Q Please inform on the use of ISO Endorsement CG 24 07, Products/Completed Operations Hazard Redefined. An underwriter advised me that this endorsement expands coverage. I disagree and feel use of this endorsement reduces coverage and/or restricts coverage.
--STEVE ZELTZ, Eagle Insurance Associates, Cheltenham, Pennsylvania
A First, it would be prudent to look at the actual wording of the CG 24 07:
"With respect to 'bodily injury' or 'property damage' arising out of 'your products' manufactured, sold, handled or distributed:
1. On, from or in connection with the use of any premises described in the Schedule, or
2. In connection with the conduct of any operation described in the Schedule, when conducted by you or on your behalf,
Paragraph a. of the definition of 'Products-completed operations hazard' in the Definitions Section is replaced by the following:
'Products-completed operations hazard':
a. Includes all 'bodily injury' and 'property damage' that arises out of 'your products' if the 'bodily injury' or 'property damage' occurs after you have relinquished possession of those products."
This endorsement amends the definition of products/completed operations for any premises or operation scheduled on the endorsement or declarations.
Next, we will look at paragraph a. of the definition of products/completed operations found in the commercial general liability coverage form. It states:
"14. 'Products-completed operations hazard':
a. Includes all 'bodily injury' and 'property damage' occurring away from premises you own or rent and arising out of 'your product' or 'your work' except:
(1) Products that are still in your physical possession; or
(2) Work that has not yet been completed or abandoned.
However, 'your work' will be deemed completed at the earliest of the following times:
(a) When all of the work called for in your contract has been completed.
(b) When all of the work to be done at the job site has been completed if your contract calls for work at more than one job site.
(c) When that part of the work done at a job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project.
Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed..."
The unendorsed CGL coverage form covers any bodily injury or property damage resulting from the products/completed operations hazard if:
* the bodily injury or property damage occurs away from any premises owned/operated/controlled by the insured, and
* the products are no longer in the possession of the insured or the completed operations have not been completed or abandoned.
What happens to a restaurant exposure if an unendorsed CGL is used? There would be no products coverage for bodily injury resulting from any food consumed on-premises. Remember, the coverage exists as long as the bodily injury occurs away from premises. So if a customer contracted food poisoning after eating at a restaurant, the insured's CGL would not respond.
What the CG 24 07 does is redefine products/completed operations so that there is coverage for any bodily injury or property damage that occurs on-premises from a products/competed operations exposure as long as the insured has relinquished control of the product to a customer. So in the case of a restaurant, once the customer is served (control of the product is relinquished), there is on-premises coverage if food poisoning should occur.
The CG 24 07 does broaden products/completed operations coverage by removing the off-premises restrictions.
Q We are often faced with the question of how to determine what the true meaning of "permanently installed" is under the Building and Personal Property form--CP 00 10. The form indicates that "permanently installed" machinery and equipment should be insured as part of the building value. Can you provide some guidelines that we can use?
--DICK MACDONALD, David Insurance Agency, Racine, Wisconsin
This question is answered by Diana Kowatch, CPCU, AU, AAM, CPIW, editor in chief of Technical and Educational Products for The Rough Notes Company.
A A review of court cases brought to light several that are no longer applicable. All of the cases found were older ones that resulted in rulings on the terminology that considered permanently attached machinery and equipment used to service the building to be part of the building. The current policies consider any permanently attached machinery and equipment to be part of the building coverage.
The current wording in the Building And Personal Property Coverage Form, CP 00 10, A. Coverage, states, "We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.
1. Covered Property, as used in this Coverage Part, means the following types of property for which a Limit of Insurance is shown in the Declarations:
a. Building, meaning the building or structure described in the Declarations, including:
(1) Completed additions;
(2) Permanently installed:
(a) Fixtures;
(b) Machinery; and
(c) Equipment;
(3) Outdoor fixtures;
(4) Personal property owned by you that is used to maintain or service the building or structure or its premises, including:
(a) Fire extinguishing equipment;
(b) Outdoor furniture;
(c) Floor coverings; and
(d) Appliances used for refrigerating, ventilating, cooking, dishwashing or laundering;
(5) If not covered by other insurance:
(a) Additions under construction, alterations and repairs to the building or structure;
(b) Materials, equipment, supplies and temporary structures, on or within 100 feet of the described premises, used for making additions, alterations or repairs to the building or structure."
The current wording has both advantages and disadvantages for the insured.
