Blog-TOP 10-ISO Changes in 2013

Last One in this Top 10 List—Addiitional Insureds

      I think I iwll end this TOP 10 list with this BLOG and then move to several that continuie to address this issue—Additional Insureds! This has been a special area for me for many years. My “Contractual Liability & Additional Insureds” class has been, without a doubt, the most popular class I have ever put together. I actually have one client here in MD that asks for the class every year, primarily for the same people. Nice to see a class appreciated for more than CE. There theory is that this area is so important that people need to “think again” about it on a regular basis.

     Of the various changes with the 4/13 CGL there is no question that the biggest is with Additional Insureds. So, I will go over these changes in small doses. I will also compare some of the issues with company forms. There are so many carriers with their own forms in this area that it makes sense to bring all of that up also. A generalization I admit—there is a “feeling” that company forms are always better than ISO forms. I often challenge that—I do think it is true most of the time with property forms but often NOT true with casualty forms. We will kiind of check that out along the way.

     First change with the 4/13 forms——LIMITS—If there is a contract (IF) that says you must add me as an A-I and you must have limits of $1,000,000 does this mean that you, the A-I, can only get $1,000,000 from my insurance max? I have always said no. There is the contract between the 2 parities and then there is the contract (policy) between the insurance company and the insured(s). Following the law that insurance is a contract of adhesion we must give the greatest benefit to the insured(s). So, if the limits are $2,000,000 could the A-I get more than the contract demands. Yes. Many carriers have changed this with their A-I endorsements (Excess policies often make this change also) and ISO now follows. Here is the language that will now show up on 26 of the 34 standard ISO A-I endorsements (4/13 edition date)—

    C.  With respect to the insurance afforded to these additional insureds, the following is added to Section III – Limits Of Insurance:

If coverage provided to the additional insured is required by a contract or agreement, the most we will pay on behalf of the additional insured is the amount of insurance:

     1.  Required by the contract or agreement; or

     2.  Available under the applicable Limits of Insurance shown in the Declarations;   whichever is less.

   I don’t have any problem with this—The NI paid the premium and the less “given away” is available for the NI. I am sure many parties have figured this out long ago and have started to put in the contract language that says that you must have “at least ——whatever. Over the next several BLOGS we will keep hitting these various changes.

CA 99 05 02 14—Business Income for Commercial Auto

     OK—this is a change for 2014 instead of 2013 but it is still something new and VERY interesting. Whenever there is a direct loss there is always an indirect loss. Everyone is familiar with Business Income with Property but with Autos? If you destroy your vehicle you just go and buy a new one. If is partially destroyed and takes a while to fix we have “extra expense” type endorsements like Rental Reimbursement, but Business Income? Why would you need it?

    Oh, you could. I have actually had people ask me about this many times over the years. I have heard of carriers that have their own forms (or would do it one way or the other) but there never has been an ISO form. Now there is! The form not only covers the vehicle but (and I think this is key) it covers equipment permanently attached!  So, now stop and think about it——when you start to think of the attached equipment all kind of situations come up where you realize that replacing the vehicle AND the equipment permanently attached is going to take a whileperhaps quite a while. Many items could hit here. The one I thought about this amI just read that North Dakota added more millionaires in 2013 then any other state. Why North Dakota? Energy Boom going on in that state. There is no such thing as unemployment in ND and there are man camps for the workers that have come to work in ND, at least for a while. What if the company has a vehicle that is crucial to energy exploration or extraction (you know they have many!). If they lose it they are not going to get it replaced quickly. The Indirect loss could be HUGE!I If you would like to check it out take a look——CA 99 05  -----

Payroll Endorsement--

      One More with Business Income. The Ordinary Payroll Endorsement has been around for years (CP 15 10). There has always been issues with this endorsement such as: Should we use it?; What is OP? Will the policy pay all payroll that is not excluded? 

     The endorsement does not say what OP is; it says what it is not. It say that OP is all payroll EXCEPT and then proceeds to list what is not Ordinary. The new endorsement (10/12 edition) is dropping the word “Ordinary and just calling it the Payroll Limitation Endorsement”. By doing this there is much more flexibility in what is being excluded (BTW—never exclude but you might want to limit to a certain number of days) as their is no specified definition. You can also break things down by location. This is a better endorsement and a better way to handle the issue. 

    A BIG Issue, howeverneither this endorsement or the old endorsement states that all payroll not excluded will be paid. This is a major misconception that lots of people have. In order to pay any expense, including payroll, it must be a continuing expense”—an expense that must be made to get the insured back the way they were prior to the loss. A GREAT new endorsement that came out with the 6/07 changes is the CP 15 04Discretionary Payroll Expense. For the first time (ISO anyway) the client can make it clear who will be paid regardless of whether it is necessary. This is an endorsement that is long overdue and one that you should put on your list for 2014 and beyond.

      If you want to see copies of these endorsements check out our Business Income self-study program/handout. The program has been updated to go over this 10/12 change and other changes. 

