than ninety days while such property is in the course of transit or is located at a premises the named insured does not own, lease, or operate. The extension does not apply to property in or on a vehicle, except for computers, or to property in the care, custody, or control of the named insured's salespersons unless the property is at a fair, trade show, or exhibition.

The most the insurer will pay for loss or damage under this extension is $10,000 in any one occurrence.

Outdoor Property. MS HI 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 $3,000 in any one occurrence. Covered also are trees, shrubs, and plants other than stock, or, as added with the 2013 revision, that are part of a vegetated roof. The most paid here is $2,500 for any one occurrence, but not more than $500 for any one tree, shrub, or plant. This coverage for outdoor property is only for the following covered causes of loss: fire, lightning, explosion, riot or civil commotion, and aircraft.

The 2013 revision also added that the coverage extension includes the expense of removing the debris of trees, shrubs, or plants that the property of others, except if the insured is a tenant the property is owned by the landlord of the described premises. This represents a broadening of coverage.

Installation Coverage. MS HI 01 adds installation coverage for the insured hardware or home improvement stores. MS HI 01 allows the named insured to extend the coverage for business personal property to apply to loss of or damage to the following property: materials, supplies, equipment, machinery, and fixtures owned by the named insured or in the named insured's care, custody, or control and are to be installed by the named insured or at his direction; and temporary structures built or assembled by the named insured on site, including cribbing, scaffolding, and construction forms.

This property is covered while at any site not owned, leased, or operated by the named insured; while awaiting and during installation; in transit; or at a temporary storage location. The most the insurer will pay for loss or damage to property covered under this extension is $10,000 per occurrence.

This extension does not apply to the following items: an existing building or structure to which an addition, alteration, improvement, or repair is being made; property stored at a permanent warehouse or storage yard that the named insured owns; a plan, blueprint, design, or specification; and machinery, tools, equipment, supplies, or similar property that do not become a permanent part of the project.

The extension does not apply to loss or damage caused by or resulting from any of the following: the cost to make good or replace faulty or defective materials or workmanship; testing; a fault, defect, deficiency, error, or omission in a plan, blueprint, design, or specification; or the weight of a load when it exceeds the designed capacity of any property covered under this extension to lift, move, or support the load from any position.

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 the described premises.

The coverage extension applies to all amounts due from the named insured's customers 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.

Changes to the Causes of Loss Form

MS HI 01 modifies the Causes of Loss—Special form, CP 10 30 10 12, in several ways.

The first change is that the mechanical breakdown exclusion is stated not to apply to loss or damage to computers.

Next, MS HI 01 states that the paragraphs referencing the excluded causes of loss to personal property in the exclusions section of CP 10 30 are replaced. MS HI 01 excludes loss or damage to personal property caused by or resulting from dampness or dryness of atmosphere or changes in or extremes of temperature. Also excluded is damage caused by marring or scratching. However, if these exclusions result in a specified cause of loss (a defined term) or building glass breakage, the insurer will pay for the loss or damage caused by that specified cause of loss.

Finally, MS HI 01 adds four exclusions to the exclusions section that apply only to coverage for computers. These exclusions deal with loss by errors or omissions, electrical disturbance, computer-related losses, and computer advice or consultation.

Errors or Omissions. The endorsement does not apply to loss or damage caused by errors or omissions in processing, recording, or storing information on computers. However, the insurer will pay for direct loss or damage caused by resulting fire or explosion if these causes of loss would be covered by the policy.

Electrical Disturbance. Loss due to electrical or magnetic injury, disturbance, or erasure of electronic recordings is not covered. Direct loss or damage caused by lightning is covered.

Computer-Related Losses. The inability to correctly recognize, process, distinguish, interpret, or accept one or more dates or times is another cause of loss that MS HI 01 does not cover. This relates to the failure, malfunction, or inadequacy of the following: computer hardware, software, operating systems, networks, microprocessors (computer chips) that are not part of any computer system, and any other computerized or electronic equipment or components.

Computer Advice or Consultation. MS HI 01 will not respond to a loss or damage caused by any advice, consultation, design, evaluation, inspection, maintenance, repair, replacement, or supervision provided or done by or for the named insured in order to rectify or test for any potential or actual problems described in the computer-related loss exclusion clause.

In an exception to these exclusions, if an excluded cause of loss as described in these four clauses results in a specified cause of loss (a defined term), or in elevator collision resulting from mechanical breakdown, the insurer will pay for the loss or damage caused by these things.

Endorsement MS HI 01 next presents exclusions that relate to specific coverages that are offered under the provisions of the endorsement. Under employee dishonesty coverage, MS HI 01 notes that its exclusions section does not apply except for the exclusions of governmental action, nuclear hazard, and war and military action. Under the outdoor signs coverage, the exclusions section of MS HI 01 does not apply except for the following exclusions: governmental action; nuclear action; war and military action; wear and tear, rust or other corrosion, or decay or hidden or latent defect; and mechanical breakdown. As to valuable papers and records coverage, the exclusions section of MS HI 01 does not apply except for the following exclusions: governmental action; nuclear hazard; war and military action; computer-related losses; computer advice o consultation; seepage of water; water leaking from plumbing; weather conditions; and faulty or defective planning, design, workmanship, materials, or maintenance.

