INSURING EDP EQUIPMENT - Sandi Kruise · PDF file© 2003-2015 Sandi Kruise Insurance...

© 2003-2015 Sandi Kruise Insurance Training, Sandi Kruise Inc, All rights reserved.

INSURING

EDP

EQUIPMENT

SANDI KRUISE INSURANCE TRAINING 1-800-517-7500

WWW.KRUISE.COM

© 2003-2015 Sandi Kruise Insurance Training, Sandi Kruise Inc, All rights reserved. 1

ELECTRONIC DATA PROCESSING (EDP) EXPOSURES ........................................................ 2

Problems with Standard Property Policies ............................................................................... 3 Advantages of an EDP Policy .................................................................................................. 3

ANALYSIS OF EDP COVERAGE FORMS ................................................................................. 5 Policy Format ...................................................................................................................... 5

DATA PROCESSING EQUIPMENT INSURANCE .................................................................. 5 EXCLUSIONS ......................................................................................................................... 7 DATA PROCESSING MEDIA INSURANCE ............................................................................ 8 EXCLUSIONS ......................................................................................................................... 9 Agreement ............................................................................................................................ 10 Definitions ............................................................................................................................. 10 PERILS COVERED ............................................................................................................... 14 PERILS EXCLUDED ............................................................................................................. 15 ADDITIONAL EDP EXCLUSIONS......................................................................................... 19

Processing operations ....................................................................................................... 19 Design error and faulty workmanship or materials ............................................................. 20 Work on property ............................................................................................................... 20 Rust or corrosion ............................................................................................................... 20

Property Covered .................................................................................................................. 21 Property Not Covered ........................................................................................................... 21 Property Subject to Limitations .............................................................................................. 22

Covered Locations ............................................................................................................ 22 Additional Coverages ............................................................................................................ 22 LIMITS OF INSURANCE ....................................................................................................... 28 VALUATION .......................................................................................................................... 28 DEDUCTIBLE ....................................................................................................................... 30 COINSURANCE .................................................................................................................... 30 Duties in the Event of Loss .................................................................................................... 30 Loss Settlement Conditions ................................................................................................... 33 Other Insurance Clauses ....................................................................................................... 34 Loss Payments ..................................................................................................................... 36 Other Conditions ................................................................................................................... 37

Scheduled Items Coverage ............................................................................................... 40 OPTIONAL COVERAGES .................................................................................................... 41 Available Endorsements ........................................................................................................ 42

TIME ELEMENT COVERAGE FOR ELECTRONIC MEDIA AND RECORDS, CP 15 29 ......... 43 Extra Expense and Business Interruption .............................................................................. 43 EXTRA EXPENSE INSURANCE COVERAGE ..................................................................... 45 BACKGROUND .................................................................................................................... 46 SCHEDULE .......................................................................................................................... 47 PERIOD IN DAYS ................................................................................................................. 47 RATING OR PREMIUM CALCULATION ............................................................................... 47 Monthly Limitation ................................................................................................................. 47

UNDERWRITING ...................................................................................................................... 49 ACCEPTABILITY .................................................................................................................. 49

COMPUTER VIRUSES ............................................................................................................. 50 OTHER RELATED EXPOSURES ......................................................................................... 50 SAFEGUARDING DATA PROCESSING EQUIPMENT AND RECORDS .............................. 52 RATE AND PREMIUM .......................................................................................................... 52


ELECTRONIC DATA PROCESSING (EDP) EXPOSURES

Data processing equipment and technology systems have undergone rapid changes and refinements in the last few years. One consequence is an astounding reduction in the size and price of equipment. Another is its adaptation to the needs of office operations and other specialized business activities. Most businesses today use computers in one or more phases of their operations. Not only are computers used to perform office and management information functions; they are increasingly involved in the income-generating operations of the business. Computerized equipment may also be part of a manufacturing process. Many businesses have found computers to be affordable when the cost is weighed against such advantages as greatly increased operating efficiency as well as reduced costs.

The equipment itself poses an obvious exposure to loss, as does the software (often referred to as "media"). There may also be a significant extra expense or loss of income exposure associated with the continued operation of any functions performed by computers and software. Standard property policies are not designed to protect EDP equipment with its specialized coverage needs. Specialty policies have been developed to deal adequately with the unique perils and situations facing businesses with computers. This course is designed to point out the gaps in standard property policies for EDP equipment as well as forms and endorsements available to provide broader coverage. Data processing of information and its use in communication and production processing is very important to insureds that operate business offices, retail and wholesale businesses, as well as service and industrial operations. Modern businesses function most efficiently by using various types of electronic data processing and other computerized equipment. Not only is the computer used for accounting and providing financial reports, but also it is used as part of various types of office equipment, such as copiers, FAX machines, telecommunications, word processing, data management, air conditioning and heating equipment, printing equipment, mail processing machinery, and many other modern day time-savers. Electronic computers are also used in service industries, such as airlines, hotels, hospitals, restaurants, car rentals, and many, many others.


Retail and wholesale businesses use electronic equipment for inventory control, warehousing, accounts receivable, and other useful functions. EDP policies have been developed by various underwriters to meet the needs of owners and lessees of small to medium size computers. They provide broad coverage, in a simplified format, for the insured's computer and related equipment. Extension provisions and optional coverages are available for individual business needs. Though there is variation in policy format, language, and underwriting on the part of the various companies, there is general agreement on property to which the insurance is applicable and perils insured against. The coverage information that follows reflects insuring provisions contained in policies written by major companies that are among the innovators in the field.

Problems with Standard Property Policies Under standard property policies, computers fall under the category of "office equipment, furniture and fixtures" for office risks. Many insureds purchase standard property insurance to cover computerized equipment in the same way as for other office furnishings. This is not the best or most complete coverage as EDP equipment is much more sensitive to risk of loss than office furniture and requires special insurance. Under an unendorsed standard property insurance policy there is little coverage addressing special EDP-related exposures. Electronic data processing equipment and its software is particularly susceptible to damage from electrical or magnetic disturbance and changes in temperature or humidity—perils which are excluded in a standard all risks property policy. Except for prepackaged software programs, which are typically covered on a actual cash value basis, coverage for programs and data in a standard property policy is usually limited to replacement with blank tapes or diskettes plus transcribing expense. Finally, business interruption coverage in connection with damaged EDP media (not equipment) is limited to 60 days from the date of loss or the time when the other damaged property is repaired, whichever is longer. Therefore, if the building repairs are complete, but normal operations cannot resume because replacement computer programs, data, or media are not readily available, an uninsured business interruption loss may result.

Advantages of an EDP Policy The best way to resolve these coverage inadequacies for EDP exposures is to buy a special EDP policy. Typically, EDP policies provide all risks coverage similar to that provided by all risks property forms, plus coverage for electrical and magnetic damage, mechanical breakdown, and often temperature and humidity changes as well. Some insurers include these special perils in the basic form, while others make them available by endorsement for an additional premium. Usually these special perils are subject to a separate higher deductible as well. Valuation can be on either a replacement cost or actual cash value basis, and coverage may be available on a blanket as well as on a scheduled basis. Media coverage includes the cost to reconstruct software developed in-house (subject to the limit of liability selected for this coverage), if necessary. An EDP policy will respond appropriately to extra expenses or income loss resulting from the loss of EDP equipment, programs, and data, provided that these coverage options in the policy


have been elected and adequate limits of liability established. This is perhaps the most important advantage of an EDP policy. The EDP insurance policy is a nonstandard form and no two company’s forms are the same. Forms are similar, however, between insurers using the "all risk" approach to insure electronic data and computer coverages. Advantages of EDP insurance over standard property insurance policies are:

The scope of coverage is very broad, usually on a risks of direct physical loss basis with few exclusions. Many EDP policies extend beyond "all risk" coverage and also apply to losses due to earthquake and flood. The policies also cover mechanical and electrical breakdown, as well as coverage for loss of use exposures (extra expense and loss of business income).

Electrical or magnetic disturbance to media is readily insured.

Changes in temperature or humidity which affect both software and hardware may be insured.

Coverage for programs and data stored on disks is not limited to the cost of blank tapes plus cost of transcribing data to the disk. Coverage is also available to reconstruct the program, all data, and other additional expenses incurred because of a physical loss.

Business income coverage is available without the usual 60 days limitation for reconstruction after the loss, as in standard property policies.

EDP policies are usually written on a specific basis covering specifically described types of equipment data and media, extra expense at each location, rather than on a blanket basis. This is important when the insured wishes to schedule computerized production equipment in addition to conventional EDP equipment in the same policy.


ANALYSIS OF EDP COVERAGE FORMS

Policy Format

The policy is usually divided into three or more sections: Data Processing Equipment coverage; Data Processing Media coverage; Extra Expense coverage; and Valuable Papers, Accounts Receivable or Business Interruption Insurance coverages as may be required by the insured.

DATA PROCESSING EQUIPMENT INSURANCE

There is quite a bit of variation from one form to another in the description of covered equipment. Some use the term "computer equipment" while others speak of "electronic equipment." Perhaps the most common is "electronic data processing equipment.” If the form is being used to cover conventional computer equipment, any of the usual descriptions of covered equipment will do. If, however, the intent is to cover electronic equipment that is used in a manufacturing process, or a telephone system, or any other equipment that does not qualify as a computer, the definition of "covered equipment" must be read carefully. A clarifying endorsement may be necessary. Some EDP forms specifically exclude telephone systems from coverage. Sometimes equipment coverage extends to air-conditioning equipment or to fire protection equipment. If so, coverage will usually apply only to equipment used exclusively in connection with the computer equipment. If an air-conditioning system is actually built into the computer


equipment, coverage applies regardless of whether there is a specific mention of air-conditioning equipment. Most forms cover equipment that is the property of others as well as owned equipment. However, property that is leased from others may not be afforded full coverage. In many cases the coverage provided on leased equipment is limited to covered losses for which the insured is made responsible in the lease. Provisions that limit coverage on leased equipment in this fashion are often labeled "difference-in-conditions" clauses. Many forms require the insured to provide the insurer with copies of leases that apply to any equipment covered under the policy and also to notify the insurer within some specified number of days of any changes in the terms of the lease. Some forms actually require advance notice of any change in the lease. Failure to submit the lease or to notify the insurer of changes in the lease within the required time limit could void coverage. From the insured's standpoint, provisions limiting coverage on leased equipment and requiring the filing of equipment leases with insurers are undesirable. In most cases an insured would probably be willing to accept a loss settlement on leased property on a legal liability only basis, regardless of whether such terms are included in the policy. Accordingly, it is appropriate for insurers to discount their rates where leased property is concerned, regardless of whether such provisions are imposed. Property of the insured that is leased to others and that is away from the locations shown in the declarations as covered premises is excluded under most forms. There are some forms that exclude property leased to others regardless of where it is located. This section of the policy insures all equipment and component parts related to the data processing unit. A schedule of all units or component parts must be obtained for all covered equipment. It is optional whether all or part of the equipment is to be insured. Careful attention should be given to the description of covered equipment in the EDP policy. Some insurers describe the equipment as "electronic data processing" or "word processing" equipment. If the insured wishes to cover other electronic equipment that is used in an air conditioning system, fire protection system, or in a manufacturing process, or telephone system, or equipment that does not clearly qualify as a computer, the insured should request a clarifying endorsement to the policy, or find an insurer that will cover a broad range of computerized equipment. The policy covers at all described locations owned by the insured, on described locations leased, rented or under the control of the insured, while equipment is in transit or temporarily within other premises within and between the United States, the District of Columbia, Puerto Rico and Canada. Check specific forms with the underwriter regarding transit to and from Alaska and Hawaii. Most Data Processing Policies provide that equipment may be insured on a Difference In Conditions basis if the equipment is leased or rented. The typical Difference In Conditions provision affords coverage only for the difference in conditions between those provided in the lease or rental agreement and the terms of the insuring agreement in the Data Processing Policy. If the lease or rental agreement provided that the lessor be responsible for a number of named perils and the Policy provides coverage on an "all risk" basis, the Policy would pick up only


those insured perils that would not be covered in the lease. Also, a Data Processing Policy would cover losses that might be due to the insured's negligence in operating the equipment that ordinarily would be excluded in the lease, if not otherwise excluded in the Policy. It is a condition of insurance under the Difference In Conditions provision that the insured must file a copy of any lease or rental agreement pertaining to insured property insofar as concerns the lessors' liability for loss to insured property. The insured further agrees to give the company 30 days notice of any alterations, cancellations or termination of the lease or rental agreement.

EXCLUSIONS Certain types of property are excluded from coverage under the Data Processing Equipment insuring agreement. They are:

Active data processing media, meaning all forms of converted data and/or program and/or instruction vehicles used in the insured's data processing operation. (Such items are covered under Data Processing Media coverage, another insuring agreement).

Accounts, bills, evidences of debt, valuable papers, records, abstracts, deeds, manuscripts or other documents. (Such items may be covered under a separate Valuable Papers and Records policy or by an optional insuring agreement attached to the Data Processing Policy).