Another BII change

Extended Business IncomeBusiness Income only has to pay until the insured is back “the way they were”. Often, when the client gets ‘back’ they really are not ‘back the way they were’ the day before the loss. Customers often go somewhere else and it might take a LONG time to get them back. A standard BII form has always extended the time for an additional 30 days. With the 10/12 Property forms the time has been extended for 60 days. Good! This, of course, can be extended. The Dec Page has allowed an extension for up to one year. With the 10/12 forms you can now extend for up to 2 years right on the Dec. Again, this is GOOD! Always think of BII (like all insurance) as catastrophe insurance. Remember, however, that while these extensions are often needed and can be “built in” they do not, by themselves, increase the limit. So, if you are going to extend make sure you factor that into the limit that has been chosen!


Location-- In May I spoke about the change in Location relative to personal property with the 10/12 Property Form changes. The 100-foot limitation could apply to the “described location” (say 10th floor) or the building whichever is greater. While this is an improvement 100 feet (or 1000 feet with many company forms) is not anywhere near enough for many contents items and there is need to segregate/separate the contents and ‘Send in the Marines’. Marine has many advantages and one of the biggest is that the insured items are covered anywhere. It is just a smart thing to do.

         I got a great question via e-mail. ‘If you write the item Marine and it is covered under the property form does that mean it is covered in 2 places? In addition, if the property form has a coinsurance clause must you include the value on the property form even though it is better covered with Marine?’

         Great Question! The answer (thankfully) is no. Look at page #2 of the Building and Personal Property Form (CP 00 10) at Property Not Covered—(this property is still coverable but not here). Look at item ‘k’ and you will find that the policy does not cover property (except on an excess basis) if it is more specifically covered somewhere else (think Marine). This, by the way, has always been true. Since it is not covered you do not have to include the values from a coinsurance standpoint. Just another good reason to “segregate/separate” the Contents!

#3--Roof Surfacing Limitation--CP 10 36--Whenever you see a CP form that starts with a ‘10’ it involves a cause of loss. Carriers are TIRED of having to pay for a new ROOF on a 20 year old building because there is RC on the policy. So, this endorsement only provides ACV to the roof while providing RC for everything else. It also makes it ‘clear’ that the policy does not have to pay for cosmetic damage. Depending on where you are in the country you might find underwriters insisting on this endorsement.

BII--Change #2

     Business Income from Dependent Properties--One of those things that you think about but don't do----Right! Well, I don't know if the new forms will help or hurt but you can now show a 'supply chain' deeper into Dependent Properties on the new form for Contributing or Recipient Locations. If it can be shown that the location that you have named is 'connected' to another location then coverage will apply. I think people are just beginning to figure this one out and the reality is that Dependent Properties are often not named at all let alone a realization that a 'deeper connection' is necessary for the listed dependent property. So---just bringing this to your attention so that you can get more information if this is of any value.

#2-Business Income--First of 3 with BII--

     I will highlight 3 changes with Business Income and the 10/12 Commercial Property Forms. After that we will move into GL and the changes with the 4/13 Program. BTW--we will have all of our self-study programs updated by the end of November. 

    Extended Period of Indemnity--the current BI form automatically provides 30 days (providing your limits hold up). The new form automatically provides 60 days. The current form allows for extension of up to 1 year. The new form will allow extension up to 2 years!

     Should you extend?? In may cases the answer is YES! When a business is 'back' and the 'period of restoration' is over because they are physically back they are often not 'back' where they were from a financial or business standpoint. Past customers have gone somewhere else and it will take quite a while to get them back or to get new ones. Extending the period of indemnity REALLY helps. Remember, people should buy insurance and sell insurance to cover catastrophes first. Having a major shutdown is catastrophic for most businesses as they just cannot afford to be "out" for any length of time. So, really add to your checklist --"Should we extend the period of indemnity beyond 60 days?" The answer in many cases, indeed most, is YES! 

    The BOP is a great product but it has made us lazy about proper Business Income coverage. Perhaps these latest changes will get us all thinking again and remembering how BIG the Indirect loss can be (think about Superstorm Sandy!).

#1-100 feet in Commercial Property

    With this Separate BLOG Section I will highlight changes coming your way with the 10/12 Commercial Property Forms and the 4/13 CGL. A TOP 10 List. While many carriers have their own forms most still "start" (and many finish) with ISO. ISO/GL is probably the most standardized form(s) in the Industry. Each of the BLOGS in this section will be short and geared to a specific topic---

    #1--Commercial Property--An ISO Commercial Property Form (unlike a HO policy) is geared to a location! A standard form states that Contents are only covered within 100 feet of the Described Location. So, what is the 'Described Location'? It is the address shown on the Dec. So, if you say ABC, Inc.; 123 Main Street; 10th Floor; Anywhere USA, the contents are only covered with 100 feet of the 10th floor. Business Income also has such a provision which caused a real problem with the World Trade Center Bombing in 1993. Because of that the Business Income forms were actually liberalized back in the late 90's. The Building and Personal Property From (CP 00 10), however, was never liberalized. The old argument --"don't list the suite or floor number" was commonly used by agents and brokers in order to make the building the 'described location' for a tenant. However, many carriers would not go along with this approach and insisted on the suite or floor number. The 10/12 Property Forms have liberalized things. This is an improvement. Here is the language from the CP 00 10-----b.   Your Business Personal Property---consists of the following property located in or on the building or structure described in the Declarations or in the open (or in a vehicle) within 100 feet of the building or structure or within 100 feet of the premises described in the Declarations, whichever distance is greater

       This is a good change. You no longer have to 'forget' the suite or floor number! We will keep blogging about changes one by one.