1. . www.InsuranceCommunityUniversity.com Commercial Property—The Five Key Issues You Must Know About Commercial Property Insurance

2. . www.InsuranceCommunityUniversity.com Your Instructor Today Laurie Infantino, CIC, AFIS, CISC, ACSR, CISC, CRIS President and Co-Founder of The Insurance Community Center

3. . www.InsuranceCommunityUniversity.com Insurance forms and endorsements vary based on insurance company; changes in edition dates; regulations; court decisions; and state jurisdiction. The instructional materials provided by The Insurance Community Center and its authors is intended as a general guideline and any interpretations provided by The Community do not modify or revise insurance policy language. Information which is copyrighted and proprietary to Insurance Services Office, Inc. (“ISO Material”) is included in this publication. Use of the ISO Material is limited to ISO Participating Insurers and their Authorized Representatives. Use by ISO Participating Insurers is limited to use in those jurisdictions for which the insurer has an appropriate participation with ISO. Use of the ISO Material by Authorized Representatives is limited to use solely on behalf of one or more ISO Participating Insurers. The authors of these materials, Insight Insurance Consulting and The Insurance Community Center assumes neither liability nor responsibility to any person or business with respect to any loss that is alleged to be caused directly or indirectly as a result of the instructional materials provided. Insight Insurance Consulting 714 803-5830 laurie@insightinsuranceconsulting.com www.insightinsuranceconsulting.com www.theinsurancecommunity.com Copyright 2010 All Rights Reserved 3

4. . www.InsuranceCommunityUniversity.com What this class will cover 1.Building Ordinance 2.Tenants Improvements and Betterments 3.Off Premises Utility Interruption 4.Blanket and Margin Clauses 5.Building vs. Personal Property vs. Property of Others 4

5. . www.InsuranceCommunityUniversity.com #1 Building Ordinance Ordinance or Law Issues as it relates to Buildings, Personal Property & Business Income 5

6. . www.InsuranceCommunityUniversity.com Building Ordinances  Any building regardless of age can be affected.  Regulates HOW buildings are built or re-built.  Affects building costs, time to rebuild, demolition and debris removal. 6

7. . www.InsuranceCommunityUniversity.com Building Ordinances  Municipal and/or County Building Codes  Uniform building codes are emended to reflect needs of communities  State Building Codes  Regulates specific industries for usage and building quality such as for hospitals, schools, or public buildings. 7

8. . www.InsuranceCommunityUniversity.com Building Ordinances  Federal Building Codes  Imposed on federally sponsored housing and governmental buildings.  Americans with Disabilities Act—enforceable July 26, 1992. Not a Building Ordinance Law per se but does contain requirements for building in compliance with the federal act. 8

9. . www.InsuranceCommunityUniversity.com Regulate Everything About “How” A Building Is To Be Constructed  Plumbing  Electrical  Structural support  Grading  Sloping  Roofing  Parking Spaces  Set Backs  Flooring  Insulation  Landscaping  Signs - placement, size and type  Materials used vs. Occupancy  ADA  Miscellaneous 9

10. . www.InsuranceCommunityUniversity.com Who Needs The Coverage  For Building Owners  For Tenants of Buildings who  Have put in tenants improvements and betterments  Are responsible contractually to replace/upgrade tenants improvements and betterments  For Tenants that could suffer “extended” business income losses due to the lessor having to bring the business up to current code. 10

11. . www.InsuranceCommunityUniversity.com Building Ordinance Insure Building Add Building Ordinance Coverage Insure Tenants Improvements Automatic Personal Property Modify to Building/Separate 11

12. . www.InsuranceCommunityUniversity.com Your Business Personal Property 6.Your use interest as tenant in improvements and betterments. Improvements and betterments are fixtures, alterations, installations or additions: (a)Made a part of the building or structure you occupy but do not own; and (b)You acquired or made at your expense but cannot legally remove; 12