Property rented or leased to others while away from the premises of the insured. Some insurers exclude property rented or leased to others, but further provide that use of the system by the insured for the benefit of others or by others with the permission of the insured and for their own benefit does not constitute an excluded rental or lease, so long as such use is on the premises of the insured and whether or not a fee is charged for such services. This explicit provision emphasizes that coverage is afforded under common "shared-time" agreements between business firms.

Data Processing Equipment insurance covers against all risks of direct physical loss or damage to the covered property, except as is specifically excluded in the policy. Most exclusions are standard among the companies offering this coverage, but there may be a few variations. Check the individual policies for differences.


DATA PROCESSING MEDIA INSURANCE

Most EDP coverage forms cover computer programs, the insured's converted data, and the material (media), such as disks or tapes, on which the data and programs are stored. Often these three items are collectively referred to as "media.” Some forms speak of "data and media.” A few forms use all three words. Regardless of which words are used in labeling the coverage, the applicable definition virtually always encompasses all three items. In order to be covered under the EDP policy, the insured's data must be converted into a form usable by the computer. In other words, source documents are not covered. However, it is often possible to endorse the EDP policy to cover valuable papers. The primary advantage of covering valuable papers under the EDP policy is the convenience of having a single policy and a single insurer for both coverages. While it is true that the EDP policy may cover a broader range of perils than a typical valuable papers form does, most of these additional perils (electrical injury, mechanical breakdown, etc.) are not a special concern with respect to paper records. Besides, the perils applicable to valuable papers coverage are usually established in a valuable papers coverage form and are therefore separate and distinct from those covered under the EDP coverage form. Conventional accounts receivable coverage can also be provided by endorsement to many EDP policies. Accounts receivable coverage forms do not typically exclude computerized records, but they do often contain an electrical injury exclusion. Again, as a general rule, since the perils applicable to accounts receivable coverage are usually established in a valuable papers coverage form which is simply attached to the EDP policy, the only particular advantage of insuring accounts receivable under the EDP policy instead of separately is the convenience of having a single policy and a single insurer for both coverages. This section of the Data Processing Policy is most important for firms that rent or lease their data processing equipment. Such a firm might have only slight responsibility for loss or damage to the equipment itself, but the exposure to all types of data processing media, owned by the insured, is great. Insurance is provided under the Data Processing Policy on an "all risk" basis for active data processing media, either the property of the insured or property of others in the insured's care, custody or control for which the insured is liable. Active data processing media is defined as all forms of converted data and/or program and/or instruction vehicles employed in the insured's data processing operation, except all unused


property. The coverage would include magnetic tapes, perforated paper tapes, punch cards, discs, drums, and other forms of communication related to the data processing unit. In the insurance business, when the information from a policy copy is put onto a punch card or magnetic or perforated tape, it is in converted form and is covered under the media insurance. The actual copy of the policy or daily report is not converted--and therefore not covered under media insurance. The insured may elect to insure all media or only a specific part of media. He also has a choice of valuing and insuring media on two basis. Media that is not to be insured should be listed on the policy. There are no Coinsurance requirements for Data Processing Media coverage. Media is covered while at described locations or while in transit or while temporarily within other premises. Data Processing Media insurance excludes coverage on: accounts, bills, evidences of debt, valuable papers, records, abstracts, deeds, manuscripts or other documents, except as they are converted to data processing media form, and then only in that form. Data processing media which cannot be replaced with other of like kind and quality is also excluded from coverage. Property rented or leased to others while away from the premises is not covered under media insurance.

EXCLUSIONS There are three standard property exclusions:

1. Any data or media which cannot be replaced with others of like kind and quality; 2. Property rented or leased to others while away from the premises; and 3. Supportive documentation, such as flow charts, record formats, or narrative descriptions,

unless they are converted to data form, and then only in that form. There is no standard electronic data processing (EDP) policy. In most states EDP coverage is an unfiled inland marine line. That means that insurers do not have to submit EDP forms (or rates) for insurance department approval. Every EDP coverage form must be examined carefully to determine whether its terms are acceptable. Some EDP coverage forms offer very few advantages over standard property policies. This course describes both the typical features found in EDP coverage forms as well as important variations. In general, EDP forms cover loss to electronic data processing equipment and component parts and data processing media, owned, leased or used by the insured. Insurance is usually on an all risk basis, subject to certain exclusions. The policy may be extended to cover Extra Expense, incurred as a result of damage to data processing equipment or media, Business Income loss resulting from total or partial suspension of operations, and also to cover all risks of loss on Valuable Papers and Records and Accounts Receivable, if desired by the insured. EDP


policies discussed in this course are designed for small computer systems and word processing equipment, which are currently widely used in offices and various specialized business activities.

EDP coverage usually includes two causes of loss that commonly damage computer equipment--electrical disturbance and mechanical breakdown. These two causes of loss, which are excluded from standard property coverage forms and are among the major reasons for purchasing special EDP coverage as opposed to insuring computer systems on a property policy. The discussion of the various insuring agreements, exclusions, definitions and other important clauses in the Data Processing Policy that follows, points out in general terms what is provided by companies which offer a Data Processing Policy. Below is some typical wording common to EDP policies, along with analysis where appropriate:

Agreement

In return for "your" payment of the required premium, "we" provide the coverage described herein subject to all the "terms" of the Electronic Data Processing Coverage. This coverage is also subject to the "declarations" and additional policy conditions relating to assignment or transfer of rights or duties, cancellation, changes or modifications, inspections, and examination of books and records. Endorsements and schedules may also apply. They are identified on the "declarations.” Refer to Definitions for words and phrases that have special meaning. These words and phrases are shown in quotation marks or bold type.

The agreement states that, in exchange for a premium, the insurer will provide EDP coverage as described on the declarations of the policy. Also applying to the coverage are any additional policy conditions, endorsements, and schedules that are indicated as part of the policy.

Definitions

1. The words "you" and "your" mean the persons or organizations named as the insured on the "declarations.” 2. The words "we", "us", and "our" mean the company providing this coverage. 3. "Declarations" means all pages labeled Declarations, Supplemental Declarations, or Schedules, which pertain to this coverage. 4. "Earth movement" means any movement or vibration of the earth’s surface (other than "sinkhole collapse") including but not limited to earthquake; landslide; mudflow; mudslide; mine subsidence; or sinking, rising, or shifting, of earth.


Definitions of earth movement and flood are very similar to those used in other policy forms. Earth movement includes mudflow, mudslide and mine subsidence. Neither earth movement nor flood is excluded on most EDP forms; however, exclusionary endorsements for each may be attached to the policy.

5. "Electrical disturbance" means electrical or magnetic damage, disturbance of electronic recordings, or erasure of electronic recordings.

Electrical disturbance encompasses three broad categories: electrical or magnetic damage, electronic recording disturbances, and erasure of electronic recordings. EDP hardware and software is very susceptible to electrical disturbances. Common electrical disturbance losses are damaged circuitry, erroneous results, loss of data, system failure, and system shutdown. Electrical disturbance is normally excluded from property coverage forms, which is one of the main reasons to buy specialized EDP coverage.

6. "Flood" means flood, surface water, waves, tidal water, or the overflow of a body of water, all whether driven by wind or not. This includes spray that results from these whether driven by wind or not. 7. "Ground water" means: a. Water that backs up through a sewer or drain; or b. Water below the surface of the ground. This includes water that exerts pressure on or flows, seeps, or leaks through or into a building, sidewalk, driveway, foundation, swimming pool, or other structure. 8. "Hardware" means an assemblage of electronic machine components capable of accepting instructions and information, processing the information according to the instructions, and producing desired results.

Hardware is defined as electronic machine components that can accept and process information according to instructions that are given.

9. "Limit" means the amount of coverage that applies. 10. "Mechanical breakdown" means mechanical breakdown or malfunction, component failure, faulty installation, or blowout.

Mechanical breakdown is another cause of loss to which electronic data processing equipment is particularly susceptible. Coverage for mechanical breakdown--which is defined as mechanical breakdown or malfunction, component failure, faulty installation, or blowout--is one


of the main reasons for purchasing EDP coverage. This definition does not require that the breakdown be ’sudden and accidental’, which could contribute to disagreement over whether a loss is caused by mechanical breakdown, by wear and tear, or by internal fault or weakness. Mechanical breakdown normally is excluded on property coverage forms.

11. "Operations" means "your" normal electronic data processing operations occurring at premises described on the "declarations.” 12. "Pollutant" means: a. Any solid, liquid, gaseous, or thermal irritant or contaminant; b. Electromagnetic (visible or invisible) or sound emission; or c. Waste, including materials to be disposed of as well as recycled, reclaimed, or reconditioned.

The definition of pollutant includes visible and invisible electromagnetic or sound emission, as well as the standard solid, liquid, gaseous, and thermal irritants or contaminants.

13. "Power supply disturbance" means interruption of power supply, power surge, blackout, or brownout.

Another definition that is particularly important for EDP coverage is power supply disturbance, which means an interruption in power supply as well as power surges, blackouts, and brownouts.

14. "Protection and control systems" means: a. Air conditioning equipment used exclusively in the operation of the "hardware"; b. Fire protection equipment used for the protection of the "hardware", including automatic and manual fire suppression equipment, and smoke and heat detectors; and c. Uninterruptible power supply system, line conditioner, and voltage regulator.

Protection and control systems are defined as air conditioning equipment, fire protection equipment, and special power supply system equipment. These types of protection systems are what commonly are used in mainframe computer installations, which often require separate temperature and humidity control systems as well as dedicated fire protection systems.


15. "Restoration period" means the time it should take to resume "your" "operations" starting from the date of loss to covered property caused by a covered peril, and ending on the date the property should be rebuilt, repaired, or replaced. This is not limited by the expiration date of the policy. This does not include any increase in time due to the enforcement of any ordinance, law, or decree that: a. Regulates the construction, use, repair, or demolition of any property; or b. Requires the testing, evaluating, observing, or recording the existence, level, or effects of "pollutants.”

The restoration period deals with time element coverages. It states that the period of time that is allotted to the recovery period following a property loss is bounded by the date of the direct physical loss to covered property and the date that the property should be rebuilt, repaired, or replaced. There is no additional time allotted to the recovery period because of any law, ordinance, or decree regulating demolition or construction. There also is no time allotted for testing or evaluating pollutants.

16. "Sinkhole collapse" means the sudden settlement or collapse of earth supporting the covered property into subterranean voids created by the action of water on a limestone or similar rock formation. It does not include the value of the land or the cost of filling sinkholes.

Sinkhole collapse is defined as the sudden settling or collapsing of earth supporting covered property into voids in the earth. Sinkhole collapse does not include the value of the ground, itself, or the cost of filling sinkholes.

17. "Software" means: a. Processing, recording, or storage media used for electronic data processing operations. This includes films, tapes, cards, discs, drums, cartridges, or cells; and b. Data, information, and instructions stored on processing, recording, or storage media used for electronic data processing operations.

Software is another definition that is peculiar to EDP coverage. It means processing, recording, or storage media for EDP operations. Types of media include tapes, films, cards, discs, drums, cartridges, and cells. Software also includes data, information, and instructions that are stored on media. It is important to pay special attention to the definitions of hardware and software when setting values on EDP equipment. The form provides for separate limits of coverage for hardware and software, and it is important to reflect the correct types of equipment per category. In the event of a loss, the hardware and software will be evaluated separately, and incorrect division of values between hardware and software prior to the loss could result in there not being sufficient coverage in either one of the categories to cover the loss there.


18. "Specified perils" means aircraft; civil commotion; explosion; falling objects; fire; hail; leakage from fire extinguishing equipment; lightning; riot; "sinkhole collapse"; smoke; sonic boom; vandalism; vehicles; "volcanic action"; water damage; weight of ice, snow, or sleet; and windstorm. Falling objects does not include loss to: a. Personal property in the open; or b. To the interior of buildings or structures or to personal property inside buildings or structures unless the exterior of the roofs or walls are first damaged by a falling object. Water damage means the sudden or accidental discharge or leakage of water or steam as a direct result of breaking or cracking of a part of the system or appliance containing the water or steam.

Specified perils is similarly defined to the broad form causes of loss supported by ISO and includes aircraft; civil commotion; explosion; falling objects; fire; hail; leakage from fire extinguishing equipment; lightning; riot; sinkhole collapse as defined in the policy; smoke; sonic boom; vandalism; vehicles; volcanic action as defined in the policy; water damage; weight of ice, snow, or sleet; and windstorm.

19. "Terms" means all provisions, limitations, exclusions, conditions, and definitions that apply. 20. "Volcanic action" means airborne volcanic blast or airborne shock waves; ash, dust, or particulate matter; or lava flow. It does not include the cost to remove ash, dust, or particulate matter that does not cause direct physical loss to the covered property. 21. "Volcanic eruption" means eruption, explosion, or effusion of a volcano. All volcanic eruptions that occur within a 168-hour period shall be considered a single loss.

