The general conditions deal with the rules that need to be followed, for example, when other insurance exists that cover the same loss; and when an insured becomes bankrupt. This is the section; too, that explains how coverage can be void in any case involving concealment, misrepresentation or fraud.

Topics Covered:

Loss conditions

General conditions

Loss Conditions

 There are five conditions that deal with losses: (1) appraisal for physical damage loss; (2) duties in the event of accident, claim, offense, suit, loss, or acts, errors, or omissions; (3) legal action against us; (4) loss payment—physical damage coverages; and (5) transfer of rights of recovery against others to us.

 Under the appraisal condition, apart from the verbiage, there is nothing basically different between this condition and the condition applicable to other coverage forms. It is probably one of the conditions most frequently activated, because there are no shortages of arguments between insureds and their insurers over the amount of insurance that should be paid following a covered loss.

 While this condition gives the insurer the right to deny a claim, it is seldom, if ever, relied on by insurers. In fact, this reservation appears to be out of place. In other words, if an insurer goes so far as to permit the insured to select an appraiser for purposes of determining the value of property damaged or destroyed, it is difficult to envision the insurer having a cogent reason to still deny coverage, unless the insurer determines some evidence of fraud in the appraisal process.

 Note that under the duties clause, the title of this loss condition is different from other coverage forms because it includes the terms offense which is the trigger for personal and advertising injury coverage, and acts, errors, or omissions, which applies to a coverage under the ADCF.

 The preamble of this loss condition has to be taken seriously because without full compliance, the insurer is not going to display any generosity when it comes to paying any claims. In fact, this condition undoubtedly is the leading reason for denying claims that are not otherwise clearly excluded. Too often insureds, for one reason or another, fail to promptly give notice thereby prejudicing the insurer’s ability to gather appropriate information in order to determine the applicability of coverage.

 What is prompt notice sometimes is a question of fact for a court to decide. Fortunately, however, such a question can be avoided simply by keeping in mind that notice should be transmitted to the insurer or its authorized representative as soon as possible. Sometimes insureds are able to argue valid extenuating circumstances for failing to promptly provide notice, but this is the exception rather than the rule.

 Note that notice must be given when there is an accident or an act, error or omission that is likely to give rise to a claim or suit.

 The legal action against the insured condition makes the point that the insurer cannot be sued until and unless all the terms of the policy have been met. This was once called the suit clause. If liability insurance is the issue, no third party may take the insurer to court for purposes of determining the insured’s liability except for the following instances: when there has been an assignment of the claim or suit to a third party; the third party is determined to be an intended third party beneficiary, i.e., a person or organization for whose direct benefit the policy has been intended; in states having direct action statutes where the injured party has a direct cause of action against the insurer of the insured.

 As for the loss payment condition, if a covered auto is damaged, destroyed, or stolen and not found, the insurer alone decides what form the loss payment will take. If the insurer decides to pay the actual cash value of the vehicle, instead of paying to repair or replace it, the insurer has the right to take the damaged vehicle for salvage. If the auto is stolen, the insurer agrees that the cost of its recovery is a legitimate part of the adjustment expense.

 The auto dealers coverage form’s transfer of rights condition transfers rights of recovery to the insurer. The insurer’s right of assumption does not extend to the detriment of a co-insured whose negligence injures another insured. Also, the courts are generally in agreement that the insurer acquires no rights by its payment for loss or claim that the insured would not be able to exercise on his or her own behalf. If an insured has a contractual agreement that was created before the loss that would relieve the negligent party of responsibility for loss or damage, the insurer is also unable to recover from that party. However, the insured must do nothing after the accident or loss to impair the insurer’s right of recovery.

 General Conditions

 The general conditions of CA 00 25 are, for the most part, the same as those conditions applicable to other coverage forms; however, one such difference is with the no benefit to bailee condition that applies to the physical damage coverages of the ADCF.

 The general conditions applicable to the ADCF are (1) bankruptcy; (2) concealment, misrepresentation or fraud; (3) liberalization; (4) no benefit to bailee—physical damage coverages; (5) other insurance; (6) premium audit; (7) policy period, coverage territory; and (8) two or more coverage forms or policies issued by us.

 The bankruptcy condition simply states that the bankruptcy or insolvency of the insured will not relieve the insurer of any obligations under the coverage form.

 Note that in case of fraud, the concealment, misrepresentation, or fraud condition targets solely the named insured, whereas concealment and misrepresentation also can affect the coverage of all insureds (which would include additional insureds, commonly added to insurance policies).

 While there have been numerous of cases over the years involving the liberalization clause or condition, none apparently has involved garages or auto dealers. One thing for sure is that this condition is not likely to be of any benefit to insureds, because the auto dealers coverage form is replacing the garage liability coverage form. In other words, the liberalization condition applies when coverage is revised and introduction of the ADFC is not a revision.