13. . www.InsuranceCommunityUniversity.com Causes Of Loss - Special Form CP 10 30 06 95 B.EXCLUSIONS 1.We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. a.Ordinance or Law. The enforcement of any ordinance or law: (1) Regulating the construction, use or repair of any property: or (2)Requiring the tearing down of any property, including the cost of removing its debris. 13

14. . www.InsuranceCommunityUniversity.com Causes Of Loss - Special Form CP 10 30 06 95  Note: the exclusion is for any property not just Building  Ordinance Or Law Endorsement provides direct physical loss coverage for BUILDINGS ONLY.  No coverage applicable for increased ordinance or law requirements for machinery, equipment, etc. 14

15. . www.InsuranceCommunityUniversity.com Ordinance Or Law Coverage CP 04 05  Coverage A—Coverage For Loss to the Undamaged Portion of the Building  Coverage B—Demolition Cost Coverage  If a Covered Cause of Loss occurs to covered Building property and Demolition Cost Limit of Insurance is shown…we will pay… 15

16. . www.InsuranceCommunityUniversity.com Ordinance Or Law Coverage CP 04 05 Coverage C - Increased Cost of Construction Coverage. If a Covered Cause of Loss occurs to covered Building property and an Increased Cost of Construction Limit of Insurance is shown in the Schedule above, we will pay for the increased cost to repair, rebuild or construct caused by enforcement of buildings, zoning or land use ordinance or law if the property is repaired or rebuilt. It must be intended for similar occupancy as the current property, unless otherwise required by zoning or land use ordinance or law. 16

17. . www.InsuranceCommunityUniversity.com Ordinance Or Law Coverage CP 04 05 However, we will not pay for the increased cost of construction if the building is not repaired or replaced. B.We will not pay under this endorsement for the costs associated with the enforcement of any ordinance or law which requires any insured or others to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of "pollutants". 17

18. . www.InsuranceCommunityUniversity.com Building Ordinance And Law Coverage Options  Any policy providing a different set of perils coverages needs to be endorsed with Ordinance coverage.  Commercial Property, Business Owners, Boiler & Machinery, Difference in Conditions, Builder’s Risk including Soft Cost, etc.  Provides coverage due to direct physical loss by a peril insured against. 18

19. . www.InsuranceCommunityUniversity.com Building Ordinance & Business Income 19

20. . www.InsuranceCommunityUniversity.com Putting The Business Income Form Into Perspective 20 Commercial Property Business Income Cause of Loss

21. . www.InsuranceCommunityUniversity.com Ordinance Or Law Exclusion For Business Income  The Cause of Loss Form is attached to a Business Income Coverage Form. Accordingly the same exclusion for Ordinance or Law applies to the Business Income coverage form that applied to the Building and Personal Property Coverage Form.  The loss incurred on Business Income is due to the potential additional “time” it might take to bring a building up to code. Additional time equals additional revenue loss.  This situation applies more often in a partial loss than a total loss. 21

22. . www.InsuranceCommunityUniversity.com Ordinance Or Law—Increased Period Of Restoration (CP 15 31) A.If a Covered Cause of Loss occurs to property at the premises described in the Declarations coverage is extended to include the amount of actual and necessary loss you sustain during the increased period of suspension of "operations" caused by or resulting from the enforcement of any ordinance or law that: 22

23. . www.InsuranceCommunityUniversity.com Ordinance Or Law—Increased Period Of Restoration (CP 15 31) 1.Regulates the construction or repair of any property; 2.Requires the tearing down of parts of any property not damaged by a Covered Cause of Loss; and 3. Is in force at the time of loss. 23

24. . www.InsuranceCommunityUniversity.com Ordinance Or Law—Increased Period Of Restoration (CP 15 31) However, coverage is not extended under this endorsement to include loss caused by or resulting from the enforcement of any ordinance or law which requires any insured or others to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of "pollutants". 24