The definitions of volcanic action and volcanic eruption are comparable to the terms as used in standard ISO property policies. It includes airborne shock waves, ash, dust, and lava flow. However, it does not include clean-up costs of ash or dust if there hasn’t been any direct physical loss to covered property. Therefore, clean-up of debris from a volcanic eruption is not included in this peril unless the debris causes direct physical loss to covered property.

PERILS COVERED

"We" cover external risks of direct physical loss unless the loss is limited or caused by a peril that is excluded.

This clause provides broad special risks coverage for EDP equipment covered under the policy. Coverage is inferred under this language unless an exclusion can be found on the form to void coverage.


PERILS EXCLUDED As with any "special" causes of loss policy, an understanding of the exclusions is critical to proper use of the coverage form. Under this form, a peril is "covered" unless it is limited or excluded elsewhere on the form. An insurer must identify an exclusion or limitation in order to deny coverage based on the cause of loss. Two perils that often are excluded on first party property forms are not excluded on EDP forms. These are flood and earthquake. However, they can be excluded by attaching the flood and/or earth movement exclusion endorsements. When flood is excluded, resulting loss caused by fire, explosion, or sprinkler leakage is covered. Direct loss by fire, explosion, or volcanic action resulting from either earth movement or volcanic eruption is insured even when the earth movement exclusion is selected. The terms flood, ground water, earth movement, volcanic action, and volcanic eruption are defined in the policy. All property is covered on an all risk basis, including flood and earthquake. Commonly excluded perils are: mechanical breakdown; electrical disturbances; business interruption; programming errors; corrosion or rust, unless caused by the computer's air conditioning unit; and dishonesty of officers or employees.

1. "We" do not pay for loss if one or more of the following exclusions apply to the loss, regardless of other causes or events that contribute to or aggravate the loss, whether such causes or events act to produce the loss before, at the same time as, or after the excluded causes or events. a. Civil Authority - "We" do not pay for loss caused by order of any civil authority, including seizure, confiscation, destruction, or quarantine of property. "We" do pay for loss resulting from acts of destruction by the civil authority to prevent the spread of fire, unless the fire is caused by a peril excluded under this coverage. b. Nuclear Hazard - "We" do not pay for loss caused by or resulting from a nuclear reaction, nuclear radiation, or radioactive contamination (whether controlled or uncontrolled; whether caused by natural, accidental, or artificial means). Loss caused by nuclear hazard is not considered loss caused by fire, explosion, or smoke. "We" do pay for direct loss by fire resulting from the nuclear hazard. c. War - "We" do not pay for loss caused by war. This means: 1) declared war, undeclared war, civil war, insurrection, rebellion, or revolution; 2) a warlike act by a military force or by military personnel; 3) the destruction, seizure, or use of the property for a military purpose; or 4) the discharge of a nuclear weapon even if it is accidental.


Section 1 of the perils excluded section states that there are three exclusions that eliminate coverage, regardless of whether other causes or events contribute to or aggravate the loss. This type of wording is known as the concurrent causation doctrine, which is discussed extensively elsewhere in this volume. These three exclusions are for actions of civil authority, nuclear hazards, and war. There is an exception to the civil authority exclusion, which permits coverage for loss caused by civility authority in trying to prevent the spread of fire, unless the peril that causes the loss is excluded elsewhere. The three exclusions involve perils that also are excluded on the ISO special causes of loss form. However, the war exclusion is somewhat broader including destruction, seizure, or use of property for a military purpose and the discharge of a nuclear weapon, even if accidental.

2. "We" do not pay for loss or damage if one or more of the following exclusions apply to the loss. a. Criminal, Fraudulent, or Dishonest Acts - "We" do not pay for loss caused by or resulting from criminal, fraudulent, dishonest, or illegal acts alone or in collusion with another by: 1) "you"; 2) others who have an interest in the property; 3) others to whom "you" entrust the property; 4) "your" partners, officers, directors, trustees, or joint adventurers; or 5) the employees or agents of 1), 2), 3), or 4) above, whether or not they are at work. This exclusion does not apply to acts of destruction by "your" employees, but "we" do not pay for theft by employees. This exclusion does not apply to covered property in the custody of a carrier for hire.

Section 2 incorporates nine excluded perils. The first of these excludes coverage for criminal, fraudulent, or dishonest acts by the insureds; others who have interests in the property; anyone the insured has entrusted with the property; partners, officers, directors, trustees, or joint adventurers of the insured; or employees of any of the above. This exclusion specifically deletes coverage for theft by employees, although destruction of covered property by employees is covered. There also is an exception that permits coverage for covered property that is in the custody of a carrier the insured has hired. The dishonesty exclusion varies from one form to another with respect to whether it extends to employees of the insured. A dishonesty exclusion that applies only to acts by the insured, a partner, an officer, a director, or a trustee is much less restrictive than one that applies to acts of the insured's employees as well.


b. Deterioration, Fault or Weakness - "We" do not pay for deterioration; decay; or any quality, fault, or weakness in the covered property that causes it to damage or destroy itself. This exclusion does not apply to loss caused by "mechanical breakdown.”

Deterioration, decay, or weakness within the covered property is excluded except for loss that is caused by mechanical breakdown, which is a covered peril. This exclusion reinforces the fact that only external risks are insured by the policy. The definition of mechanical breakdown used in this form does not require that the breakdown be "sudden and accidental", which could contribute to disagreement about whether a loss was caused by mechanical breakdown, which is covered, or fault or weakness within the covered property that causes it to damage itself, which is not covered. Similarly, the EDP coverage form does not define weakness or fault, which could lead to disagreements over whether a loss is covered or not.

c. Electrical Disturbance - "We" do not pay for loss caused by "electrical disturbance" if the cause of such disturbance took place more than 500 feet from the premises where the loss occurred.

There is no coverage for damages arising from electrical or power supply disturbance that occurs more than 500 feet from the premises where the loss occurred. These coverages may be extended beyond the 500-foot area by attachment of an endorsement which deletes the distance restriction.

d. Lease Terms - "We" do not pay for loss caused by a covered peril for which "you" are not responsible under the terms of any lease or rental agreement.

There is no coverage for damage to leased property by a covered peril unless the insured is responsible for it under terms of a lease or rental agreement.

e. Loss of Use - "We" do not pay for loss caused by or resulting from loss of use, business interruption, delay, or loss of market. This exclusion does not apply to Extra Expense coverage as provided under Additional Coverages.

The form does not cover any damages caused by or resulting from loss of use, business interruption, delay, or loss of market except for the extra expense coverage that is provided for in the additional coverages section.

f. Pollutants - "We" do not pay for loss caused by or resulting from release, discharge, seepage, migration, dispersal, or escape of "pollutants" unless the release, discharge, seepage,


migration, dispersal, or escape is caused by a "specified peril.” "We" do pay for any resulting loss caused by a "specified peril.”

Damage caused or resulting from pollutants is excluded, unless the pollution discharge is caused by a specified peril as defined in the policy, in which case the resulting loss is insured.

g. Power Supply Disturbance - "We" do not pay for loss caused by "power supply disturbance" if the cause of such disturbance took place more than 500 feet from the premises where the loss occurred. h. Temperature, Humidity, Corrosion, or Rust - "We" do not pay for loss caused by corrosion, rust, humidity, dampness, dryness, or changes in or extremes of temperature. But "we" do pay for loss to covered property that results from a direct physical loss, caused by a covered peril, to the air conditioning system that services covered "hardware.”

The eighth exclusion voids coverage for loss that is caused by corrosion, rust, humidity, dampness, dryness, or changes/extremes in temperature. However, there is coverage for direct physical loss that is caused by a covered peril to air conditioning systems that service covered hardware.

i. Wear and Tear, or Obsolescence - "We" do not pay for loss caused by wear and tear, depreciation, or obsolescence.

Wear and tear and obsolescence is the final exclusion. This voids coverage for EDP equipment that merely wears out or becomes obsolete. In some circumstances, there could be disagreement as to whether a loss is caused by mechanical breakdown, which is covered, or wear and tear, which is not covered, just as in losses that may involve fault or weakness within the property, itself. The exclusion of wear and tear, gradual deterioration, and inherent vice eliminates coverage only for that kind of loss. If a worn object causes a fire or other unexcluded loss, the resulting loss is covered. As part of the wear and tear exclusion, or in addition to it, some forms exclude loss by insects, vermin, and animals.

3. "We" do not pay for extra expenses that "you" incur if one or more of the following exclusions apply. a. Error or Omission - "We" do not pay for extra expense caused by error or omission in programming or incorrect instructions to "hardware.” b. Leases, Licenses, Contracts, or Orders - "We" do not pay for any increase in extra expenses due to the suspension, lapse, or cancellation of leases, licenses, contracts, or orders.


However, "we" do cover loss during the "restoration period" if the suspension, lapse, or cancellation results directly from the interruption of "your" "operations". "We" do not cover any extra expense beyond the "restoration period" caused by the suspension, lapse, or cancellation of leases, licenses, contracts, or orders. c. Strikes, Protests, or Interference - "We" do not pay for any increase in extra expenses due to interference by strikers or other persons at a premises described on the "declarations". This applies to interference with rebuilding, repairing, or replacing covered property or with the resumption of "operations.”

The third section of exclusions applies only to coverage for extra expense. The three exclusions that are included in this section void coverage for extra expense losses that arise from errors or omissions in programming or incorrect instruction to hardware; suspension, lapses, or cancellation of leases, licenses, contracts, or orders; and interference by strikers or protesters. There is an exception to the exclusion dealing with licenses and leases, however, which permits payment for loss during the restoration period if the suspension, lapse, or cancellation results from a covered interruption of the insured’s operations. The last four exclusions listed in above -- programming error, building ordinance, interference by strikers, and cancellation of order or contract—are primarily aimed at time element coverage. They may not appear at all in forms that cover only equipment and media. In forms that cover extra expense and business interruption as well as equipment and media, these exclusions usually will be written to apply only to extra expense or business interruption loss. Sometimes the programming error exclusion also applies to direct damage loss. An ensuing unexcluded loss, however, such as fire, explosion, or mechanical breakdown would be covered. While EDP policies are, virtually without exception, all risk policies, there are very significant variations from one form to another in terms of excluded perils. Some EDP forms contain a long list of exclusions that are almost exactly like the exclusions section of an ISO all risks property form. Property forms generally are much more restrictive than inland marine forms. Others impose only a few exclusions. The only way to know what perils are excluded under a given EDP form is to read its excluded perils section.

ADDITIONAL EDP EXCLUSIONS Other commonly encountered exclusions such as those listed below are contained in EDP forms.

Processing operations

A processing operations exclusion may apply to equipment, media, and time element losses, or only to time element losses. When processing operations damage equipment, that event is probably best described as a mechanical breakdown. Mechanical breakdown losses are a separate issue, discussed below. An exclusion of processing operations loss is intended to eliminate coverage for loss of data and any associated extra expense or business interruption


loss that results from data processing operations per se. This is basically an operator error exclusion. This exclusion is only of loss from processing operations. Ensuing loss from an unexcluded cause would be covered.

Design error and faulty workmanship or materials

Work on property

The same is true of the next two exclusions—design error and faulty workmanship or materials, and work on property. The exclusion only acts to preclude coverage for that loss in and of itself. Resulting damage that is not from an excluded cause is covered. There are some forms that specify what ensuing losses will be covered (usually ensuing fire or explosion only). The most likely ensuing work on property loss, other than fire or explosion, is mechanical breakdown. If coverage for mechanical breakdown is provided by endorsement, the work on property exclusion will not prevent recovery.

Electrical injury (short circuit, blowout, electrical or magnetic erasure of data) Electrical supply disturbances (blackout, brownout, power surges) Mechanical breakdown Extremes of or changes in temperature and humidity

Electrical injury, mechanical breakdown, and temperature and humidity changes or extremes might be termed the EDP perils. The major advantage of covering EDP equipment and the related exposures under an EDP policy (instead of under a standard property form along with the rest of the insured's personal property) is the coverage usually afforded for loss from mechanical breakdown, electrical injury, and temperature and humidity changes or extremes—perils to which EDP equipment is particularly susceptible. But quite a few EDP forms actually exclude these perils. In most cases, coverage is available by endorsement. The disadvantage of this arrangement is that the insured or the insured's agent or broker must specifically request coverage. Another possible disadvantage hinges on the language of the endorsement. If the endorsement simply deletes the applicable exclusions in their entirety, the coverage is equivalent to that provided by a form with no exclusion of loss from electrical injury, mechanical breakdown, and temperature and humidity extremes and changes. Otherwise, the endorsement may add back less than full coverage for the excluded perils. Electrical injury exclusions vary from form to form. One type is of electrical injury such as short circuits, blowouts, and electrical or magnetic erasure of data. Another type of electrical injury exclusion applies to disruption in the supply of electricity, such as power surges, blackout, or brownout. A given EDP form may contain either or both of these exclusions. Either of these exclusions may be phrased to apply only to loss originating off-premises. "Off-premises" is usually defined to mean at least 100 feet from the premises. However, some EDP insurers use 1,000 feet from the building instead. With so much variation in the content of the exclusion, it follows that an endorsement adding back coverage in this area should be read very carefully to determine whether some portion of the electrical injury exposure remains uncovered.

