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9.9 Selected Commercial Property Endorsements

Ordinance or Law Coverage​

The Causes of Loss forms exclude coverage for increased costs that result from the enforcement of an ordinance or law. However, this coverage may be added by endorsement. The Ordinance or Law Coverage Endorsement applies when the enforcement of a building, zoning, or land-use law causes additional loss or expense after a covered property loss. This endorsement may provide three separate coverages:

  • Coverage A — Loss to the Undamaged Portion of the Building: Covers the loss in value of the undamaged portion of the building when an ordinance or law requires that portion to be demolished.
  • Coverage B — Demolition Cost Coverage: Covers the cost to demolish and clear the site of the undamaged portions of the building.
  • Coverage C — Increased Cost of Construction: Covers the increased cost to repair or reconstruct the damaged portions of the building, reconstruct or remodel the undamaged portions, or both.

Coverage C may also apply to foundations, pilings, underground pipes and drains, and excavation costs when those expenses are necessary to comply with the ordinance or law.

Coverage applies only if the building sustains direct physical damage that is covered by the base policy. The ordinance or law must also be in force at the time of the loss. If the law is not in effect when the covered damage occurs, the endorsement will not apply to the resulting increased costs or required demolition.

Coverage is not provided for the enforcement of any ordinance or law that relates to pollutants, fungus, wet rot, dry rot, or bacteria. This means the endorsement does not cover costs required by laws or regulations involving the testing, monitoring, cleanup, removal, containment, treatment, detoxification, or neutralization of these substances.

Spoilage Coverage​

The Spoilage Coverage Endorsement provides coverage for perishable stock owned by the insured or in the insured’s care, custody, or control at the insured premises. The insured may select coverage for one or both of the following covered causes of loss:

  • Breakdown or Contamination: Includes changes in temperature or humidity caused by the mechanical failure of refrigeration, cooling, or humidity-control equipment at the insured location. It also includes contamination by refrigerant, which is the working fluid used in refrigeration equipment.
  • Power Outage: Means a change in temperature or humidity caused by a complete or partial interruption of electrical power. The interruption may occur on or off the insured premises, but it must be beyond the insured’s control.

This endorsement is important for businesses that store or sell perishable goods, such as food, flowers, pharmaceuticals, or other temperature-sensitive stock.

The Spoilage Coverage Endorsement excludes several causes of loss. Many of these exclusions are the same common exclusions found in commercial property coverage, including:

  • Earth movement
  • Governmental action
  • Nuclear hazard
  • War and military action
  • Water

The endorsement also excludes spoilage losses caused by:

  • Disconnection from the power source
  • Insufficient power due to lack of fuel
  • Insufficient power caused by a government order
  • Breakage of glass that is a permanent part of the covered equipment

These exclusions are important because the endorsement is designed to cover specific spoilage causes, such as selected breakdown, contamination, or power outage events, rather than every possible cause of damage to perishable stock.

If indicated in the schedule, covered spoilage losses may be valued at the property’s selling price rather than another valuation method. The Spoilage Coverage Endorsement is also subject to its own scheduled deductible. This deductible applies separately from the deductible that may apply to other commercial property coverages. If the schedule shows that a refrigeration maintenance agreement is required, the insured must maintain a refrigeration maintenance or service agreement. Failure to maintain the required agreement may affect coverage for a spoilage loss.

Peak Season Limit of Insurance​

The Peak Season Limit of Insurance Endorsement provides a temporary increase in the limit of insurance for business personal property during a designated period of time. This endorsement is useful when the insured expects the value of covered property to increase during certain seasons or business cycles, such as the Christmas shopping season, when a retail store may carry more stock than usual. The insured selects:

  • The property for which the limit will be increased
  • The amount of additional insurance
  • The specific time period during which the increased limit will apply

This endorsement helps ensure that the insured has enough coverage during periods when inventory or other business personal property values are higher than normal.

Value Reporting Form (Full Value Form)​

The Value Reporting Form Endorsement is used when the insured owns business personal property that fluctuates in value during the policy period. Instead of insuring a fixed value for the entire policy term, the insured reports the actual values at risk on a periodic basis. Reports may be filed daily, weekly, monthly, quarterly, or annually, as shown in the Declarations. The insured must report 100% of the property values with each required report. Accurate and timely reporting is important because the insurer uses these reports to determine the amount of coverage available and to calculate the premium. If the insured reports late or under-reports the property values, a penalty may apply after a loss. For example, the insurer may limit payment to a percentage of the covered loss, such as 75%, depending on the reporting error and policy terms.

Under the Value Reporting Form Endorsement, the insured pays an advance premium at the beginning of the policy period. At the end of the policy year, the insurer calculates the final premium based on the average of the property values reported during the policy period. If the reported values show that the insured had more property at risk than originally estimated, an additional premium may be due. If the reported values are lower, the insured may receive a return premium, subject to the policy terms.

An Insurance Story

The Furniture Company sells many high-value items, and the amount of stock in its stores changes throughout the year. Inventory may increase during major sales events or when the company brings in new furniture styles for the next season. Because its business personal property values fluctuate, The Furniture Company may choose to add the Value Reporting Form Endorsement to its Building and Personal Property Coverage Form. This endorsement would allow the company to report its property values on a scheduled basis, such as monthly, so the amount of insurance can better reflect the values actually at risk during the policy period.

Alternatively, The Furniture Company may be mainly concerned about a temporary increase in stock during the holiday shopping season. In that case, the company could use the Peak Season Limit of Insurance Endorsement to increase its business personal property limit only during that specific period, such as the fourth quarter. The Value Reporting Form Endorsement is useful when property values fluctuate throughout the year. The Peak Season Limit of Insurance Endorsement is useful when the insured needs additional coverage for a predictable, temporary increase in property values.

Earthquake and Volcanic Eruption Endorsement​

The Earthquake and Volcanic Eruption Endorsement amends the Causes of Loss forms attached to the policy by adding coverage for the perils of earthquake and volcanic eruption. volcanic eruption. This means multiple shocks or eruptions during that period are considered a single event for coverage purposes. If the 168-hour period begins before the policy expires, the expiration of the policy does not shorten the period. Coverage may still apply to shocks or eruptions occurring within that same 168-hour period, even if part of the period extends beyond the policy expiration date.

The Earthquake and Volcanic Eruption Endorsement does not cover loss caused by a tidal wave or tsunami, even if the tidal wave or tsunami is caused by an earthquake or volcanic eruption. The endorsement also excludes coverage for exterior masonry veneer on wood frame walls, except for stucco. However, exterior masonry veneer may be covered if:

  • The insured selects the masonry veneer coverage option; or
  • Less than 10% of the total exterior wall area is faced with masonry veneer

This limitation is important because masonry veneer can be especially vulnerable to earthquake damage and may require a specific coverage option to be insured.

Separate deductibles apply under the Earthquake and Volcanic Eruption Endorsement to each of the following:

  • Each covered building
  • Personal property located at each covered building
  • Personal property in the open

The insured selects the deductible as a percentage of the limit of liability that applies to each class of property. The earthquake or volcanic eruption deductible does not apply to business income or extra expense coverage.

Note

Although the Earthquake and Volcanic Eruption Endorsement is more commonly used, similar coverage may also be provided by the Causes of Loss — Earthquake Form, if that form is available. When the Causes of Loss — Earthquake Form is used, it must be attached along with another Causes of Loss form. It does not replace the need for a separate Causes of Loss form that applies to the other covered causes of loss.