25. . www.InsuranceCommunityUniversity.com Ordinance Or Law—Increased Period Of Restoration (CP 15 31) B. The PERIOD OF RESTORATION definition is replaced by the following: 3."Period of Restoration" means the period of time that begins: (1)72 hours after the time of direct physical loss or damage for Business Income coverage; or 25

26. . www.InsuranceCommunityUniversity.com Ordinance Or Law—Increased Period Of Restoration (CP 15 31) (2)Immediately after the time of direct physical loss or damage for Extra Expense coverage; caused by or resulting from any Covered Cause of Loss at the described premises; and 26

27. . www.InsuranceCommunityUniversity.com Ordinance Or Law—Increased Period Of Restoration (CP 15 31) b.Ends on the earlier of: (1)The date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality; or (2)The date when business is resumed at a new permanent location. 27

28. . www.InsuranceCommunityUniversity.com Ordinance Or Law—Increased Period Of Restoration (CP 15 31) "Period of restoration" includes any increased period required to repair or reconstruct the property to comply with the minimum standards of any ordinance or law, in force at the time of loss, that regulates the construction or repair, or requires the tearing down of any property. The expiration date of this policy will not cut short the "period of restoration". 28

29. . www.InsuranceCommunityUniversity.com Ordinance Or Law—Increased Period Of Restoration (CLM) A.Ordinance or Law—Increased Period of Restoration 1. Description of Coverage The Business Income…coverage form may be extended to cover additional loss of time necessary to replace or repair the damaged building to conform with current building laws or ordinances. 29

30. . www.InsuranceCommunityUniversity.com Ordinance Or Law—Increased Period Of Restoration (CLM) 2. Rate Modification a. Causes of Loss Other Than Earthquake multiply the time element rate by 1.2 b. Earthquake—multiply the time element rate by 2.0 30

31. . www.InsuranceCommunityUniversity.com Building Ordinance versus Zoning Laws 31

32. . www.InsuranceCommunityUniversity.com Zoning Laws  Regulate Everything About “What” Is Built Where  Building height  Parking allowance  Occupancy  Environmental Impact Studies  Building dimensions vs. land size 32

33. . www.InsuranceCommunityUniversity.com Manuscript ACV Cap Language When any building(s) and/or structure(s) is affected by zoning laws so that the building’s usage, size (height, total square footage, dimensions) are limited by law, the policy will provide replacement cost for that portion of the building the insured can, by law, replace and will then pay actual cash value (ACV) for the differential in value that the insured can not replace by law. 33

34. . www.InsuranceCommunityUniversity.com #2 Tenants Improvements and Betterments 34

35. . www.InsuranceCommunityUniversity.com Your Business Personal Property  TIBs are under Business Personal Property  Note: “Your” (Named Insured’s). Anyone other then the “named insured’s” is considered property of others  Note: “consisting of the following property unless indicated on the declarations page” You could specific something other than those items listed on the Declarations. 35

36. . www.InsuranceCommunityUniversity.com Your Business Personal Property  Note: Can indicate Business Personal Property on the “Separation of Coverage Form (CP 1910)  Separate based on “Cause of Loss”  Separate out Tenants, Improvements and Betterments (rating, Building Ordinance)  Note: Valuation Issues  Note: Blanketing ( A & B) 36

37. . www.InsuranceCommunityUniversity.com Your Business Personal Property 1.Furniture and fixtures 2.Machinery and equipment 3.“Stock” 4.All other personal property owned by you (named insured) and used in your business 5.Labor, Materials or services furnished or arranged by you on personal property of others 37

38. . www.InsuranceCommunityUniversity.com Tenants Improvements & Betterments Ownership Responsibility Who installed the TIBs Who is responsible to repair/insure Insuring TIB Automatically BPP Add Separation of Coverage Building Ordinance Insure TIB for Building Ordinance Insure BO on Business Income 38

39. . www.InsuranceCommunityUniversity.com #3 Off Premises Utility Interruption 39

40. . www.InsuranceCommunityUniversity.com 40 Off Premises Services Utility Interruption  What type of utility service is covered by addition of the endorsement?  Electrical power  Communication services  Air conditioning services  Heating  Gas  Water  Steam

41. . www.InsuranceCommunityUniversity.com 41 Property Exclusions Off Premises Services Exclusions: The failure of power or other utility service supplied to the described premises, however caused, if the failure occurs away from the described premises. But if loss or damage by a Covered Cause of Loss results, we will pay for that resulting loss or damage.