Rust or corrosion

Some EDP forms include rust and corrosion in the wear and tear exclusion, but most do not. To the extent that corrosion occurs gradually over time, corrosion damage would be excluded


under the heading of gradual deterioration, regardless of whether there is a specific exclusion of rust and corrosion. But it is conceivable that such damage could occur rather suddenly as a result of a problem with the equipment's air-conditioning system. Accordingly, there are some forms that exclude rust and corrosion as part of an exclusion of temperature and humidity extremes and changes. Assuming that a buy-back endorsement is available for temperature and humidity loss, that endorsement should also add back coverage for rust and corrosion.

Property Covered Most EDP insurers offer coverage for equipment, media, extra expense, and business interruption. The number of forms used to provide these coverages varies from insurer to insurer. Some provide coverage for all four property interests in a single coverage form; others use anywhere from two to four separate forms. Perhaps the most common arrangement is two forms: one form covering equipment, media, and extra expense; and an endorsement adding business interruption.

"We" cover direct physical loss caused by a covered peril to covered property while at a premises described on the "declarations.” Covered property consists of: 1. "Your" "hardware,” "protection and control systems,” and "software"; and 2. Similar property of others that is in "your" care, custody, or control.

Covered property is hardware, protection, and control systems, and software, all of which are defined words in the policy as discussed previously in the definitions section of this article. In addition, property is covered only if it is at a location that is scheduled on the policy. The property can be owned or leased by the insured, but its location must be scheduled. In order for a loss to be covered, the covered property must be damaged by direct physical loss to it caused by a covered peril. Covered property includes property of others in the insured’s care, custody, or control provides coverage for borrowed or leased equipment as long as it is located at a location described in the policy. Protection and control systems are included for coverage on some EDP forms, however, protection and control systems are not covered on others, particularly those used for smaller accounts.

Property Not Covered

1. Accounts, Bills or Documents - "We" do not cover accounts, bills, evidences of debt, records, abstracts, deeds, manuscripts, program documentation, or other documents except those that are in "software" form and then only in that form. 2. Contraband - "We" do not cover contraband or property in the course of illegal transportation or trade. 3. Loaned, Leased, or Rented To Others - "We" do not cover property that "you" loan, lease, or rent to others.


4. Money and Securities - "We" do not cover currency, food stamps, lottery tickets not held for sale, money, notes, or securities. 5. Stock in Trade - "We" do not cover "your" stock in trade.

Coverage for accounts and other documents is included only if it is in the form of software. Contraband; property that is loaned, leased, or rented to others; and money and securities are not insured on the form. Contraband is not insurable, and the other two categories of property are better insured elsewhere. In addition, EDP equipment that is being held for sale is not insured. This means that an EDP dealer would have coverage under this form only for the equipment used to operate the business. Equipment that is considered stock would have to be insured elsewhere.

Property Subject to Limitations

"We" do not pay more for loss to "software" at a described premises than $7,500 plus the "limit", if any, indicated for "software" on the ”declarations".

There is a built-in cushion of $7,500 above the amount listed for software coverage on some forms. This is because software values tend to fluctuate, and this provides a built-in additional amount of coverage. The additional software limit on other computer coverage forms is only $2,500.

Covered Locations EDP forms typically provide coverage while covered property is at locations identified in the declarations, temporarily at new locations, at temporary locations for purposes other than storage, and in transit. Usually, separate limits are established in the declarations for scheduled locations and for property in transit or at temporary locations; the transit and temporary locations limit is usually much lower than the limits applicable to scheduled locations. The limits applicable to new locations are established in the text of the form rather than in the declarations. Usually the new location limit is a percentage, such as 25 percent, of the largest scheduled location limit. Some EDP forms also provide coverage for media only at a backup location. The most common backup location limit is $50,000. Since a backup location is a place where duplicate media is stored, this coverage would only be needed in the event of simultaneous damage to both the primary location and the backup location.

Additional Coverages

1. Acquired Locations - "We" pay up to $500,000 for covered property at locations that "you" acquire during the policy period. This coverage applies for up to 60 days from the date "you" acquire the location or until "you" report the acquired location to "us" whichever occurs first.


This coverage does not go beyond the end of the policy period. "You" must pay the additional premium due from the date "you" acquire the location.

There are 10 additional coverages common to EDP forms. The first provides up to $500,000 for covered property located at premises the insured acquires during the policy period. The coverage is available for up to 60 days from the date the location is acquired or until the location is reported to the insurer. Additional premium on the newly acquired location is payable from the date that the location is acquired. Most EDP forms provide temporary coverage at newly acquired locations. The duration of this temporary coverage varies from 30 to 90 days. During this time the insured must notify the insurer and arrange for permanent coverage. Generally, the applicable limit is a percentage, typically 25 percent, of the largest scheduled location limit, subject to a dollar maximum, such as $250,000. In most forms, but not all, this coverage is in addition to, rather than a part of, scheduled locations coverage.

2. Debris Removal - "We" pay the cost to remove the debris of covered property that is caused by a covered peril. This coverage does not include costs to: a. Extract "pollutants" from land or water; or b. Remove, restore, or replace polluted land or water. "We" will not pay any more under this coverage than 25% of the amount "we" pay for the direct loss. "We" will not pay more for loss to property and debris removal combined than the "limit" for the damaged property. However, "we" pay an additional amount of debris removal expense up to $5,000 when the debris removal expense exceeds 25% of the amount "we" pay for direct loss or when the loss to property and debris removal combined exceeds the "limit" for the damaged property. "We" do not pay any expenses unless they are reported to "us" in writing within 180 days from the date of direct physical loss to covered property.

Limits for Debris Removal is subject to the sublimit listed in the declarations, usually $5,000-$10,000. The second additional coverage provides for payment of up to 25% of the direct property loss for removal of debris generated by damage to covered property by a covered peril. There also is an additional $5,000--above the scheduled limit of coverage for the damaged property--available for debris removal expense when the debris removal expense exceeds 25% of the direct loss payable by the insurer. The additional $5,000 also is available when the total of debris removal expense and direct property damage exceeds the limit insured for the damaged property. Other than the $5,000, the insurer will not pay more for debris removal and the direct loss combined than the limit insured for the damaged property. The expenses must be reported


within 180 days of the loss. This additional coverage is not available to remove pollutants or to restore polluted land or water.

3. Disturbance and Mechanical Breakdown Coverage - "We" pay for loss to covered property caused by "mechanical breakdown.” "We" also pay for loss to covered property caused by "electrical disturbance" and "power supply disturbance" if the cause of such disturbance took place within 500 feet of the premises where the loss occurred.

Under additional coverage 3, mechanical breakdown, as defined in the policy, is covered. There also is coverage for loss to covered property by electrical and power supply disturbance, again as defined in the policy. However, electrical and power supply disturbance are insured only when the disturbance takes place within 500 feet of the location where the loss occurred. Therefore, utility problems, power shortages, and power outages that are caused by problems with utility equipment that is located more than 500 feet from the insured premises are not covered.

4. Emergency Removal - "We" pay for loss to covered property while it is moved or being moved to prevent a loss caused by a covered peril. "We" pay for any direct physical loss caused by a peril that is not excluded. This coverage applies for up to ten days after the property is first moved, but does not extend past the date on which this policy expires.

There is coverage under emergency removal for loss to covered property that has been or is being moved to prevent a covered loss. This coverage applies for 10 days after the property has been moved, not to run past expiration of the policy. The temporary premises would have to be added for coverage after the 10-day grace period in order for coverage to be continued for a longer period. Some insurers place a limit on this coverage. $1,000 is common.

5. Extra Expense - "We" pay the necessary extra expenses that "you" incur in order to resume or continue "your" "operations" which are interrupted due to direct physical loss to "your" "hardware" or "software.” "We" cover only the extra expenses that "you" incur during the "restoration period" and that are necessary to resume or continue "your" "operations" as nearly as practicable. The loss to "your" "hardware" or "software" must occur at a premises described on the "declarations". "We" also cover extra expenses that "you" incur as a result of: a. Damage to a premises described on the "declarations" that prevents "you" from using the covered "hardware" or "software"; b. Damage to the air conditioning or electrical system, which is necessary for the operation of the "hardware" and results in a reduction or suspension of "your" "operations.” The cause of the damage must occur within 500 feet of a premises described on the "declarations"; or


c. An order by a civil authority that specifically denies "you" access to a premises described on the "declarations.” The order must be as a result of damage caused by a covered peril to the described premises or to adjacent property. This extension is limited to two consecutive weeks from the date of the order. This does not increase the "limit.” The most "we" pay for extra expenses that "you" incur is $7,500 plus the extra expense "limit,” if any, indicated on the "declarations.”

$7,500 of extra expense coverage is built into the form. This limit is in addition to any extra expense coverage that is purchased and indicated on the declarations page of the policy. The extra expenses must be incurred during the restoration period, which includes the period of time from the date of the covered loss until operations reasonably should be resumed. In addition, the extra expenses should be necessary in order for the insured to resume or continue operations. The extra expense coverage also may be triggered by damage to premises listed on the policy that prevent the insured from using covered EDP equipment; damage to air conditioning or electrical systems that are necessary for operation of computer hardware, as long as the cause of the damage occurs within 500 feet of the insured premises; and a civil authority order that prevents access to insured premises. The civil authority order preventing access must be the result of damage caused by a covered peril to the described premises or adjacent property. Coverage under the civil authority clause is limited to a two-to-three week period, just as it on standard property forms that include that coverage provision.

6. Newly Purchased or Leased Hardware - In the event that "you" purchase or lease additional "hardware" during the policy period, "we" extend coverage to the additional "hardware" for up to 60 days. The most that "we" pay for any loss under this additional coverage is the least of: a. The actual cash value of the covered property; b. 25% of the highest "limit" for any one premises described on the "declaration"; or c. $500,000. This additional coverage will end when any of the following first occur: a. This policy expires; b. 60 days after "you" obtain the additional "hardware"; or c. "You" report the additional "hardware" to "us.”

The terms of coverage for new items are usually the same as those for new locations. Coverage applies only temporarily, for anywhere from 30 to 90 days, and the applicable limit is usually a percentage, typically 25 percent, of the largest scheduled location limit, subject to a dollar maximum, such as $250,000. In most forms, but not all, this coverage is in addition to, rather than a part of, scheduled locations coverage.


A maximum of $500,000 coverage is available for newly purchased or leased hardware for up to 60 days after it is acquired. The amount of coverage will be the least of the actual cash value of the property, 25% of the highest limit of coverage for any one location that is described on the policy, or $500,000. The coverage period ends on the earliest of the policy expiration, 60 days after the property is acquired, or the date the new hardware is reported to the carrier. The new equipment must be added to the policy upon renewal, or there will not be any coverage for it after the renewal. New equipment at scheduled locations is also afforded some temporary coverage in most EDP forms. With respect to forms that otherwise cover only individually scheduled items, the value of this additional coverage is clear. With respect to forms that cover all of the insured's equipment at scheduled locations, this additional coverage helps the insured to avoid a coinsurance penalty and underinsurance.

7. Pollutant Cleanup and Removal - "We" pay "your" expense to extract "pollutants" from land or water if the discharge, dispersal, seepage, migration, release, or escape of the "pollutants" is caused by a covered peril that occurs during the policy period. The expenses are paid only if they are reported to "us" in writing within 180 days from the date the covered peril occurs. "We" do not pay the cost of testing, evaluating, observing, or recording the existence, level, or effects of "pollutants". However, "we" pay the cost of testing which is necessary for the extraction of "pollutants" from land or water. The most "we" pay for each site or location is $10,000 for the sum of all such expenses arising out of a covered peril occurring during each separate 12-month period of this policy.

The seventh additional coverage provides up to $10,000 for pollutant cleanup and removal for each insured location in each 12-month period of the policy. This coverage may not be applied to the cost of testing for pollutants; it is available only for the removal of pollutants from land or water plus testing that is required in the removal process.

8. Recharge of Fire Suppression Equipment - "We" pay up to $15,000 to cover "your" incurred expenses to recharge automatic fire suppression equipment when the equipment is discharged: a. While fighting a fire; b. As a result of a covered peril; or c. While the equipment is being tested.

The insurer will pay up to $15,000 to recharge fire suppression equipment after it has been discharged while fighting a fire, as the result of a covered peril, or while being tested. The coverage is not triggered in the event the equipment merely accidentally discharges, unless the


discharge is caused by a covered peril, which includes all perils unless they are excluded on the form. A few EDP forms provide coverage for the cost of refilling halon and carbon dioxide fire extinguishing systems. When this coverage is provided, it usually applies to accidental discharge as well as planned discharge. Sometimes a limit, such as $10,000, is established for this coverage, either in the declarations or in the text of the coverage grant. Coverage may also be provided without limit as to the number of hours or days.