The final clause in the exclusions section of the endorsement applies only to the accounts receivable coverage extension offered by MS HI 01. The insurer will not pay for 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. The exclusion applies only to the extent of the wrongful giving, taking, or withholding. The insurer will also not pay for loss or damage caused by or resulting from bookkeeping, accounting, or billing errors or omissions. The insurer will not pay for any loss or damage that requires any audit of records or any inventory computation to prove its factual existence.

Changes to the CGL Form

The CGL form has three insuring agreements: coverage A, bodily injury and property damage liability; coverage B, personal and advertising injury liability; and coverage C, medical payments. MS HI 01 adds three other insuring agreements: home improvement design errors and omissions coverage, delivery errors and omissions coverage, and merchandise withdrawal expenses coverage.

The home improvement design errors and omissions coverage applies when the insured becomes legally obligated to pay damages to a claimant because of making an error or omission (that is, a defective design or defective home improvement specifications or, basically, not doing a professional job when it comes to home improvement designs). There is a $250 deductible written into this insuring agreement to prevent minor mishaps or omissions from overwhelming the coverage. The most the insurer will pay for this coverage in any annual period is $10,000.

The coverage does not apply to intentional error or omission; any intentional dishonest or criminal conduct; fines, penalties, or liquidated damages imposed on any insured; the cost of faulty workmanship performed by the named insured; express warranties or guarantees; professional services if the insured is covered under any professional liability policy; bodily injury, property damage, or personal and advertising injury; and contractual liability.

The delivery errors and omissions coverage is for those sums that the insured becomes legally obligated to pay because of a failure to deliver (or a misdelivery of) items that the named insured holds for sale by any employee or by a concessionaire trading under the name of the named insured. There is a $250 deductible here also, and the most the insurer will pay because of all failures or misdeliveries is $10,000. The exclusions are as follows: intentional misdelivery or failure to deliver; bodily injury, property damage, or personal and advertising injury; and discrimination based on a customer's race, color, national origin, religion, gender, marital status, sexual orientation, or residence location.

The third insuring agreement—merchandise withdrawal expenses—reimburses the named insured for reasonable and necessary expenses made by the named insured because of recalling or withdrawing items from the market due to a known or suspected defect. MS HI 01 places a $250 deductible on this coverage plus the following exclusions: a merchandise withdrawal due to any breach of warranty, copyright, or patent infringement; transformation of a chemical nature; deterioration; spoilage; the expiration of the designated shelf life of items held for sale; a withdrawal of items because of a defect known to exist by the named insured (or its executive officers) prior to the inception date of the policy; recall of specific items for which bodily injury or property damage is excluded; recall of items that have been banned from the market by a governmental authority; and the defense of a claim or lawsuit against the named insured for merchandise withdrawal expenses. The most the insurer will pay for reimbursement of these expenses in any one occurrence is $25,000.

MS HI 01 amends the who is an insured section of the policy to include as an insured the following: any person or organization with respect to their liability arising out of their financial control over the named insured or out of their ownership of premises leased by the named insured, any other person who is a manager or lessor of premises leased to the named insured;, and any person or organization with respect to their liability as a concessionaire trading under the named insured's name with permission.

Definitions

MS HI 01 contains certain definitions that befit the coverages and exclusions pertaining to hardware and home improvement stores, as well as more common definitions.

Computer: the endorsement defines “computer” as the insured's programmable electronic equipment used to store, retrieve, and process electronic data. Components parts and dedicated air conditioning, fire suppression equipment, and electrical equipment used exclusively in the insured's computer operations are included. Associated peripheral equipment providing communication—including input and output functions—is also part of the definition of “computer.” However, electronic data and media are not considered computers.

Counterfeit: this is an imitation of an actual valid original that is intended to deceive and be taken as the original, as in counterfeit money.

Defect: “defect” means a defect, deficiency, inadequacy, or dangerous condition.

Employee: ISO updated this definition in the 2013 market segments program revision. With regard to employee dishonesty and money and securities coverage only, an employee is any natural person while in the insured's service and for the first thirty days after termination of service unless the termination is due to theft or any other dishonest act committed by the employee. To be considered an employee, the insured must compensate the employee directly by salary, wages, or commissions and must have the right to direct the employee's services performed.

Temporary employees who substitute for permanent employees on leave or to meet seasonal or short-term needs are also considered employees while subject to the insured's direction and control except when such persons while having care or custody of property outside the premises.

Leased employees under a written agreement, former employees who are consultants, guest students and interns, employees of merged or acquired companies are also considered employees. Managers, directors, and trustees are also considered employees while they are performing acts within the scope of the usual duties of an employee or while acting as committee members elected or appointed by the insured's board.

The following are not considered employees: any agent, broker, factor, commission merchant, independent subcontractor, or their representatives.

Forgery: this term means the signing of another's name with intent to deceive. It does not mean the signing of one's own name, signed with or without authority.

Manager: for employee dishonesty only, a manager is a person serving in a directorial capacity for a limited liability company.

Member: this term was added by the 2013 revision and applies to employee dishonesty only. A member is an owner of a limited liability company represented by its membership interest and who also may serve as a manager.

Merchandise withdrawal: this means the recall or withdra