Q Can you help clarify "time element" coverages? On the "loss of earning" or "income form" with a 25% monthly limit, how long may the insured collect from the insurance company?
If the insured has a partial loss and collects loss of income for FOUR months and is still able to complete repairs, and his loss of income continues, how many more months will he have coverage if the entire limit is not gone? How about with extra expense at 40%/80%/100%? How long may the insured collect?
What if the insured has a partial loss and moves across the parking lot into an empty location? At the end of three months he still is in the temporary location. If he has extra expense that has not been used, how many months does he have to collect the entire limit?
JIM MILLER, CPCU, American Business & Personal Insurance, Inc., Seattle, WA
A On the "loss of earning" or "income form" if 25% is selected as the option used, four months is the maximum time available regardless of the amount or limit used. What follows is an excerpt from our PF&M Service (section 131.5-2) regarding time element:
MONTHLY LIMIT OF INDEMNITY OPTION:
"When this option is chosen, the coinsurance clause is suspended. Instead the amount of payment for loss is calculated by multiplying the monthly limit factor by the limit of insurance selected, and this is the maximum amount available for payment in each 30-day period. The amount available each month is the actual loss sustained, subject to the maximum available.
"Only three options are available: 1/3, 1/4, or 1/6.
"Since the coinsurance clause is suspended with this option, the insured must use alternate methods to calculate the limit of insurance; and the insured must be fully aware that the period of time for which coverage is available is limited. The coinsurance option does not limit the amount of recovery to any specific time period--a full 12 months is available; nor does it cap the maximum amount that will be paid in any one 30-day period. Although this option at first appears to be advantageous because no coinsurance penalty would be invoked, it should be evaluated carefully to make sure an insured is adequately protected.
"If the 1/3 monthly limitation is selected, coverage is available for only three consecutive 30-day periods. If the 1/4 monthly limitation is selected, coverage is available for only four consecutive 30-day periods. If the 1/6 monthly limitation is selected, coverage is available for only six consecutive 30-day periods.
"Another factor to consider when selecting this option is that in some cases, much of the initial expense may be incurred in a specific 30-day period; and using the monthly limit of indemnity option sets a maximum recovery in any one 30-day period. The calculation of the limit of insurance and the time period selected for this option may actually prove to be more illusive and difficult than the coinsurance option. Factors to be considered include: What is the longest period of time the insured may be shut down--worst case scenario? What is the least amount of time the insured may be shut down--best case scenario? And which end of the scale does the insured wish to pursue? What are the expenses that must be covered? And could they possible occur all at once or within any one given 30-day time period?
"To illustrate how the limit and factor works: The insured selects a limit of insurance of $120,000 with a monthly limit of 1/3. In this example, the insured may receive up to $40,000 a month for three months. It should be noted that there is no hold-over in the amount of insurance paid. So if the insured needs $60,000 the first month and only $20,000 the second, the first month is still limited to a maximum of $40,000 and the second month to the actual amount of loss or $20,000. This may result in inadequate protection for an insured. In another example, should the insured have a heavy first month, say $100,000 of actual expenses and the remaining $20,000 the second but none the third, the insured is still limited to $40,000 in recovery the first month, $20,000 the second, and none the third."
Extra expense is handled a little differently. In this case, the insured would have coverage for a fourth or fifth 30-day period if the limit were not used the first three months. Again, what follows is from our PF&M Service:
EXTRA EXPENSE
"The extra expense coverage form is handled differently than the business income with or without extra expense. Extra expense covers only those expenses that the insured will incur to continue operations either at the same location or a new location. Since the time the insured is out of operation will be very minimal, if any, there is no protection for any loss of income. Expenses to continue operations, however, may be extensive. There is no coinsurance clause applicable.
"Some of the factors to consider in determining a limit of insurance are whether or not other facilities are readily available, how costly they are, whether necessary machinery or equipment is readily available, and if contingency programs have been developed in case of a major or minor direct physical damage loss.
"Once a limit has been selected for the extra expense coverage, a limit on loss payment must be selected. This is composed of three percentages. The first percentage is the amount of the limit of insurance that is available for loss payment in the first 30 days after the loss. The second percentage is the amount of the limit of insurance that is available for the second 30-day period after the loss and the third percentage is the amount of the limit available for recovery in excess of 60 days after the loss. The options to select from are:
* 100%-100%-100%
* 40%-80%-100%
* 35%-70%-100%
"As with the monthly limit of indemnity option to business income, one important item the insured must consider when selecting which option to use is the maximum amount of loss that may be incurred in any one 30-day period, specifically the first and second 30-day periods. Although more costly to purchase, the higher first 30-day period options may offer the best protection.