9. Software Storage - "We" cover duplicate and back-up "software" stored at a premises not described on the "declarations" and not covered under any other coverage form. The most "we" pay for loss to "software" at any one storage location is $50,000. To be eligible for this additional coverage each storage location must be in a separate building which is at least 100 feet away from a premises described on the "declarations".

There is up to $50,000 of coverage for duplicate software that is stored at premises not listed on the policy and not insured elsewhere. Other coverage that pertains to such a storage situation does not have to be in the name of the insured; the exclusionary language merely states that this additional coverage does not apply if the software is "covered under any other coverage form.” The $50,000 is available at each such storage location. However, the location must be in a separate building from that covered on the policy, and the storage building must be at least 100 feet away from a scheduled location.

10. Transit and Off-Premises Coverage - "We" cover direct physical loss to covered property caused by a covered peril while: a. In transit; or b. At a premises that is not described on the "declarations". The most "we" pay under this coverage is $7,500 plus the transit and off-premises "limit" indicated on the "declarations". The off-premises "limit" under this provision cannot be added to the software storage "limit" in paragraph 9.under Additional Coverages.

The company pays direct loss caused by or resulting from risks of direct physical loss involving collapse of all or part of a building or structure caused by one or more of the following perils: Fire; lightning; windstorm; hail; explosion; smoke; aircraft; vehicles; riot; civil commotion; vandalism; breakage of glass; falling objects; weight of snow, ice or sleet; water damage; earth movement; volcanic eruption; hidden decay; hidden insect or vermin damage; weight of people or personal property; weight of rain that collects on a roof; use of defective materials or methods in construction, remodeling or renovation if the collapse occurs during the construction, etc. This additional coverage is not additional insurance.


Temporary Locations are included for loss to covered property while property is located there for a 60-day or other time period.

LIMITS OF INSURANCE Each policy has a different limit for equipment. The amount of coverage ranges from $100,000 to $500,000. The replacement cost of equipment could exceed $500,000. Some insurers may offer considerably higher limits. Data and media limits fall within the $5,000-$10,000 range, and extra expenses follow the same pattern. Again, higher amounts can usually be purchased in the marketplace. The most the insurer will pay for loss in any one occurrence is the applicable limit of insurance shown in the declarations. Separate limits are established in the declarations for scheduled locations and for property in transit or at temporary locations. Several companies differentiate between equipment in transit coverage, and data and media in transit coverage, by applying individually tailored limits to each. The remaining companies assign a single in transit coverage limit. Up to $7,500 additional coverage is available for covered property that is damaged by a covered peril while the property is in transit or away from the insured premises. The $7,500 is an additional amount to any transit/off-premises coverage that is indicated on the declarations of the policy. However, the $7,500 cannot be added to the software storage limit of $50,000 provided elsewhere in the additional coverages section.

VALUATION

1. Actual Cash Value - The value of covered property is based on the actual cash value at the time of loss (with a deduction for depreciation) except as provided in paragraphs 2., 3., and 4. under Valuation.

Covered property is valued on the basis of actual cash value, which includes a deduction for depreciation, unless replacement cost valuation is indicated on the declarations. When replacement cost is indicated, the value of covered property is based on replacement cost without any deduction for depreciation. However, replacement cost is limited to the cost to repair or replace the damaged property with similar property on the same site and used for the same purpose. This means that the damaged property may be repaired or replaced with property that is of like kind and quality; a two-year-old computer could be replaced with a two-year-old computer if it is in the same condition as that which was damaged.

2. Replacement Cost - When replacement cost is indicated on the "declarations", the value of covered property will be based on the replacement cost without any deduction for depreciation.


The replacement cost is limited to the cost of repair or replacement with similar materials on the same site and used for the same purpose. The payment shall not exceed the amount "you" spend to repair or replace the damaged or destroyed property. Replacement cost valuation does not apply until the damaged or destroyed property is repaired or replaced. "You" may make a claim for actual cash value before repair or replacement takes place, and later for the replacement cost if "you" notify "us" of "your" intent within 180 days after the loss.

Replacement cost also is limited by the amount actually spent to repair or replace the damaged property. The damaged property must be repaired or replaced before replacement cost is paid. The insured may make an initial claim for actual cash value before repairing or replacing the damaged property. This claim may be upgraded to replacement cost within 180 days after the loss. Equipment is usually valued at either its replacement cost or its actual cash value. Most forms allow for either option in the text of the form and provide a space on the declarations page to indicate which has been selected. A few insurers also offer an upgraded valuation option, also called a "functional replacement cost option.” Whatever it is called, valuation on an upgraded value basis allows the insured to replace equipment that has been totally destroyed with equipment of greater processing ability. There are a number of provisos in connection with this option. The equipment must be totally destroyed; in the event of partial loss, the item will merely be repaired. Also, the insured must submit to the insurer, at the time that this option is selected, a description of the equipment that would be purchased to replace any destroyed equipment, along with the cost of each item. Media is valued at its reproduction cost. This includes the cost of recreating the data. Irreplaceable media is often excluded from coverage unless it is specifically identified in the declarations, in which case the limit of insurance is its agreed value. Some forms establish that media that is not reproduced is valued at the cost of blank materials.

3. Pair or Set - The value of a lost or damaged article which is part of a pair or set is based on a reasonable proportion of the value of the entire pair or set. The loss is not considered a total loss of the pair or set. However, this provision does not apply to "software" that comes in sets. If part of “software" set cannot be replaced, the loss is considered a total loss of the set.

Loss of one part of a set is not considered a total loss of the set; the value is determined at a reasonable proportion of the total value of the set. Similarly, the value of a lost or damaged part of an item that has several parts is based on only the value of the damaged part; it is not considered a total loss. However, there is an exception to this provision for software that comes in sets. When part of a software set cannot be replaced the loss is considered a total loss of the set.


4. Loss to Parts - The value of a lost or damaged part of an item that consists of several parts when it is complete is based on the value of only the lost or damaged part or the cost to repair or replace it.

DEDUCTIBLE Most EDP forms have at least two deductibles: one that applies to mechanical and electrical type losses (often called the "breakdown deductible"); and one that applies to all other losses. Generally, the breakdown deductible will be significantly higher than the basic deductible. The breakdown deductible may apply to loss resulting from work on property and design error or faulty materials or workmanship. This arrangement is typically encountered when coverage for these causes of loss is added back by endorsement along with coverage for mechanical breakdown and electrical injury. If EDP business interruption coverage has been purchased, another deductible will typically apply to business interruption loss, regardless of cause. The EDP business interruption deductible may be a dollar amount deductible or it may be a waiting period deductible, stated in hours or days. The breakdown deductible applies to losses resulting from: Mechanical failure, faulty construction or error in design; short circuit, blow-out or other electrical or magnetic disturbance, other than lightning; any repairing, servicing or processing operation; damage to data or media when data processing equipment breaks down or malfunctions while data or media is being run through the system.

COINSURANCE Equipment coverage is typically subject to coinsurance. Some forms actually specify the minimum percentage, usually 80 percent. Most, however, refer to the coinsurance percentage shown on the declarations page. Although agreed amount clauses are not commonly used with EDP policies, it may be possible to have the coinsurance clause waived by endorsement, if the insurer is satisfied with the equipment values provided. Other forms refer to the coinsurance percentage stated in the declarations. Percentages may vary from 80 to 100 percent. Media is seldom subject to coinsurance. Presumably this is a concession to the difficulty of establishing an accurate reproduction cost, particularly for the insured's data. Media is not usually subject to coinsurance.

Duties in the Event of Loss

1. Notice - In case of a loss, "you" must: a. Give "us" or "our" agent prompt notice including a description of the property involved ("we" may request written notice); and


b. Give notice to the police when the act that causes the loss is a crime.

The insured is obliged to notify the insurer or its agent promptly of any loss. The police must be notified when the act that causes the loss is a crime. "Prompt" is not defined in the policy, and there is no time period attached to it.

2. Protect Property - "You" must take all reasonable steps to protect covered property at and after an insured loss to avoid further loss. "We" do pay the reasonable costs incurred by "you" for necessary repairs or emergency measures performed solely to protect covered property from further damage by a peril insured against if a peril insured against has already caused a loss to covered property. "You" must keep an accurate record of such costs. However, "we" do not pay for such repairs or emergency measures performed on property, which has not been damaged by a peril insured against. This does not increase "our" "limit.”

In addition to promptly reporting the loss, the insured must take reasonable steps to protect covered property that already has been damaged by a covered peril from further loss. The insurer will pay reasonable costs to do this, and the insured must record expenses that arise from such activities in order to collect. There is no provision for the insurer to assume the costs of protecting covered property from impending loss by a covered peril. Therefore, the cost to board up the windows in an EDP processing room prior to a windstorm, in the attempt to avoid wind and water loss, will not be assumed by the insurer. If some computer equipment already had been damaged, the insurer would pay the cost of moving the equipment to a safer location. The coverage provided in this section is a part of, and not in addition to, the limit of insurance shown on the declarations for the location in question.

3. Proof of Loss - "You" must send "us,” within 60 days after "our" request, a signed, sworn proof of loss. This must include the following information: a. The time, place, and circumstances of the loss; b. Other policies of insurance that may cover the loss; c. "Your" interest and the interests of all others in the property involved, including all mortgages and liens; d. Changes in title of the covered property during the policy period; and e. Estimates, specifications, inventories, and other reasonable information that "we" may require to settle the loss.

The insured must provide the insurer with a signed, sworn proof of loss within 60 days after the insurance company requests it. The policy outlines what must be included in the proof of loss.


4. Examination - "You" must submit to examination under oath in matters connected with the loss as often as "we" reasonably request and give "us" sworn statements of the answers. If more than one person is examined, "we" have the right to examine and receive statements separately and not in the presence of others.

The insurer retains the right to examine the insured under oath about the loss. If more than one individual is involved or affected by the loss, the insurer may interview the individuals separately from one another.

5. Records - "You" must produce records, including tax returns and bank microfilms of all cancelled checks relating to value, loss, and expense and permit copies and extracts to be made of them as often as "we" reasonably request.

The insured is obliged to produce records--such as canceled checks and tax returns--that relate to the values claimed and details of the loss as often as the insurance company reasonably requests.

6. Damaged Property - "You" must exhibit the damaged and undamaged property as often as "we" reasonably request and allow "us" to inspect or take samples of the property.

In addition to this, the insurer can inspect damaged and undamaged property as often as is reasonable. Again, reasonable is not defined in the policy, so its common definition would be used in the event that a disagreement arose as to its interpretation.

7. Volunteer Payments - "You" must not, except at "your" own expense, voluntarily make any payments, assume any obligations, pay or offer any rewards, or incur any other expenses except as respects protecting property from further damage.

The insured is prohibited from making any voluntary payments or offering any rewards in regard to the loss, with the exception of taking action to protect property from further damage. The insured may not abandon property to the insurance company unless prior permission, in writing, is obtained.

8. Abandonment - "You" may not abandon the property to "us" without "our" written consent.

The last condition requires the insured to cooperate with the insurer in carrying out the requirements of the policy.

9. Cooperation - "You" must cooperate with "us" in performing all acts required by this policy.


Loss Settlement Conditions

1 Insurable Interest - "We" do not cover more than "your" insurable interest in any property.

This section explains how much the insurer will pay in the event of a covered loss. The first requirement is that the insurer will be responsible only for the insured’s insurable interest in the property. Therefore, the insured only will be reimbursed for the portion of loss in which an insurable interest is held, regardless of the limits of insurance purchased. This type of provision is common in first party insurance contracts.

2. Deductible - "We" pay only that part of "your" loss over the deductible amount indicated on the "declarations" in any one occurrence.

Losses are reduced by the amount of deductible shown on the declarations. The deductible applies per occurrence. Therefore, if 10 computers are destroyed in a fire, only one deductible will be applied to the value of all 10 items.

3. Loss Settlement Terms - Subject to paragraphs 1., 2., 4., 5., and under How Much We Pay, "we" pay the lesser of: a. The amount determined under Valuation; b. The cost to repair, replace, or rebuild the property with material of like kind and quality to the extent practicable; or c. The "limit" that applies to the covered property.

Losses are settled at the lesser of the amount determined under the valuation section, which was discussed previously in this article; the cost to repair, replace, or rebuild the property with material of like kind and quality as far as practicable; or the limit that applies to the covered property. It is important to keep in mind that the insurer retains the right to determine which of these three settlement provisions is used. The insured cannot dictate the choice.

4. Coinsurance - "We" only pay a part of the loss if the "limit" is less than the percentage of the value of the covered property that is indicated on the "declarations". "Our" part of the loss is determined using the following steps: a. Multiply the percent indicated on the "declarations" by the value of the covered property at the time of loss;


b. Divide the "limit" for covered property by the result determined in 4.a. above; c. Multiply the total amount of loss, after the application of any deductible, by the result determined in 4.b. above. The most "we" pay is the amount determined in 4.c. above or the "limit", whichever is less. "We" do not pay any remaining part of the loss. If there is more than one "limit" indicated on the "declarations" for this coverage part, this procedure applies separately to each "limit". If there is only one "limit" indicated on the "declarations" for this coverage, this procedure applies to the total of all covered property to which the "limit" applies.

