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1. ISO New Commercial Property Forms 2012 Laurie Infantino, CIC, AFIS, CISC, ACSR, CISC, CRIS President and Co-Founder of The Insurance Community Center Community Webinars www.insurancecommunitycenter.com

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3. Overview of Changes • Effective date of form change 10/2012. The changes include: • New edition dates of existing form numbers; • Forms that are being withdrawn • New forms that are being introduced. The information, upon which this article relies, is the ISO Circular dated January 3, 2012. This multistate revision will be applicable to the following jurisdictions:

5. Overview of Changes • Many of the ISO changes have already been adopted in insurance company forms while other changes represent clarification of the “intent” of the form. • There are many instances where there is no change in “intent” of coverage. What this means, typically, is that the language of the form has been modified by adding or removing a word or substituting a word that is clearer.

6. Overview of Changes • Some changes result in a coverage increase typically in a sub-limit that is provided. • Some changes result in coverage being reduced for example removing an extension or sub-limit that appeared in a prior edition date. • We MUST notify if a reduction has occurred

7. Overview of Changes • Some changes will show coverage is broadened which typically means that form language has been added to make the coverage more comprehensive. • There are some new endorsements that are being introduced that we will discuss in more detail as they are new to the form series.

8. Overview of Changes • Good News—This series form change, for the most part, improves and broadens Commercial Property Policies.

9. Overview of changes to current forms Always Check the Edition Dates that your Insurance Company is Using. This may vary from Company to Company and State to State

11. Vegetated Roofs (Broadened) • This is one of the new “green” extensions in Commercial Property. • Currently the property form excludes trees, shrubs, plants and lawns and then sub-limits the coverage. (amount and perils—can endorse) • The property form is revised to include lawns, trees shrubs and plants which are part of a vegetated roof and thereby treating such property as an insured part of the building so that an existing vegetated roof can be replaced with like kind in the event of a loss.

12. Vegetated Roof

13. http://www.residencesatindianpoint.com/green_roofs.html • Additional benefits include: • Reducing city "heat island effect • Reduce summer CO2 impact • Reduce summer air conditioning cost • Reduce winter heat demand • Potentially lengthen roof life 2 to 3 times • Treat nitrogen pollution in rain • Negate acid rain effect • Help reduce volume and peak rates of stormwater

14. Electronic Data in Building Equipment: • Electronic Data in Building Equipment: Currently ISO Commercial Property forms limit coverage for electronic data to $2,500 on an annual aggregate basis. • The form is revised to remove the $2,500 limitation with respect to loss or damage to electronic data which is integrated in and operates or controls the building’s elevator, lightning, heating, and ventilation, air conditioning or security systems. • CAUTION: Cause of Loss

17. Payroll Limitation or Exclusion Option CP 1510 • The payroll endorsement is being modified to provide a means of limiting or excluding the payroll expense of “any category of employees or individual employees. • ” The term “ordinary payroll expense” and its definition are removed from the endorsement. • The title, also, will no longer refer to the word “ordinary” and the word “ordinary” will no longer appear in other sections such as the “coinsurance section”.

18. Payroll Limitation or Exclusion Option CP 1510 • The revised endorsement serves the same purpose as the prior one but can be used to address any category of employee on the insured’s payroll.

19. Payroll Limitation or Exclusion Option CP 1510 • The following are subject to the provisions of this endorsement if so indicated in this Schedule • All employees and job classifications including officers, executives, management personnel and contract employees • All employees and job classifications other than officers, executives, management personnel and contract employees

20. Payroll Limitation or Exclusion Option CP 1510 • All employees and job classifications (including officers, executives, management personnel and contract employees) except • Only the following job classifications and/or employees • CAUTION: Discretionary Payroll Endorsement

22. Overview of New Endorsements in the 2012 Series Not all Companies must adopt all of the forms within the form series

23. New Endorsements • Specified Property Away from the Premises • Provides BPP coverage temporarily away from the described premises in the course of daily business activities • Higher Limits • An endorsement to increase limits as opposed to entry on the Declarations Page • Protective Safeguards (Fire) • This replaces the interline form IL 0415 and pertains only to Commercial Property

24. New Endorsements • Suspension or Reinstatement of Coverage for Loss Caused by Breakdown of Certain Equipment • is used with new equipment breakdown endorsement • Deductible by Location • schedule • Limitation on Coverage for Roof Surfacing • allows the company to ACV on roof surfacing for certain perils

25. Increase in Rebuilding Expenses Following Disaster CP 04 09 • The new endorsement provides an option for insuring additional expenses when the costs of labor and/or building materials increase as a result of a disaster AND the total cost of repair or replacement exceeds the applicable limit of insurance. • Buildings to be insured are indicated on the endorsement with a % in the Additional Expense column • Coverage will only apply as a result of an event that is declared a disaster by federal or state authorities as well as damage resulting from an event which occurs in close proximity to the disaster • Coverage is on an annual aggregate basis

