Which of the following property may not be covered under a building and personal property coverage form?

ROUGH NOTES' PF&M EDITORS RESPOND

QUESTIONS &ANSWERS

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?

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ROUGH NOTES' PF&M EDITORS RESPOND
QUESTIONS &ANSWERS
Which of the following property is covered under the personal property coverage?
What 2 things are not covered under a property insurance policy?
Which one of the following statements is correct with respect to the building and personal property coverage form BPP )?
What is covered under a property policy?

--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A A review of court cases brought to light several that are no longer applicable.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 addresses 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 often is 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.

Following 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. *

Which of the following property is covered under the personal property coverage?

Personal property coverage can cover your belongings, such as furniture, clothing, sporting goods or electronics, in the event of a covered loss – whether they get damaged at your home, apartment or anywhere in the world.

What 2 things are not covered under a property insurance policy?

Many things that aren't covered under your standard policy typically result from neglect and a failure to properly maintain the property. Termites and insect damage, bird or rodent damage, rust, rot, mold, and general wear and tear are not covered.

Which one of the following statements is correct with respect to the building and personal property coverage form BPP )?

Which one of the following statements is correct with respect to the Building and Personal Property Coverage Form (BPP) deductible? The insurer is not obligated to pay anything to the insured unless the loss exceeds the deductible.

What is covered under a property policy?

Perils covered by property insurance typically include select weather-related afflictions, including damage caused by fire, smoke, wind, hail, the impact of snow and ice, lightning, and more. Property insurance also protects against vandalism and theft, covering the structure and its contents.