Safe Deposit and Premises Coverage Forms

Summary: The crime program of the Insurance Services Office (ISO) contains one endorsement used with lodging facility insureds to provide legal liability for guests' property. Endorsement CR 04 11 08 13 combines the previous form K (CR 00 12 10 90—guests' property stored in an insured's safe or vault) and the previous form L (CR 00 13 06 95—guests' property while on the premises or in the insured's possession.) The agent indicates on the endorsement which coverage is needed by checking the appropriate box. This endorsement, when added to a commercial crime policy provides coverage for guests' property. Any insured providing lodging facilities is eligible for this endorsement. This form was updated in 2013.

Topics Covered: Introduction Insuring agreements Employee theft Exclusions Conditions Definitions

Introduction

The insurance professional with motel, hotel, resort, or nursing home owners as clients should be aware of this endorsement—what is and is not covered. (Although motel and hotel owners are the obvious examples, some nursing home/long-term care facilities are now offering short-term vacation packages.) Additionally, the insurance professional with homeowners clients may be called upon to answer questions concerning coverage limitations for property in hotels. More and more people travel—for pleasure as well as for business—carrying various types of personal property with them.

Insuring Agreements

A schedule allows the insured to select limits per occurrence for guests' property in safe deposit boxes or inside the premises. Property inside the premises has a limit per guest. Both list a deductible amount per occurrence. The first section adds the two insuring agreements to the commercial crime coverage forms. Both state that the insurer will pay as damages those sums the insured becomes “legally obligated to pay.” Agreement “1.” covers guests' property “in a safe deposit box inside the premises”; while agreement “2.” covers the same property while it is “inside the premises or in” the named insured's possession. The endorsement also promises to provide the insured with a defense if he is sued for refusal to pay for loss or damage to guests' property.

Here is where the water becomes a bit muddy. The insurance professional should check specific state or local statutes regarding innkeepers liability. At one point innkeepers were held to be strictly liable—in other words, insurers—for all of a guest's property while that guest was on the premises. In recognition that this was harsh, states enacted legislation that limited the amount of recovery, depending on the type of property (generally money and jewelry) and the circumstances of the loss, a guest could claim. However, generally the statutes limiting the amount a guest can claim do not apply to cases where the innkeeper is negligent. A common law duty does not relieve the innkeeper of tort liability. Statutes require that notices stating the amount of an innkeeper's liability be prominently displayed; hence the notices, usually on the inside of a hotel room door, indicating that valuables must be placed inside the hotel safe or vault. Otherwise, should a piece of jewelry be stolen from a guest's room there can be no recovery from the innkeeper's insurance unless the innkeeper can be proven negligent. The homeowners client with unscheduled jewelry takes a risk indeed since homeowners policies have limitations for theft of jewelry.

The insurance professional with clients who travel and stay in hotels should ensure that adequate coverage is in place for all property a traveler might carry—such as jewelry, clothing, or a lap top computer. This is particularly important since this endorsement excludes coverage for damage caused by fire.

Limit and Deductible

The most paid for all loss resulting directly from an occurrence is the limit shown in the schedule for either property in a safe deposit box or for any one guest. The revised form makes it clear that the loss must result “directly from an occurrence” instead of just a loss in any one occurrence.

Payment is not made unless the loss exceeds the listed deductible shown in the schedule. Once the deductible is met, then payment is available up to the listed limits.

Employee Theft

It is important to note that the guests' property endorsement provides protection against the risk of an employee's theft of a guest's property. At first glance it might appear that the commercial crime policy would respond to this type of loss, but the language of that form precludes coverage. The definition of “theft” is the unlawful taking of items such as money, committed with the intent to cause “deprivation of the Insured.” The commercial crime policy also excludes theft other than as defined in the insuring agreement. The act of stealing a guest's property causes the guest, not the named insured, to sustain loss, so there is no coverage for this exposure under the employee theft insuring agreement of the commercial crime coverage forms.

Exclusions

The guests' property endorsement, as mentioned previously, provides coverage for theft of guests' property by employees. It accomplishes this by removing the exclusion for “acts of employees” in the crime policy.

This endorsement also adds several exclusions:

1. Liability the insured assumes under a contract. However, it makes an exception for such liability if the named insured enters into the contract with a guest prior to an occurrence.

2. Loss or damage from fire is not covered.

3. Guests' property is not covered for loss or damage that is caused by the “spilling, upsetting, or leaking” of food or liquid.

4. Loss or damage caused by insects is not covered. The endorsement also excludes damage from animals, wear and tear, and deterioration. Inherent vice is also excluded.

5. Even though the endorsement covers guests' property in the insured's care, it specifically excludes damage to the property that the insured causes by “laundering or cleaning” it.

6. If the named insured releases another party from liability and that causes a loss, there is no coverage.

7. Again, although the endorsement is intended to cover guests' property, it specifies no coverage for items the guest holds for sale or as samples.

8. The final exclusion emphasizes that the endorsement does not cover motor vehicles, their equipment, or anything inside a vehicle.

Conditions

The guests' property endorsement removes one condition found in the crime policy, adds one, and changes one. It specifies that the “records” condition does not apply. That condition requires the insured to keep records about the covered property. Since the property covered by this endorsement does not belong to the named insured, it would be impossible to keep such records.

The first added condition is “bankruptcy.” Since this policy now involves liability to a third party, the condition clarifies that even if the named insured declares bankruptcy, the insurer will still live up to its obligations.

The crime policy limits covered property to property that the insured owns or for which the insured is legally responsible. This endorsement changes that condition so that it limits coverage to the property of guests “in a safe deposit box, inside the premises, or in [the named insured's] possession.” The endorsement retains the wording that the insurance is for the benefit of the named insured only. It emphasizes that no one else—”including your guest”—has any rights under the endorsement. In order for a loss to be paid, the claim must be brought by the named insured.

Definitions

The guests' property endorsement adds one definition and changes one. The additional one defines the covered property—”guests' property.” Just as the crime policy covers money, securities, and other property that belongs to the named insured, this endorsement covers the same items belonging to a guest.

The crime policy defines “premises” as the interior of any building that the named insured occupies for the conduct of his business. This endorsement limits “premises” to the interior of the building that is shown on the schedule.