There is a coinsurance penalty if the limit of insurance purchased is less than required by the coinsurance percentage chosen and indicated on the declarations. The coinsurance percentages that are available are 80, 90, or 100%. The insurer will pay the lesser of the amount determined by employing the coinsurance formula included in this clause or the limit of insurance. The coinsurance formula requires that the value of the covered property--at the time of loss--be multiplied by the coinsurance percentage shown on the declarations to determine the limit of insurance that should have been purchased. The limit actually purchased then is divided by the amount that should have been carried. The resulting percentage is multiplied times the amount of loss minus the deductible to determine the recovery.

5. Insurance Under More Than One Coverage - If more than one coverage of this policy insures the same loss, "we" pay no more than the actual claim, loss, or damage sustained. 6. Insurance Under More Than One Policy - "You" may have another policy subject to the same "terms" as this policy. If "you" do, "we" will pay "our" share of the covered loss. "Our" share is the proportion that the applicable "limit" under this policy bears to the "limit" of all policies covering on the same basis. If there is another policy covering the same loss, other than that described above, "we" pay only for the amount of covered loss in excess of the amount due from that other policy, whether "you" can collect on it or not. But "we" do not pay more than the applicable "limit.”

In the event that more than one policy coverage applies to the same loss, the insurer will pay no more than the actual claim, loss, or damage sustained. This again restricts payment to only what actually is lost by the insured.

Other Insurance Clauses The other insurance clauses in most policies specify that their coverage is excess coverage only over any other insurance covering the loss. In fact, many actually state that their coverage is excess coverage only "if at the time of loss or damage there is any other valid and collectible insurance on the property insured hereunder which would apply in the absence of this policy" (emphasis added). Although an EDP policy typically provides coverage for a much broader


range of perils, EDP equipment and the related exposures can also be insured under a property policy; such property is seldom, if ever, excluded. This raises the question of what happens when a fire damages equipment that is insured under an EDP policy and not excluded from coverage under the property policy covering the insured's other property. Nearly all property policies contain an exclusion of coverage on property that is more specifically insured elsewhere. Actually, the exclusion establishes that the coverage of the property policy applies on an excess basis only if there is more specific insurance. A separate EDP policy certainly qualifies as more specific insurance. But the property policy would certainly respond in the absence of the EDP policy. Which other insurance clause would win? In all likelihood this is an academic point. An EDP insurer that has been collecting premium (including fire premium) for coverage on EDP equipment and related exposures would surely not attempt to force the insured's property insurer to share coverage for fire damage to EDP equipment. Any such attempt would certainly be soundly defeated in court. Still, it would be better if all EDP policies had other insurance clauses that read like the one below. The EDP form other insurance clause below specifies that the EDP policy is primary with respect to other computer insurance on equipment, data, and media, but excess with respect to any other applicable extra expense or business interruption coverage. There is a good reason for that. Businesses that decide to insure their computer equipment under an EDP policy may, and often do, elect to rely on their property insurance policy for all time element coverage. In other words, more often than not the property policy is intended by all parties to be primary for extra expense or business interruption coverage.

EDP POLICY OTHER INSURANCE CLAUSE

Other insurance may be available to cover your loss. If so, what we'll pay depends on the type of other insurance and the property covered. If other computer insurance covers a loss to equipment, data, or media, and the loss is also covered under this agreement, this agreement is excess insurance. But if the other insurance also pays only as excess we'll share the loss with them. If insurance other than data processing insurance covers a loss to equipment, data, or media, and the loss is also covered under this agreement, this agreement is primary insurance. If any other insurance covers an extra expense or business income loss that's covered under this agreement, this agreement is excess insurance. If the other insurance also pays only as excess, we'll share the loss with the other company.

The last provision deals with situations in which coverage is available under more than one policy. If the terms of coverage on the other policy are the same as those contained in the form, the insurer will pay the portion of the loss that the applicable limit under this policy bears to the limits of all policies covering on the same basis. This is called pro-rata sharing by limits. If the


other policy does not have the same terms as the form, then the policy will be excess of the amount due from the other policy whether the coverage is collectible or not. In any event, the policy will not pay more than the applicable limit on the covered property.

Loss Payments

1. Our Options - "We" have the following options: a. Pay the value of the loss; b. Pay the cost of repairing or replacing the loss; c. Rebuild, repair, or replace with property of like kind and quality, to the extent practicable, within a reasonable time; d. Take all or any part of the damaged property at the agreed or appraised value. "We" must give "you" notice of "our" intent to rebuild, repair, or replace within 30 days after receipt of a duly executed proof of loss.

At the time of a loss, the insurer has four options. It can pay the value of the loss; pay the cost to repair or replace the damaged property; rebuild, repair, or replace the damaged property with material of like kind and quality to the degree that is practical within a reasonable time; or take all or any of the damaged property at the agreed or appraised value. The insurer must notify the insured of its decision to rebuild, repair, or replace the property within 30 days after receiving a duly executed proof of loss. Regardless of which option is chosen, the insurer will not pay more than the insured’s insurable interest in the property. Once again, the insurer retains the sole right to choose the option; the insured has no contractual right to negotiate the option chosen.

2. Your Losses - "We" adjust all losses with "you.” Payment will be made to "you" unless another loss payee is named in the policy. An insured loss will be payable 30 days after a satisfactory proof of loss is received, and the amount of the loss has been established either by written agreement with "you" or the filing of an appraisal award with "us.”

The insurer will adjust all losses with the insured. Payment must be made to the insured with 30 days after receiving an acceptable proof of loss and establishing the amount of settlement through either a written agreement between the insured and insurer or the filing of an appraisal award with the insurer. However, if another loss payee is named in the policy, the payment will be made to that loss payee.

3. Property of Others - Losses to property of others may be adjusted with and paid to: a. "You" on behalf of the owner; or


b. The owner. If "we" pay the owner, "we" do not have to pay "you.” "We" may also choose to defend any suits arising from the owners at "our" expense.

The insurer retains the right to adjust losses to property of others with either the insured or the owner of the property. If the insurer elects to deal with the owner, there is no obligation to pay the insured. If the owners of property sue the insured, the insurance company may choose to defend the suit at its expense. The policy is silent on who bears the cost of defense if the insurer elects not to defend the insured in such a situation.

Other Conditions

1. Appraisal - If "you" and "we" do not agree on the amount of the loss or the actual cash value of covered property, either party may demand that these amounts be determined by appraisal. If either makes a written demand for appraisal, each will select a competent, independent appraiser and notify the other of the appraiser’s identity within 20 days of receipt of the written demand. The two appraisers will then select a competent, impartial umpire. If the two appraisers are unable to agree upon an umpire within 15 days, "you" or "we" can ask a judge of a court of record in the state where the property is located to select an umpire. The appraisers will then determine and state separately the amount of each loss. The appraisers will also determine the value of covered property items at the time of the loss, if requested. If the appraisers submit a written report of any agreement to "us", the amount agreed upon will be the amount of the loss. If the appraisers fail to agree within a reasonable time, they will submit only their differences to the umpire. Written agreement so itemized and signed by any two of these three sets the amount of the loss. Each appraiser will be paid by the party selecting that appraiser. Other expenses of the appraisal and the compensation of the umpire will be paid equally by "you" and "us.”

This section contains all other policy conditions. The first provides for an appraisal in the event that the insured and insurer disagree on the amount of the loss or the value of the property. Either party may demand that an appraisal be conducted. After a written demand for an appraisal, each party will choose an independent appraiser and notify the other party of its choice. This must be done within 20 days of the receipt of the written demand. The two appraisers then will select a third. If the two appraisers cannot agree on the third within 15 days, either the insured or the insurer may ask a judge to intervene and select an umpire. The appraisers separately will determine the amount of loss. If the appraisers agree, the amount agreed upon will be the amount of the loss. However, if they cannot agree, the amount of the difference will be submitted to the umpire. Written agreement of two of the three will set the


amount of loss. Each party will pay its own appraiser, with the expenses of the umpire, as well as other expenses of the appraisal, shared between the parties.

2. Benefit to Others - Insurance under this coverage shall not directly or indirectly benefit anyone having custody of "your" property.

The second condition states that the insurance shall not benefit anyone having custody of the insured’s property.

3. Conformity With Statute - When a condition of this coverage is in conflict with an applicable law, that condition is amended to conform to that law.

If a condition that is stated in the policy is contrary to applicable law, the condition is amended to conform to the law.

4. Estates - This provision applies only if the insured is an individual. On "your" death, "we" cover the following as an insured: a. The person who has custody of "your" property until a legal representative is qualified and appointed; or b. "Your" legal representative. This person or organization is an insured only with respect to property covered by this coverage. This coverage does not extend past the policy period indicated on the "declarations.”

The fourth condition applies only if the insured is an individual. In that case, upon the insured’s death, either the person who has custody of the insured’s property until a legal representative is appointed, or the legal representative, becomes the insured in regard to property covered under the policy. Such coverage will not extend past normal policy expiration.

5. Misrepresentation, Concealment, or Fraud - This coverage is void as to "you" and any other insured if, before, or after a loss: a. "You" or any other insured have willfully concealed or misrepresented: 1) A material fact or circumstance that relates to this insurance or the subject thereof; or 2) "Your" interest herein. b. There has been fraud or false swearing by "you" or any other insured with regard to a matter that relates to this insurance or the subject thereof.


Misrepresentation, concealment, or fraud--before or after a loss--will void the coverage. Condition 5 specifically outlines what is considered a misrepresentation, concealment, or fraud. This includes the insured willfully concealing a material fact or the insured’s interest in the coverage.

6. Policy Period - "We" pay for a covered loss that occurs during the policy period.

The sixth condition states that losses only will be covered if they occur within the policy period, which is stated on the declarations page.

7. Recoveries - If "we" pay "you" for the loss and lost or damaged property is recovered, or payment is made by those responsible for the loss, the following provisions apply: a. "You" must notify "us" promptly if "you" recover property or receive payment; b. "We" must notify "you" promptly if "we" recover property or receive payment; c. Any recovery expenses incurred by either are reimbursed first; d. "You" may keep the recovered property but "you" must refund to "us" the amount of the claim paid, or any lesser amount to which "we" agree; and e. If the claim paid is less than the agreed loss due to a deductible or other limiting "terms" of this policy, any recovery will be pro rated between "you" and "us" based on "our" respective interest in the loss.

The insured and the insurer are obligated to inform the other party if lost or damaged property is recovered after the insurer has paid for it. In this event, recovery expenses incurred by either party are reimbursed first. The insured may keep the recovered property but, if this is done, the insured must reimburse the insurer for the amount of the claim paid or any lesser amount the insurer agrees to. If a deductible or other policy limitation decreases the claim paid to less than the agreed loss, any recovery will be pro-rated between the insured and insured based on their respective interest in the loss.

8. Restoration of Limits - A loss "we" pay under this coverage does not reduce the applicable "limits.”

A loss that is paid under the policy does not decrease the applicable limits of insurance.


9. Subrogation - If "we" pay for a loss, "we" may require "you" to assign to "us" "your" right of recovery against others. "You" must do all that is necessary to secure "our" rights. "We" do not pay for a loss if "you" impair this right to recover. "You" may waive "your" right to recover from others in writing before a loss occurs.

The ninth condition permits the insurer to require that any subrogation rights of the insured be assigned to it. The insured is required to do all it can to secure the insurer’s subrogation rights, and the insurer may refuse to pay a loss if its subrogation rights are impaired by action of the insured. However, the insured may waive recovery rights from others in writing prior to a loss.

10. Suit Against Us - No one may bring a legal action against "us" under this coverage unless: a. All of the "terms" of this coverage have been complied with; and b. The suit has been brought within two years after "you" first have knowledge of the loss. If any applicable law makes this limitation invalid, then suit must begin within the shortest period permitted by law.

Suits against the insurer under the coverage are precluded unless all coverage terms have been complied with and unless the suit is brought within two years after the insured first knows about the loss. If a law invalidates this limitation, then suit must be brought within the shortest period permitted by law.

11. Territorial Limits - "We" cover property while it is in the United States of America, its territories and possessions, Canada, and Puerto Rico.

The last condition sets the territorial limits of coverage are usually within the United States of America, its territories, and possessions; Canada; and Puerto Rico. This is the same coverage territory as provided for in the ISO property program. Worldwide definition of territory is preferable, if available.

Scheduled Items Coverage Coverage may also or instead apply only with respect to a schedule of covered items. In that case, there is no coverage for items not listed on a schedule of equipment filed with the insurer. Limits may be per item as shown on a schedule of covered items attached to the policy. Alternatively, the required schedule may establish only whether a given item is covered and not the applicable limit. In that case the coverage limits are those shown in the declarations (usually for each location) and the schedule is merely "on file" with the insurer.


The fact that a schedule of equipment has been submitted to the insurer does not necessarily mean that coverage only applies to those items; the policy language must be examined to determine whether coverage is limited to items on the schedule. It is common for an EDP insurer to request a schedule of equipment for informational purposes only.