42. . www.InsuranceCommunityUniversity.com 42 Property Exclusions  Mechanical Breakdown, including rupture or bursting caused by centrifugal force. However, this does not apply to any resulting loss or damage caused by elevator collision;

43. . www.InsuranceCommunityUniversity.com 43 Property Exclusions  Artificially generated electric current, including electric arcing, that disturbs electrical devices, appliances or wires.  But if loss or damage by fire results, we will pay for that resulting loss or damage.

44. . www.InsuranceCommunityUniversity.com 44 Property Exclusions Spoilage  Rust, corrosion, fungus, decay, deterioration, hidden or latent defect or any quality in property that causes it to damage or destroy itself;  (a) Dampness or dryness of atmosphere;  (b) Changes in or extremes of temperature

45. . www.InsuranceCommunityUniversity.com 45 What Coverage Needs To Be Provided?  Direct Damage  Building  Contents, including stock  Indirect Damage  Spoilage  Business Income  Extra Expense

46. . www.InsuranceCommunityUniversity.com Off Premises Commercial Property 46 Insure Property for Special Form Endorse Utility Interruption Vehicle damages Power Pole Covered on Property due to “Property Peril”

47. . www.InsuranceCommunityUniversity.com Off Premises Equipment Breakdown 47 Insure Property for Equipment Breakdown Endorse Utility Interruption Transformer Overloads Covered on EB due to “EB Peril”

48. . www.InsuranceCommunityUniversity.com Off Premises Earthquake 48 Insure Property for Earthquake Endorse Utility Interruption Earthquake to Utility Covered on EQ due to “EQ Peril”

49. . www.InsuranceCommunityUniversity.com 49 What Policies Need To Be Endorsed?  Property  EDP  Boiler and Machinery (Equipment Breakdown)  Earthquake / Flood / DIC  Foreign property

50. . www.InsuranceCommunityUniversity.com 50 Off Premises Services Utility Interruption  Does the policy cover BOTH public utilities and privately owned utilities?  Does the policy have a limitation as to the distance from the insured’s premises that the object that caused the accident  Is within 500 feet of the insured’s premises or the location where the accident originated?  Is 500 feet from the insured’s premises?  Check for a footage limitation contained in Boiler and Machinery Policy and request removal or advise insured.

51. . www.InsuranceCommunityUniversity.com 51 Off Premises Services Utility Interruption  Does the policy indicate that the utility service that supplies the insured must solely supply that insured’s location?  Some of the company forms restrict coverage by use of the word “solely.”  This word can be modified to the word “directly” or eliminated in its entirety.  Check policy for other perils exclusions that necessitate adding utility services to other policies.

52. . www.InsuranceCommunityUniversity.com #4 Blanket and Margin Clauses 52

53. . www.InsuranceCommunityUniversity.com Blanketing  There is NO definition in the property forms  There is ONLY a percentage on the declarations page  The CLM manual defines as a rating rule  Designed to reduce the amount of insurance TO coinsurance 53

54. . www.InsuranceCommunityUniversity.com Blanketing  Customary definition of Blanketing is NOT in contract language  Proposals when they discuss advantages of blanketing are extra contractual 54

55. . www.InsuranceCommunityUniversity.com Blanketing  To Blanket or Not to Blanket--that Is The Question  Definition of “Blanketing”  Blanketing multiple entities (not identical ownership)  Blanketing Business Income only  Blanketing Business Income and other property coverages  Blanketing JUST TO BLANKET 55