26. Dependent Properties in the Supply Chain (Business Interruption) • Revises: • Business Income from Dependent Properties—Limited International Coverage • Extra Expense from Dependent Properties—Limited International Coverage • Business Income Broad Form • Business Income Limited Form • Extra Expense from Dependent Properties

27. Dependent Properties in the Supply Chain (Business Interruption) • Dependent Property Coverage is written by scheduling the business locations that the insured is “dependent upon” and have chosen to insure. • The new endorsement allows for secondary dependencies. • An example provided by the ISO of a secondary dependency is a situation in which the insured’s supplier (a dependent property identified in the schedule of the current endorsement) is unable to deliver products/services due to interruption in the business of an entity (for example, a manufacturer) upon which the supplier depends but was NOT a supplier that the insured directly depended upon or was identified in the endorsement.

28. Dependent Properties in the Supply Chain (Business Interruption) • The new option for covering secondary dependencies is focused on contributing and recipient locations as defined in the form. (List on form) • Business Income losses arising out of physical loss or damage at the secondary location is subject to the same Limit of Insurance that applies to the scheduled dependent location and does not increase the coverage. • The coverage territory is reiterated on the form to avoid any confusion that the coverage goes beyond the stated territory of the policy for example for locations outside of the United States.

29. Equipment Breakdown CP 1046 • New Cause of Loss form for Equipment Breakdown that is compatible with the Special Cause of Loss Form. • Currently in the Special Cause of Loss Form there are three major categories of exclusions that relate to equipment breakdown: artificially generated electrical current; mechanical breakdown; explosion of steam boilers… • By use of this new endorsement those exclusions are eliminated. • There are limitations specific to Equipment Breakdown coverage that is then added in the form language.

30. Equipment Breakdown • Ammonia Contamination and Hazardous Substance amounts of insurance can be scheduled on the form. • Because of the introduction of the new Equipment Breakdown Form, the ISO has also introduced the Suspension or Reinstatement of Coverage for Loss Caused by Breakdown of Certain Equipment to allow the insurance companies to either suspend or reinstate coverage for certain pieces of equipment.

31. Food Contamination (Business Interruption and Extra Expense • This new option covers extra expenses and business income loses arising out of food contamination and pertains to the Business Income And Extra Expense Coverage Form. Coverage is limited to loss of income/extra expense due to the closure of the business. • Covered expenses include: cost of cleaning equipment; cost of replacing food; medical testing and vaccination and advertising expense.

32. Exclusion of Loss due to By-Products of Production or Processing Operations (Rental Properties) • This endorsement is as a result of the landlord/tenant business risks relating to the rental of the property. • While the landlord may enter into a lease that holds the tenant responsible for damages arising from a variety of causes, the insurance contract is not intended to compensate a landlord for the expected consequences of usage of the rental premises as intended.

33. Exclusion of Loss due to By-Products of Production or Processing Operations (Rental Properties) • One example provided by the ISO in explanation would be when a premise is leased for use as a restaurant and there is damage from the residue of the cooking operation. This is deemed a business risk innate to the occupancy not loss compensated by insurance.

34. Exclusion of Loss due to By-Products of Production or Processing Operations (Rental Properties) • This question becomes much more interesting and complex when the property is rented for illegal purposes such as the rental of premises that is used as a methamphetamine laboratory in which the damage from methamphetamine “cooking” operations can be likened to the residue from cooing operations in a restaurant. • Needless to say there are many issues at the heart of this discussion that goes beyond the coverage issue such as: did the landlord know about the operation; should the landlord have known about the operation and so on.

35. Exclusion of Loss due to By-Products of Production or Processing Operations (Rental Properties) • A case in point that the ISO used in their circular was the Graff v. Allstate Insurance Company, 113 Wash, App.799; 54P.3d 1266 (Wash, Ct. App.2001). In the case the insured filed a claim for cleanup expenses after a tenant’s methamphetamine laboratory damaged his rental house and the insurer denied the claim citing the policy’s contamination exclusion.

36. Exclusion of Loss due to By-Products of Production or Processing Operations (Rental Properties) • The insured sued and the trial court held in favor of the insured finding that his insurance policy covered the cleanup expenses. The appellate court affirmed the lower court’s decision and stated that the operation of a methamphetamine laboratory is vandalism and therefore covered under the policy. Thus both the contamination and vandalism issues came into play.

37. Exclusion of Loss due to By-Products of Production or Processing Operations (Rental Properties) • The Insurance company, (plaintiff), contended that coverage is not intended to extend to the inevitable effect of a production operation which is emphasized in the language of the Special Form. As a result of this case and similar claims, the ISO has introduced this endorsement to be attached to all polices issued to owners and tenants of rental property.

38. Summary • Most of the changes are editorial • There are some improved extensions and clarified methods for showing/increasing coverage • There are new endorsements that add coverage and others that clarify coverage.

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