ROUGH NOTES' PF&M EDITORS RESPOND
The Rough Notes Company, Inc., is not legal counsel and we cannot give legal advice. What we can do is offer some things to think about with regard to the question presented and one possible interpretation of some of the coverage forms.
Q We need your assistance in understanding a section of the ISO Business Owners form. The form is BP 00 02 01 97, Page 13 of 23, Section D. Deductibles.
Item 2. reads:
Regardless of the amount of the Deductible, the most we will deduct from any loss or damage under all of the following Optional Coverages and the Additional Coverage-Exterior Building Glass in any one occurrence is the Optional Coverage/Exterior Building Glass Deductible shown in the Declarations:
a) Money and Securities;
b) Employee Dishonesty;
c) Interior Glass; and
d) Outdoor Signs.
It is our interpretation that this applies only when the Optional Building Glass Deductible Buyback is purchased, and shown in the declarations. If the Optional Building Glass Deductible was not purchased, then the normal policy property deductible would apply to these coverages shown above.
Please share with us your interpretation of the above referenced section.
A It is best to look at the entire deductible provision in the Special BOP Policy to fully understand its application. BP 00 02 01 97 states:
D. Deductibles
1. We will not pay for loss or damage in any one occurrence until the amount of loss or damage exceeds the Deductible shown in the Declarations. We will then pay the amount of loss or damage in excess of the Deductible up to the applicable Limit of Insurance.
2. Regardless of the amount of the Deductible, the most we will deduct from any loss or damage under all of the following Optional Coverages and the Additional Coverage--Exterior Building Glass in any one occurrence is the Optional Coverage/Exterior Building Glass Deductible shown in the Declarations:
a. Money and Securities;
b. Employee Dishonesty;
c. Interior Glass; and
d. Outdoor Signs.
But this Optional Coverage/Exterior Building Glass Deductible will not increase the Deductible shown in the Declarations. This Deductible will be used to satisfy the requirements of the Deductible in the Declarations.
3. No deductible applies to the following Additional Coverages:
a. Fire Department Service Charge;
b. Business Income;
c. Extra Expense; and
d. Civil Authority.
The first paragraph is fairly clear. There is no coverage for any property loss that occurs under the Special BOP policy until that loss exceeds the deductible shown in the declarations. When it does, only the amount in excess of the deductible will be paid.
Deductibles in property insurance are often misunderstood. For example: The Limit of Insurance is $100,000; the deductible is $1,000; and the loss is $50,000. The $1,000 deductible is applied to the loss, and the remaining loss ($49,000) is paid.
If the loss exceeds the Limit of Insurance, the following occurs: Starting with a loss of $110,000, the deductible is applied ($110,000 minus $1,000 or $109,000), but the remaining loss exceeds the insurance limit by more than the deductible. Therefore the entire $100,000 Limit of Insurance is paid. Of course, there is a $9,000 gap in insurance coverage.
High deductibles are an effective way to reduce premiums and eliminate minor claims; however, high deductibles are inappropriate for some of the coverages that have low dollar limits such as glass.
The BOP has a specific, usually more limited, deductible which may be applied only to the Exterior Building Glass deductible, if so desired. It must be shown on the declarations. If a loss occurs only to the Exterior Building Glass, the specific Exterior Building Glass deductible will apply to that coverage instead of the policy deductible.
In many cases, the loss does not occur to only one particular item such as just the Exterior Building Glass. When losses occur to more than one item or type of property, confusion may result in the application of multiple deductibles. This is the reason for Item 2 of the Deductible Clause.
If a loss occurs that includes exterior building glass and any other covered property, the policy deductible applies--the deductible is charged only once.
If an interior glass loss occurs in addition to personal property or building damage, again, only the policy deductible applies.
If a loss occurs only to interior glass, the policy deductible applies.
If a loss occurs to interior and exterior building glass only, then the Exterior Building Glass deductible would apply--not the policy deductible--nor would both deductibles apply.
If no Exterior Glass Coverage was purchased or if no limited Exterior Building Glass Coverage deductible was selected, then the policy deductible applies.
The following additional coverages will have no deductible whatsoever: fire department service charges, business income, extra expense, civil authority. However, if other property suffers loss during the same occurrence or accident, the applicable deductible will apply to the other coverages.
When all is said and done, it would appear that your assessment of the application of the deductible is correct. *