56. . www.InsuranceCommunityUniversity.com Margin Clause  Margin Clause  Typically provides for a fixed % swing or margin above values as stated under the Statement of Values  Can be used in conjunction with a Blanket Policy  Always best to eliminate it  Utilize approved letters to advise clients 56

57. . www.InsuranceCommunityUniversity.com Margin Clause (ISO)  CP 12 32 06 07  Limitation on Loss Settlement Blanket Insurance (Margin Clause) 57

58. . www.InsuranceCommunityUniversity.com Margin Clause (ISO) This endorsement applies to loss settlement on property that is subject to a Blanket Limit of Insurance. A Blanket Limit of Insurance is a single Limit of Insurance that applies to any of the following as shown elsewhere in this policy: 1.Two or more buildings; 2.Building and contents; 3.Contents of more than one building; or 4.Contents at more than one premises. 58

59. . www.InsuranceCommunityUniversity.com Margin Clause (ISO)  With respect to property that is subject to a Blanket Limit of Insurance, we will determine a maximum loss payable for each building and for the contents of each building or the contents at each premises. The maximum loss payable is determined by applying the applicable Margin Clause percentage indicated in the Schedule to the value of the property as shown in the latest statement of values reported to us. 59

60. . www.InsuranceCommunityUniversity.com Margin Clause (ISO)  If the statement of values does not state individually the value of each building and the value of contents at each building or premises, we will determine individual values as a part of the total reported values prior to application of the Margin Clause percentage. 60

61. . www.InsuranceCommunityUniversity.com Margin Clause (Travelers) “The most we will pay for loss or damage in any one occurrence at any one premises location is 120% of the value(s) for each Building or Structure and separately for the total of Personal Property (including but not limited to furniture and fixtures, machinery and equipment, “stock,” all other personal property owned by you and used in your business and you use interest in improvements and betterment's) and Personal 61

62. . www.InsuranceCommunityUniversity.com Margin Clause (Travelers) Property of Others at each location as shown on the latest Statement of Values filed with us and at each premises location as subsequently reported to and agreed by us to insure.” 62

63. . www.InsuranceCommunityUniversity.com #5-- Building vs. Personal Property vs. Property of Others 63

64. . www.InsuranceCommunityUniversity.com Personal Property of Others  This is “first party” not “third party” coverage  Very Important Distinction  Should consider blanketing B & C  Often an unknown exposure  3PL  Non owned warehouse  If do not activate the coverage there is an automatic $2500 (see coverage form) extension 64

65. . www.InsuranceCommunityUniversity.com Personal Property of Others  Personal Property of others that is in your care, custody or control  The role is that of a bailee/bailor and accordingly the requirements imposed are that of a prudent person principle 65

66. . www.InsuranceCommunityUniversity.com Warehouseman’s Legal Liability  The standard of care is imposed upon a warehouseman by Section 7-204 of the Uniform Commercial Code  Most contracts follow this duty of care

67. . www.InsuranceCommunityUniversity.com UCC § 7-204. Duty of Care; Contractual Limitation of Warehouseman's Liability (1) A warehouseman is liable for damages for loss of or injury to the goods caused by his failure to exercise such care in regard to them as a reasonably careful man would exercise under like circumstances but unless otherwise agreed he is not liable for damages which could not have been avoided by the exercise of such care.warehousemangoods

68. . www.InsuranceCommunityUniversity.com 68 Upcoming Dates for Valuation, University and Community Classes University 5/11 Five Key Commercial Property Issues University 6/9 Real Estate Issues and Concerns FREE Community Class on 5/26/11 Insurance Coverage Litigation Tharpe and Howell Join the Community TODAY at: www.insurancecommunitycenter.com 5/175/24 & 5/25 6/26/15 6/307/27