Commercial Inland Marine Forms

Commercial inland marine forms follow property that a building-and-contents policy handles badly: records, receivables, goods held for others, tools that move from job to job. Each form is short, and each starts from the same set of general conditions, so the useful skill is reading the conditions form once and then asking what each coverage form changes. The discussion uses the standard Commercial Inland Marine Conditions (ISO CM 00 01, 06 95), the Accounts Receivable Coverage Form (CM 00 66, 06 95) and the Valuable Papers and Records Coverage Form (CM 00 67, 07 90), then summarizes the other common forms. The businesses and amounts are invented.

The Conditions That Apply to Every Form

The conditions form applies in addition to the common policy conditions. Several of its terms decide claims.

• No abandonment. The insured cannot abandon damaged property to the insurer and demand its full value.
• Duties after loss. The insured must notify the police if a law may have been broken, give prompt notice with a description of the property, describe how, when and where the loss happened, protect the property and keep a record of the expense, make no statement that assumes an obligation or admits liability, permit inspection, submit to questioning under oath, and send a signed, sworn statement of loss within 60 days after the insurer asks.
• Loss payment. The insurer pays or makes good a covered loss within 30 days after agreement, entry of final judgment or the filing of an appraisal award.
• Other insurance. If other insurance covers the same loss, this insurance pays only the excess over what the other should have paid, whether or not the insured can collect on it.
• Pair, sets or parts. For a loss to part of a pair or set the insurer may restore the set or pay the difference in value before and after. For property made of several parts, it pays only for the lost or damaged part.
• Privilege to adjust with owner. For loss to property of others in the insured’s care, the insurer may settle directly with the owners, and a receipt from them satisfies any claim by the insured. It may also defend the insured at its own cost, outside the limit.
• Recoveries and reinstatement. A recovery or salvage goes first to the insurer until its payment is made up, and a payment does not reduce the limit, except for the total loss of a scheduled item.
• Legal action. No suit may be brought unless the insured complied with the policy and sues within 2 years after first knowing of the loss.
• No benefit to bailee. No one other than the insured who has custody of the property benefits from the insurance.
• Valuation. Property is valued at the least of its actual cash value, the cost of reasonably restoring it to its condition immediately before the loss, or the cost of replacing it with substantially identical property, determined at the time of loss.

For example, a 12-year-old press with an actual cash value of $9,000, a restoration cost of $14,000 and a higher cost of replacement with identical property pays $9,000.

Accounts Receivable

The form pays for amounts due from customers that the insured cannot collect, interest on a loan needed to offset the uncollected amounts pending payment, collection expenses beyond normal that the loss makes necessary, and other reasonable expenses to re-establish the records, all as a result of covered causes of loss to the records. Covered causes of loss are risks of direct physical loss, except those excluded.

The form excludes records in storage away from the described premises, contraband, bookkeeping, accounting or billing errors, alteration or falsification to conceal wrongful giving or taking of money, dishonest acts by the insured, partners, employees or anyone entrusted with the property (theft by employees is not covered), electrical or magnetic injury or erasure of electronic recordings caused by programming errors, faulty installation or maintenance of data processing equipment, or an occurrence or power interruption more than 100 feet from the premises (lightning is excepted), and loss that requires an audit of records or an inventory computation to prove its factual existence.

When the insured cannot establish the accounts outstanding at the time of loss, the form uses the total of the average monthly amounts for the 12 months before the loss, adjusted for normal fluctuation in the month of loss. From the total it deducts the accounts for which there is no loss, accounts the insured is able to re-establish or collect, an allowance for probable bad debts, and unearned interest and service charges. The insured must keep the records in the receptacles the Declarations describe whenever the business is not open, and must insure at least 80% of the value of all accounts receivable (except those in transit) or face a coinsurance penalty. The penalty applies to uncollectible accounts. It does not apply to records in transit, interest charges, excess collection expenses or the cost of re-establishing the records.

A claim shows how the parts fit. A print shop’s fire destroys its billing records. The 12-month monthly average of receivables is $240,000, and normal fluctuation adds $10,000 for the month of loss, for $250,000. Records of $30,000 of accounts survived in a fireproof file, so those accounts suffered no loss, the shop re-established and collected $155,000 from customers’ statements, bad debts normally run $6,000, and unearned service charges are $2,000. The uncollectible balance is $250,000 - $30,000 - $155,000 - $6,000 - $2,000 = $57,000. Extras are $900 of loan interest, $2,300 of added collection cost and $3,800 to rebuild records, for $7,000. The shop carries a $150,000 limit against 80% x $250,000 = $200,000 required, a ratio of 0.75. The penalty applies to the $57,000 only, which becomes $42,750, and the extras of $7,000 are paid in full. The insurer pays $49,750, and the shop absorbs $14,250 of the $64,000 total.