OPTIONAL COVERAGES Most companies writing a Data Processing Policy tie in other insurance coverages important to the insured who has a data processing operation. These optional coverages may be insured under a separate policy to cover all the insured's exposure, whether related to the data processing operation or not, or may be insured under the Data Processing Policy as another insuring agreement, because the exposures are interrelated. The following are the optional coverages permitted under the Data Processing Policy: An insured may choose between coverage on an actual cash value basis or on a replacement cost basis. Major optional coverages offered by a cross-section of companies, which may be added to a basic computer policy, include the following:

1. Mechanical breakdown--direct physical loss or damage to covered data processing equipment inside building and within 100 feet of it; 2. Electrical disturbances--short circuit, blow out, brown-out, power surge or power interruption; 3. Accounts receivable; Accounts Receivable insurance, provides insurance protection against loss and expense incurred in the collection or inability to collect accounts receivable from customers due to loss of or damage to records of accounts receivable caused by all risks of loss or damage, subject to certain exclusions and conditions. Some businesses have their entire records of accounts receivable converted to data processing media and bill their customers on an automated basis. Coverage under the Accounts Receivable insuring agreement would cover the extra expense in collecting and reestablishing records of accounts receivable lost or damaged if converted to media or otherwise. Often it is not the physical damage to the firm's EDP equipment and media that causes the greatest loss, but the resulting business interruption or loss of use of the equipment and media. It is important for a firm to insure the business interruption exposure.

4. Valuable papers; Valuable Papers and Records insurance, provides coverage for Specified articles or on a blanket basis, as declared on the policy, on an all risk basis subject to certain exclusions. Valuable Papers and Records are defined as written, printed or otherwise inscribed documents and records, including books, maps, films, drawings, abstracts, deeds, mortgages and manuscripts, but not money or securities or electronic data control tapes. This coverage picks up the exclusion in the Media and Extra Expense insuring agreements of the Data Processing Policy, which pertained to valuable papers and records.


5. Loss of earnings. Business Interruption insurance protection may be attached to the Data Processing Policy of some insurers. Although most insureds protect their Business Interruption exposure in a separate policy or as part of an overall package of insurance coverage, if the insured's productive processes were geared to a computer to such an extent that in the event of damage to the computer or media there would be partial or total interruption of production, the insured would need Business Interruption insurance to cover this exposure specifically. The form used on the Data Processing Policy is a Valued form of Business Interruption insurance, covering on an all risk basis. The form covers a Specified amount of loss for each working day of total suspension of business, or a portion of the Specified amount for each working day of partial suspension of business, subject to a Specified total amount of insurance.

Available Endorsements

Disturbance coverage endorsement --This endorsement expands coverage by deleting the 500-foot limit for electrical and power supply disturbance.

Flood and earth movement exclusion endorsement --This endorsement is used to

exclude either flood or earth movement/volcanic eruption or both perils from the coverage.

Loss of income endorsement --This endorsement is used to add loss of income

coverage to the policy. Loss of income includes net income, which is net profit or loss before income taxes; payroll expense; interest; and other continuing operating expenses that normally would have been earned or incurred by the insured. The coverage is triggered by direct physical loss to the insured’s hardware or software that are at covered locations. It is used with loss of income schedule IM 7216, on which the insured premises, per day and per loss limits, and deductibles are listed.

Upgrade value endorsement --This endorsement provides for the replacement of

hardware by equipment of greater processing ability and cost. It is applicable only after a total lost. The existing hardware that will be upgraded after a total loss, the upgrade hardware, and an upgrade hardware limit per piece must be listed on the upgrade value schedule form IM 7214 when this coverage is endorsed onto the policy.

Year 2000 coverage endorsement --This endorsement provides Year 2000 extra

expenses that the insured incurs during the time it should take to resume operations that are interrupted or disturbed because of a "year 2000 disturbance.” A "year 2000 disturbance" is defined as the inability of hardware, software, or program to unambiguously recognize any date on or after Jan. 1, 2000; or distinguish any date or time on or after Jan. 1, 2000, from any other date or time; or misinterpret any date or time on or after Jan. 1, 2000, as a date or time before Jan. 1, 2000. A year 2000 extra expense limit and deductible must be listed on the endorsement.

Year 2000 exclusion endorsement --This endorsement specifically excludes coverage

for loss arising from a year 2000 disturbance.


TIME ELEMENT COVERAGE FOR ELECTRONIC

MEDIA AND RECORDS, CP 15 29

Extra Expense and Business Interruption EDP extra expense coverage is most often included in the basic EDP coverage form as an option. As a rule, coverage applies only if a limit of insurance for extra expense is shown in the declarations. Some small business EDP coverage forms automatically provide extra expense coverage. Usually the amount of coverage is established in the form as a stipulated percentage of the equipment limit. The majority of EDP extra expense forms do not impose a monthly limitation on recovery, whereas most property extra expense forms do. In most other respects, however, the extra expense coverage provided by an EDP form is very much like its property insurance counterpart. Coverage applies to expenses in excess of normal expenses that are incurred to continue normal operations after damage by a covered peril. The insured is required to resume normal operations as soon as possible, and the salvage value of any property purchased for temporary use is deducted from the loss recovery. Business interruption coverage for loss resulting from loss to EDP equipment or media is usually available by endorsement, if no business interruption option is included in the basic form. The applicable limit may be shown on the declarations page, on the endorsement, or in both places. This coverage is very much like the business interruption coverage provided in standard property insurance forms, except that EDP business interruption coverage is usually provided on a valued, per diem basis, whereas property business interruption coverage is usually provided on an actual loss sustained basis. Coverage is provided only for loss of income that results from damage by a covered peril. Expenses incurred to minimize the loss of income are also covered, but only to the extent that the income loss is actually reduced. The insured is required to resume operations as soon as possible. Most EDP extra expense and business interruption coverage forms, just like their property insurance counterparts, also provide "civil authority" coverage: 2 weeks of coverage for business interruption loss resulting from a direct damage loss to an adjacent premises when access to the insured's premises is prohibited by order of civil authority.


The period of indemnity for both extra expense and business interruption coverage is the usual one: the period between the date of direct damage loss and the date when reconstruction, replacement, or repair is (or should have been) complete. Extended period of indemnity endorsements are not in common use in connection with EDP business interruption coverage. Businesses that elect to carry EDP business interruption coverage should consider whether they could possibly experience loss of income from data processing operations for some time after resumption of operations. Despite the basic similarity between EDP time element coverage and property time element coverage, there are at least two issues with respect to EDP time element coverage that warrant special attention.

What property must be damaged in order to trigger the coverage What kind of operations must generate the need for extra expense

EDP forms vary with respect to what property must be damaged in order for extra expense or business interruption coverage to apply. A few forms merely require covered loss to (any) real or personal property at covered locations; this is the broadest possible variation. The narrowest variation requires a direct damage loss to EDP equipment or media in order for coverage to apply. In between are the forms that extend coverage to apply when there has been damage to the building housing the equipment (even if the equipment and media are unharmed) and that damage prevents access to the system. Another common extension applies when there has been damage to the air-conditioning or electrical system that is necessary to the functioning of the insured's equipment. Some forms stipulate that this extension applies only to loss to air-conditioning and electrical equipment used exclusively with the insured's computer equipment—this is an important distinction. An insured's computer operations could be disrupted by damage to property other than the computer equipment or software. An insured's computer operations could be disrupted by damage to property other than the building where the equipment is located, the air-conditioning or electrical system. EDP time element coverage forms also vary with respect to whether only extra expenses or loss of income in connection with data processing operations are covered. Some EDP forms clearly cover only extra expenses necessary to continue "data processing" or "computer" operations. Others cover extra expenses necessary to continue "operations," without specifying computer or processing operations. The difference between the two is important for an insured with any operations that are independent of data processing operations. For instance, suppose that an insurance agent's office suffers fire damage, and that both computer and other operations are affected. Under an EDP extra expense form that covers only extra expenses necessary to continue data processing operations, the agency would not be able to recover for such items as expediting charges in connection with installation of temporary phone lines (unless they were necessary to continued computer operations) or rent on temporary office space (unless that space were crucial to the continued functioning of data processing operations). An extra expense form that covers extra expenses necessary to continue "operations" would cover these expenses, although the form drafters may not have intended this result. Of course, these expenses would also be recoverable under a property extra expense form.


Where computerized equipment is involved in the income-generating operations of the insured's business (e.g., as an integral part of an assembly line) and there is a separate EDP policy, consideration should be given to insuring the equipment and the portion of the firm's income derived from the use of computerized equipment under the EDP policy rather than under the basic property policy. The EDP policy would cover a business interruption loss resulting from the EDP perils that are excluded under property policies in addition to the all risks property perils. Aside from the issue of covered causes of loss, keep in mind that many business interruption forms (including ISO's business income coverage form) limit coverage for loss of income in connection with computer programs, media, or data to 60 days from the loss date or the time when the other damaged property is repaired, whichever is longer. If replacement of the programs and data needed to operate the computerized equipment could take longer than other repairs, the income generated by this equipment must be insured under an EDP policy or specifically addressed somehow to ensure full coverage. Another concern is that there are some property policies that limit business interruption and extra expense coverage to loss resulting from damage to covered property. ISO and ISO-based forms do not. Still, under a property form that ties time element coverage to damage to covered property, the insured could be without coverage for an EDP-related time element loss. That is because EDP equipment and media that is insured under a separate EDP policy would be excluded under the property policy by virtue of being "more specifically insured elsewhere." Depending on the definition of "electronic data processing equipment" in the EDP form, it might be necessary to have the policy endorsed to explicitly cover computerized production equipment in addition to conventional computers. Even if the definition of EDP equipment seems broad enough to extend to cover such equipment without endorsement, to prevent any misunderstanding, the insurer should be made aware of exactly what kind of equipment the insured intends to be covered. As an alternative to covering computerized production equipment (and the income derived from its use) under an EDP policy, consideration might be given to insuring it under a boiler and machinery policy instead. Boiler and machinery insurance provides coverage for electrical and mechanical breakdown but not for the named perils (such as fire, windstorm, etc.) covered under property policies per se. Consequently, if this approach is taken, the direct damage and business interruption values should be insured under the property policy as well as the boiler and machinery policy. As a third option, it may be possible to have the basic property policy endorsed to delete the exclusions for electrical and magnetic injury, mechanical breakdown, and temperature and humidity changes.

EXTRA EXPENSE INSURANCE COVERAGE This coverage is optional on all Data Processing insurance policies. It is designed to insure the extra expense necessarily incurred by the insured in order to continue as nearly as practicable the normal operation of the business following damage to or destruction of the data processing system including equipment and component parts and data processing media. Coverage is on an "all risk" basis, subject to certain exclusions.


To some extent the Extra Expense coverage in the Data Processing Policy overlaps the Media insurance, in that both insuring agreements provide for insurance to cover extra cost in reconstructing information onto damaged or destroyed media. However, the Extra Expense coverage is written in this way to take care of situations where all media is not insured, or when data processing equipment is damaged but there is no damage to the media, necessitating additional expense to continue operations on outside machines. The Extra Expense coverage is limited by the total amount of Extra Expense insurance purchased and by the declared amount of recovery per period indicated in the declarations of the Policy. In addition to the exclusions applicable to Equipment and Data and Media coverage, Extra Expense coverage also excludes expenses incurred due to:

Programming errors or faulty machine instructions.

Interference by strikers or other persons with repairs to damaged property, or with resumption of normal business operations.

Mechanical or machinery breakdown of property not named in the extra expense

additional coverage.

Any other consequential loss. As opposed to property extra expense coverage, monthly limitation clauses in EDP extra expense coverage are not used often. Extra Expense coverage to insure the additional necessary expense in restoring damaged records which have been converted to data processing media is essential protection for any business using computers or media. The regular Fire insurance Extra Expense form specifically excludes the cost of expense necessary to restore tape, disc, drum, cell and other magnetic recording or storage media for electronic data processing.

BACKGROUND In both of the business income coverage forms, with or without extra expense, there is a fairly important limitation on electronic media and records. Coverage is limited to only that period between when the occurrence of the loss/damage first occurs and when restoration, repair, rebuild, or replacement has been completed with reasonable speed and similar property. There is a 60-day maximum on this coverage from the date of loss. For insureds who have extensive use of electronic media and records, this limitation would severely curtail the protection provided by the business income coverage. Electronic Media and Records are defined in the underlying coverage forms to mean any electronic data processing, recording or storage media (such as tapes, films, discs, drums, or cells), the data stored on such media, or the programming records used for electronic data processing and electronically controlled equipment.


An endorsement, Electronic Media And Records CP 15 19, has been developed to provide the insured the option to either increase the number of days in the time limitation or to delete the entire limitation completely.