Q I recently advised a Client (a municipality) that certain of the things that they attach to their truck from time to time, such as: snow plow, dump box, and salt spreader--should be insured on the Inland Marine policy instead of relying upon their commercial auto policy. The auto policy makes no specific mention of physical damage coverage for these things, EXCEPT that the description of two of the trucks in the declarations includes the letters "W/Plo" (with plow). They have four plow attachments which worth about $7,000 per item. The other attachments are of about the same value.
I believe that the insurer should pay for a plow damaged while attached to one of these two trucks; but, that they would probably refuse to pay for theft of or damage to a plow if not attached. Also, there would be no physical damage coverage for the other types of attachments at any time.
JOSEPH ZINOBILE, AIS, ARM, CIC, The Zigmund Company, LTD, Harrisburg, PA
A Let's start with the ISO's CA 00 01--Business Auto Coverage Form, under SECTION III - PHYSICAL DAMAGE COVERAGE
A. Coverage, where it states:
"1. We will pay for "loss" to a covered "auto" or its equipment..."
Unfortunately, no clear definition of "its equipment" is provided. So we do not have resolution in the policy form itself as to whether there is coverage for detachable items like the ones you mentioned, (snowplows and the like,) when not attached to the vehicle. We would agree with you that there would most likely not be physical damage coverage when not on the vehicle.
It is not clear if optional items (like snowplows or other add-on equipment not permanently attached) are covered with the auto--even when they are--if they are not specified in the description and the cost has not been added to the value of the auto for rating purposes. The consensus has normally been that there is no physical damage coverage for detachable equipment that is not in the description of the auto.
If the equipment is permanently attached, it is clearly a part of the auto. Refer to the following description found in the Business Auto Policy:
" ...However, self-propelled vehicles with the following types of permanently attached equipment are not 'mobile equipment' but will be considered 'autos:'
a. Equipment designed primarily for:
(1) Snow removal;
(2) Road maintenance, but not construction or resurfacing; or
(3) Street cleaning;
b. Cherry pickers and similar devices mounted on automobile or truck chassis and used to raise or lower workers; and
c. Air compressors, pumps and generators, including spraying, welding, building cleaning, geophysical exploration, lighting or well servicing equipment."
But, be very cautious whenever there is permanently attached equipment. Although clarification has been made in the business auto policy that this equipment is covered as an auto, the physical damage valuation process is not as clear. When a vehicle has been modified or altered by attaching such equipment, the value of the attached equipment for rating, underwriting and claims handling purposes cannot normally be determined from the "book value" of the vehicle. This results in a great deal of paperwork, documentation, and a complicated valuation process. Consideration should be given to a physical damage coverage that specifically addresses the uniqueness of this type of vehicle with permanently attached equipment such as a stated amount endorsement (CA 99 28), inland marine coverage or the like.
The policy does address certain, specific equipment as not covered:
"4. We will not pay for 'loss' to any of the following:
a. Tapes, records, discs or other similar audio, visual or data electronic devices designed for use with audio, visual or data electronic equipment.
b. Any device designed or used to detect speed measuring equipment such as radar or laser detectors and any jamming apparatus intended to elude or disrupt speed measurement equipment.
c. Any electronic equipment, without regard to whether this equipment is permanently installed, that receives or transmits audio, visual or data signals and that is not designed solely for the reproduction of sound.
d. Any accessories used with the electronic equipment described in Paragraph c. above."
This whole issue of detachable and permanently attached equipment from a physical damage standpoint is a touchy one. It is dealt with differently by individual insurers and there does not seem to be any clear-cut rules.
Can such items be covered by an auto policy? Yes but, that may not offer the insured the best physical damage protection unless dealt with accurately. On behalf of the insured, an agent must make sure that the description is accurate on the auto policy (in some cases, insurers require serial numbers and so forth) and that the value of the equipment has been addressed in a manner that will not complicate the claims handling process. Each insurer will have its own method of dealing with the issue. The auto policy will need to be reviewed carefully upon issuance to make sure that the equipment has been properly addressed.
If the equipment is permanently attached, consider using either the endorsement CA 99 28--Stated Amount Insurance or an inland marine policy for physical damage coverage.
If the equipment is detachable, serious consideration should be given to covering with an inland marine floater. It this manner there is no doubt regarding the physical damage coverage. The item is scheduled and a limit is set. This eliminates the possibility of no coverage in an auto policy if the insured forgets to describe it with the covered auto; if the insured moves the equipment from one vehicle to another, or places it on a temporary substitute. It also protects the insured if the equipment is not attached to a covered auto and the garage or structure housing the equipment catches fire, is blown away by a tornado or if theft of the equipment occurs.
©COPYRIGHT: The Rough Notes Magazine, 1998