Valuable Papers and Records

The form pays for loss to valuable papers and records that are the insured’s property or the property of others in its care, custody or control. They are inscribed, printed or written documents, manuscripts or records, including abstracts, books, deeds, drawings, films, maps and mortgages. They do not include money, securities, or converted data, programs or instructions used in data processing operations, including the materials on which that data is recorded. Electronic records are therefore insured elsewhere, usually on an electronic data processing form.

Property not specifically declared and described in the Declarations is not covered if it cannot be replaced with other property of like kind and quality. Samples, property held for delivery after sale, property in storage away from the premises and contraband are also not covered. The exclusions follow the accounts receivable form: dishonest acts, errors in processing or copying, electrical or magnetic erasure except by lightning, voluntary parting by fraudulent scheme, wear and tear, gradual deterioration and consequential loss. An extension pays up to $5,000 for loss while the property is away from the premises, and covered property can be removed for safekeeping on notice within 10 days.

The valuation clause changes the general rule for items specifically declared: the value of each is the limit shown for that item. An architect declares a set of original drawings at $48,000. A fire destroys them, and with a $1,000 deductible the insurer pays $48,000 - $1,000 = $47,000, without arguing about cost of research or restoration. Another set of originals that was never declared, and cannot be replaced with like kind and quality, is not covered at all. A producer should have the client list the irreplaceable items.

Other Common Forms

The remaining forms vary by insurer and edition, so the table describes standard forms generally. Its exclusions are the kinds to look for, not wording to rely on, and a producer reads the form actually issued for its trigger, exclusions and valuation.

Form	Coverage trigger	Kind of exclusion to look for	Example loss
Bailee’s customers	Customers’ property in the bailee’s custody, such as a dry cleaner’s or a tailor’s, for processing or repair	Loss caused by the bailee’s dishonest employees, and wear or gradual deterioration	A cleaner’s fire destroys $11,000 of customers’ garments, and the insurer may settle directly with the owners under the privilege to adjust
Equipment dealers	A dealer’s stock of machinery and equipment, which may include items sold on installment until paid	Mechanical breakdown, and loss of items after the customer takes delivery unless the form extends to them	A tractor dealer’s $60,000 unit is stolen from the yard
Contractors equipment	Equipment moved from job to job, either scheduled or blanket, usually on an all-risk basis	Wear and tear, mechanical breakdown and dishonest acts	A loader overturns on a slope and is a total loss, paid at actual cash value less the deductible
Electronic data processing	Computers, peripherals and often media and extra expense, on and off premises	Mechanical or electrical breakdown unless separate equipment breakdown coverage applies, and data loss from programming error	A power surge from a lightning strike destroys a server
Signs	Signs on or off the described premises, including neon and electric signs	Wear, rust and corrosion, and electrical breakdown	A storm tears down a $9,000 neon sign

A form can be built on a bailee’s legal liability, where the insurer pays only for loss the bailee is legally responsible for, or on the customer’s property regardless of fault, where it pays whatever the loss, and the Declarations should say which. Valuation under any of them starts from the least of actual cash value, restoration cost or replacement cost unless the form changes it, so a producer asks at placement whether replacement cost or an agreed value is available.

Lesson summary

• Inland marine coverage forms rely on one set of general conditions: no abandonment, 30-day loss payment, an excess other-insurance clause, a 2-year suit limit and a valuation rule of the least of actual cash value, restoration cost or replacement cost.
• The privilege to adjust with the owner lets the insurer settle directly with the owners of property in the insured’s care.
• Accounts receivable coverage pays uncollectible accounts and related interest and expenses, and requires insurance of at least 80% of total receivables or a coinsurance penalty applies to uncollectible accounts.
• Receivables lost to an unprovable inventory computation, bookkeeping errors, dishonest acts or stored away from the premises are excluded.
• Valuable papers coverage values specifically declared items at their declared limit and does not cover irreplaceable items that were not declared.
• Valuable papers and records excludes money, securities and converted electronic data, which belong on other coverage.
• Bailee, equipment dealer, contractors equipment, electronic data processing and sign forms differ in trigger, exclusions and valuation, so the issued form must be read.