SCHEDULE The first item to consider is whether the insured desires to delete the limitation in its entirety, or if the insured merely wishes to increase the maximum number of days of coverage. The insured should select one or the other and so indicate in the CP 15 29 by checking the appropriate box. The next item of attention is a schedule of the premises and buildings and an indication of the number of days to which the insured wishes to increase coverage. If no premises or building schedule is shown in the CP 15 29, then coverage will be triggered through the declarations; however, if the option has been selected to revise the number of days, the insured must schedule the increased number.

PERIOD IN DAYS There is no minimum or maximum number of days that may be increased. Theoretically, any number over the 60 days found in the policy limitation and 365 can be inserted. 180 days is the most common option selected. There is no rate advantage, however, between selecting an option over 180 days and eliminating the limitation, so if more than 180 days is desired, the wisest option would be to delete the limitation completely.

RATING OR PREMIUM CALCULATION The computation for rating this option is fairly simple. After computing the premium charge for the business income coverage, a factor or surcharge is applied based upon whether or not the limitation is deleted or the number of days is to be increased. The Insurance Services Office (ISO) has offered only two rate factors, one for increasing the number of days from 60 to 180 and one for eliminating the limitation in its entirety. Any other factor would be up to the insurer. For reference purposes, the factor used (at the time of this analysis) when the number of days ranges from 60 to 180 days is 1.10, while the factor to delete the limitation is 1.15. Insuring EDP equipment and media on an EDP policy but covering the associated extra expense and business interruption exposures under the property policy might not be in the insured's best interests. EDP extra expense coverage is usually written on an actual loss sustained basis. That means that the insured is entitled to collect the extra expenses actually incurred, subject to the extra expense limit and, possibly, subject to a monthly limitation on recovery, described below.

Monthly Limitation


Monthly limitation clauses are the exception rather than the rule in EDP extra expense coverage. (The opposite is true of property extra expense coverage forms, where a monthly limitation is nearly inescapable.) Nevertheless, it would be unwise to assume that a given EDP form has no monthly limitation on extra expense recovery, since some do. Generally, an EDP extra expense monthly limitation works the same way as a property extra expense monthly limitation. Three percentages are shown on the declarations page to indicate what portion of the limit is available to the insured in the event of loss. How much of the limit the insured can collect depends on how long it takes to resume normal operations. To use the most commonly encountered percentages (40-80-100 percent), the insured would be able to collect only 40 percent of the extra expense limit if the restoration period is 30 days or less. If the restoration period is more than 30 days but less than 60 days, the insured can collect up to 80 percent of the extra expense limit. If the restoration period exceeds 60 days, the insured can collect the entire limit, provided that the incurred extra expenses amount to that much. EDP business interruption coverage, on the other hand, is most commonly written on a valued basis. That means that, in the event of covered loss, the insured is entitled to collect a specified sum, regardless of the amount of income that is actually lost. In most cases there are two EDP business interruption limits: a per-day (per diem) limit and a total per occurrence limit. If there is no per diem limit shown in the declarations, the business interruption coverage of the form in question is probably not valued, but is instead written on an actual loss sustained basis. In that event, the form may be a gross earnings form, subject to coinsurance, or an earnings form, which usually imposes a monthly limitation on recovery rather than a coinsurance requirement. There are some insurers that use their property business interruption forms to provide business interruption coverage under an EDP policy.


UNDERWRITING

ACCEPTABILITY There are increasing numbers of businesses that are using data processing equipment of one form or another. Computers are being put to new uses every day by many various types of firms. Likely prospects for Data Processing Equipment and Media insurance are: banks, insurance companies, utility companies, airlines, hospitals and large school systems, colleges and universities, state and municipal governments, manufacturers and data processing service centers. The Data Processing Policy is written only upon submission and acceptance of an application detailing important characteristics and exposures to loss of the data processing equipment, data processing room, and air conditioning equipment. Particular attention is also given to methods of storage and safeguarding of tapes or other forms of media when not in use. The application is used not only to develop underwriting information for the insurer's use, but also to point out to the insured what exposures may exist to equipment and media and to assist the insured in developing the proper amount of insurance. Information as to premises Fire, Extended Coverage and Vandalism rates and the desired limit of liability, actual cash value, replacement cost, coinsurance and deductible for Data Processing Equipment and similar information for the other insuring agreements are included in the application. Every location in which covered property is to be housed, except where property is in transit or temporarily within other premises, must be described in the application and on the policy. A schedule of all data processing equipment including component parts and machinery related to the data processing operation to be covered must be submitted to the company. A copy of the rental agreement or lease showing the lessor's liability for loss or damage to the equipment insured must also be submitted.


COMPUTER VIRUSES

In the absence of a specific exclusion of loss caused by malicious programming, losses from computer viruses are covered. The dishonesty exclusion of most forms would apply if it were discovered that the computer virus had been introduced by the insured. However, one leading EDP insurer makes an exception to the dishonesty exclusion for malicious acts that are not motivated by financial gain; that form would cover a computer virus loss even if it were caused by an officer of the firm. Very few EDP forms make any mention at all of computer viruses. When there is a specific provision on coverage for computer viruses, it is nearly always a limitation on coverage. Most EDP policies do not specifically exclude loss caused by computer viruses, or malicious programming. Therefore, computer virus damage is covered. Since many computer data manipulation situations may be internal, the dishonesty exclusion might apply if it were discovered that the computer virus was introduced by an insured, or employee. There are many ways in which viruses can infect a software program contained within EDP equipment. Care should be taken by the insured to secure software from such manipulation by limiting access to EDP equipment and verifying that all software loaded into the computer is virus-free. There are many other questions as to whether damage from a computer virus is covered, but absence of specific exclusion, the insured would best be advised to purchase an EDP policy and then try to get a letter of intent from the insurer stating that it is the underwriter's intent to provide coverage for computer viruses under the existing EDP coverage form.

OTHER RELATED EXPOSURES Unauthorized Computer Access is a related crime coverage arising from outsiders gaining access to information contained within the data processing system. Recent crime figures state that the approximate amount of the average computer crime loss was $220,000.


Although most computer crime cases involve sabotage from outside sources, a great potential involves insider attempts to manipulate computer systems. These often involve employees with personal problems, such as personal bankruptcy, drug or alcohol abuse, or disgruntled employees seeking revenge against the insured business firm. Insurance coverage is available for both insider and outsider wrongful access. Employee dishonesty coverage covers employee manipulation of data processing equipment, and special forms or endorsements to crime coverage may cover unauthorized computer access by outsiders. Data processing errors and omissions insurance covers businesses that charge a fee for processing data and information for others. This insurance provides coverage if the occurrence is activated or triggered by the negligence of the processing facility. The insurance also covers legal defense expenses.


SAFEGUARDING DATA PROCESSING EQUIPMENT AND RECORDS The National Fire Protection Association has published a booklet entitled A Standard for the Protection of Electronic Computer Systems (No. 75), which provides an excellent outline of the steps, which should be taken to safeguard and protect the system and media from fire and other hazards. Briefly, the following things should be taken into consideration by the prospective insured and are underwriting factors used by companies writing Data Processing insurance:

The computer system should be located in a fire resistant building or in a room of noncombustible construction. Such a building or room should be sufficiently detached from adjoining areas so as to minimize fire, water and smoke exposures.

Only equipment which must be located in close proximity to the computer should be permitted in the computer room. All furniture should be noncombustible and paper forms should be kept at a minimum.

Areas where records and paper forms are kept should be protected by an automatic sprinkler system, and the computer area should be protected by a CO2 fire extinguishing system and a smoke detection system.

The computer room should be temperature controlled with air conditioning equipment. Sustained temperatures in excess of about 140 degrees will cause malfunctioning of equipment and temperatures from 300 to 500 degrees will cause extensive damage to equipment. Smoke and other foreign particles in the air can seriously affect the functioning of the computer.

Media should, when not being used in the computer room or on the machine, be stored in a fire resistive storage room, which should be used only for that purpose.

Media records classified as Vital and Important should be duplicated and the duplicates stored in an area, which is not subject to a fire that might involve the original media records.

RATE AND PREMIUM Each risk is rated individually. Rates are generally based on the Fire, Extended Coverage and Vandalism rate applying to contents coverage at the described locations, including an allowance for any coinsurance. There is, in addition, a loading charge added to the base rate to take care of any additional perils. The loading is determined by the home office underwriter and reflects the judgment of the underwriter based on an evaluation of the risk and exposures developed by an inspection of the data processing installation. Rates for Extra Expense and Valued Business Interruption insurance are determined by the company upon submission of the application. The applicable Fire, E. C., Vandalism rates and a loading charge are taken into consideration together with the Specified "period of restoration" and estimated extra expense to be incurred during the period of restoration for Extra Expense


coverage, and the number of operating days and per diem measure of recovery for Business Interruption insurance. Valuable Papers and Accounts Receivable insurance is rated in accordance with rating plans filed for these Inland Marine forms.


INDEX

A

Accounts receivable ........................... 10, 43 Active data processing media .............. 9, 10 Agreement ............................................... 12 Air conditioning ........................................ 14 Appraisal ................................................ 39

B

Business ........................ 6, 7, 11, 44, 45, 54 Business income ........................................ 6

C

Changes .............................................. 6, 33 Coinsurance ....................................... 11, 35 Computerized ............................................ 4 Computers ........................................... 5, 51 Concealment .......................................... 40 Conditions .................................. 8, 9, 35, 39 Contraband ....................................... 23, 24 Contracts ................................................. 20 Corrosion ................................................. 20 Coverages ................................... 19, 24, 29

D

Data4, 7, 8, 9, 10, 11, 12, 15, 30, 43, 44, 47, 48, 51, 53, 54

Data processing ............................. 4, 11, 53 Deductible .............................................. 35 Definitions .......................................... 12, 13 Design error ............................................. 22 Deterioration ............................................ 19 Documents ............................................. 23 Duties ...................................................... 32

E

EDP ... 1, 4, 5, 6, 7, 8, 10, 11, 12, 13, 14, 15, 16, 17, 19, 20, 21, 22, 23, 24, 25, 27, 28, 29, 32, 33, 36, 37, 43, 45, 46, 47, 48, 49, 50, 52

Electrical disturbance ......................... 13, 43 Electronic data processing ......................... 5 Electronic Media and Records ................. 48 Endorsements .................................... 12, 44 Ensuing .................................................... 22 Equipment ...........7, 9, 24, 28, 31, 32, 48, 51 Estates .................................................... 40

F

FAX machines ........................................... 4 Fire ............................. 14, 28, 29, 48, 51, 54 Flood .................................................. 13, 44 Forms ........................................................ 6 Fraud .......................................................40

G

Ground water ...........................................13

H

Hardware ........................................... 13, 27 Humidity ...................................................20

I

Income .....................................................11 Insurance Services Office ........................49 Interference ........................................ 21, 48 ISO ............................. 16, 18, 21, 42, 47, 49

L

Leases .....................................................20 Licenses ...................................................20 Limitations ................................................24 Loss ............... 17, 19, 31, 32, 33, 35, 38, 44

M

Mechanical breakdown ........... 13, 21, 22, 43 Media .. 5, 7, 9, 11, 31, 32, 43, 48, 49, 51, 54 Minicomputer...................................... 11, 43 Money......................................................24 Monthly limitation .....................................50

N

Nuclear.....................................................17

O

Obsolescence ..........................................20 Operations ...............................................14 Orders ......................................................20 Other insurance ........................................37 Our ............................................... 35, 36, 38

P

Pollutants .................................................19 Power supply disturbance ........................14 Premises .................................................29


Programming ........................................... 48 Proof ....................................................... 33 Protection and control systems .......... 14, 23 Protests.................................................... 21 Provisions .................................................. 8

R

Rates ....................................................... 54 Replacement cost .................................... 31 Restoration ........................................ 15, 41 Restoration period .................................... 15 Rust ................................................... 20, 22

S

Securities ................................................ 24 Settlement ................................................ 35 Sinkhole collapse ..................................... 15 Software............................................. 15, 29 Strikes ...................................................... 21 Subrogation ............................................ 42 Suit .......................................................... 42 Suit Against Us ...................................... 42 Supportive documentation ....................... 11

T

Temperature ............................................ 20 Trade ....................................................... 24

Transit .....................................................29

U

Upgrade ..................................................44

V

Valuable papers .......................................43 Valuation ........................................ 5, 30, 35 Vandalism .......................................... 51, 54 Volcanic action .........................................16 Volcanic eruption ......................................16 Volunteer ................................................34

W

War ..........................................................17 We 16, 17, 18, 19, 20, 21, 23, 24, 25, 26, 28,

29, 33, 35, 36, 38, 39, 41, 42 Weakness ................................................19 Wear and tear ..........................................20 Worldwide ................................................42

Y

Year 2000 ................................................44 You ..... 25, 27, 31, 33, 34, 36, 38, 40, 41, 42 Your ....................................... 23, 33, 38, 40

INSURING EDP EQUIPMENT - Sandi Kruise · PDF file© 2003-2015 Sandi Kruise Insurance...

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Transcript of INSURING EDP EQUIPMENT - Sandi Kruise · PDF file© 2003-2015 Sandi Kruise Insurance...