 Note that under the no benefit to bailee condition, a bailor is the property owner and the bailee is the one who has temporary possession of that property for the sole benefit of a party or the mutual benefit of both parties. Bailees stand in a special relationship to property that is in their care, custody or control. Because they benefit in some way from having charge of the property (just as an auto dealer has charge of a customer’s auto for purposes of repair), bailees are subject to rigid responsibility for the care of the property. It is the purpose of this condition to make clear that bailees of covered property are not to benefit from any physical damage insurance of an insured.

 When there is other insurance covering a claim, suit or loss, the ADCF is primary as to owned autos and excess as to nonowned autos. This same arrangement holds true for covered trailers; however, owned or not, the trailer coverage is primary when the trailer is attached to an owned auto, and excess when attached to a nonowned auto. If the other insurance provides the same arrangement as to primary and excess, then the ADCF pays its proportion of any covered claim in the same ratio as its limit bears to the total limits of all policies.

 For hired auto physical damage coverage, any covered auto that the named insured leases, hires, rents, or borrows is held under the terms of the ADCF to be a covered auto owned by the insured. Thus, the insurance of the ADCF should become primary for those autos. However, any auto that is leased, hired, rented, or borrowed with a driver is not considered a covered auto.

 It may not matter that a liability policy is priced on the basis of a fixed unit of exposure, such as square footage, because the exposures can change during the policy period and even change so that unit of exposure fluctuates, such as payroll or receipts. With auto dealers, payroll is likely to be at least one unit of exposure on which the premium is determined. Whatever the case may be, the insurer reserves the right under the premium audit condition to be able to conduct an audit to determine the actual loss exposures after the policy expires.

 Customarily, the insurer typically audits business through the use of written questionnaires for two or three years and then has an actual visit done by a premium auditor who may be an employee of the insurer or an independent contractor.

 From the perspective of policy period and coverage territory, the liability coverage of the ADCF applies to bodily injury and property damage and losses occurring during the policy period and to covered pollution cost or expense arising out of accidents occurring during the policy period, all within the coverage territory.

 For products coverage, the territory is limited worldwide, because, unlike the CGL coverage forms, the ADCF requires that the product be sold for use in the aforesaid coverage territory. The CGL coverage forms, on the other hand, have no requirement that the product be sold for use within the coverage territory. Thus, with globalization in vogue, the CGL policy, unlike the ADCF, accommodates businesses who make or sell products within the coverage territory for export around the world.

 However, what needs to be understood is how the ADCF responds in the event of claim or lawsuit. This coverage form states that, while coverage applies anywhere in the world (subject to certain limitations), the insured’s responsibility to pay damages is determined in a lawsuit on the merits, within the United States of America, its territories and possessions, Puerto Rico or Canada. Whether the suit necessarily must be the original suit is not readily apparent. A literal reading of the coverage form wording reveals no requirements that the original suit be brought within the U.S., its territories, possessions, Puerto Rico or Canada. Therefore, it is conceivable that a suit originally filed in a foreign country could be dismissed (without prejudice) and refiled later in the U.S. with the amount of damages later decided in a foreign country. The significance of this option will obviously vary with the facts surrounding the strategy behind the choice of venue as it relates to the issues.

 Note also that if a product produces a claim, rather than a lawsuit, that claim does not have to be brought within one of those places. Thus, if a customer in the United States takes a product to Mexico and an accident occurs there, products liability coverage should respond to the claim. However, if the claim culminates in a suit, it has to be brought within the coverage territory for coverage to apply, as stated above.

 This worldwide coverage also applies if the insured rents, leases or borrows a car anywhere in the world. For example, if the insured is on a business trip to France and rents a car for week while there, the coverage territory under the ADCF is extended to France.

 It is important to note that, while the auto dealers coverage form provides worldwide coverage for products under certain conditions, this worldwide coverage does not apply for any work performed by the insured in any territory other than the United States of America, its territories, possessions, Puerto Rico or Canada.

 If other insurance applies by way of a policy issued by the same or an affiliated insurer, then the highest applicable limit of any one policy becomes the maximum limit available under all policies. If one policy, for example, has a limit of $500,000 and another has a limit of $100,000, the maximum limit available to the insured would be $500,000. However, if one (or more) of the policies specifies its limit as excess, this condition does not apply. If, in the previous example, the policy with the $500,000 limit were to be specified as excess insurance, the $100,000 limit would apply first and the $500,000 limit would apply to any amounts over the $100,000, up to an additional $500,000.

 Finally, note that the common conditions form, IL 00 17, also has to be issued with the ADCF. These conditions govern how changes and assignments are to be made; how cancellation is to be effected and set out; the insurer’s right to examine books and records; the insurer’s right to make inspections and surveys, and to collect the premium from the first named insured.