Advantages include a better rate for that machinery and equipment that is permanently installed. Normally, building property rates and loss costs are lower then business personal property or contents rates, so there would be a definite price factor in the insured's favor.
The major disadvantage is in maintaining an adequate building value that considers not only the value of the building prior to the permanently installed machinery and equipment, but also the value of the mentioned machinery and equipment. Because of the coinsurance provisions found in most standard commercial property policies, the insured could be subject to significant coinsurance penalties if an adequate building limit is not used that contains the values of the permanently installed machinery and equipment.
This brings us to the next disadvantage. The term "permanently installed" is not defined in the property policy itself and is often open to interpretation. Many insurers have company specific interpretations in internal company manuals. Common definitions may state that if the equipment or machinery is physically attached to the building--as in bolted, built-in, sealed in, or physically indistinguishable from the building--it is permanently installed. Other common definitions include the fact that if the building must be physically altered to remove the machinery or equipment, it is considered part of the building. Another item to consider is whether or not the equipment and machinery is defined in the real estate agreement as part of the building or part of any real estate mortgage. All these factors must be considered in determining the overall building value including permanently installed machinery and equipment.
Attached are excerpts from two different Rough Notes Publications.
From the Policy, Form and Manual (PF&M) Analysis Service:
130.6-14 Building or Personal Property Ruling
Purpose: The following Agreement of Guiding Principles has been adopted by member companies upon the recommendation of the Insurance Services Organization (ISO). Situations develop where there is reasonable doubt whether certain property is properly part of a building or is personal property of the building. The conclusions were made specifically in connection with insurance under dwellings or commercial property policies but, of course, apply to other policies covering buildings and personal property. Although this agreement is a number of years old, it is still valid and applicable.
Application of Agreement
The classification of property shown below derives from Agreements of Guiding Principles recommended to member companies by ISO. Though used as a guide by a majority of insurance companies and adjusters, the following remarks are applicable to the Agreements of Guiding Principles:
* they are binding only as between subscribing companies.
* they are effective only in the event of overlapping coverage.
* they do not extend or vary the contract of insurance.
Building insurance
When the owner of the building is also the owner of the personal property of the building, "building equipment and fixtures" of the building insurance shall include (whether in position or stored on the premises) storm doors, storm sashes, shades, blinds, wire screens, screen doors, and awnings.
When the owner of a building is also the owner of the personal property, items of building equipment and fixtures essentially in the nature of real property shall be covered under the building policy.
The following types of property are covered as building items:
--TV antennae and towers, detached (not affixed to the building or to an
outbuilding)
--verandahs (demountable screened enclosures)
--readily removable equipment and fixtures that are included in the realty
mortgage
--wall-to-wall carpeting only when included in the realty mortgage
--permanently installed heating plant
--permanently installed air conditioning equipment
--permanently installed attic or basement ventilating equipment, including connected fans, vents and ducts
--permanently installed lighting and plumbing fixtures
--permanently installed floor coverings of every description other than rugs and carpeting, except such rugs and carpeting that are cemented to the flooring
From Property and Casualty Insurance by Philip Gordis:
Chapter 2--Commercial Property Policy
What is Covered--Building Property
As indicated at the beginning of the analysis of the Commercial Property Policy, this form is designed to cover building and personal property. The coverage on buildings will be discussed first; that on personal property will follow.
Building Property--When the policy covers building property, it covers in addition to the building structure described as follows:
1. Completed additions to the building, fixtures including outdoor fixtures, permanently installed machinery and equipment, and if not covered by other insurance, additions under construction, alterations and repairs to the building or structure;
2. Materials, equipment, supplies and temporary structures within 100 feet of the premises used for making additions, alterations or repairs to the building.
Landlord's Furnishings and Property--Also covered under the building coverage is personal property owned by the building owner that is used to maintain and service the building and its premises. This would include appliances for refrigerating, ventilating, cooling, cooking, dishwashing or laundering, floor coverings, outdoor furniture and fire extinguishers.
Note: A loose definition of "personal property" is: Any property, whether for business or private (personal) use which is not permanently affixed to the ground or realty. By contrast, property which is affixed to the ground or the realty and whose removal would mar or deface the realty is real property. An example of the latter is wallpaper that has been installed. A set of lockers standing free is personal property, while the same set of lockers built into a wall is real property.
©COPYRIGHT: The Rough Notes Magazine, 1997