Specific insurance is primary to commercial package, HO property coverage

Rough Notes, Jan 1999 by McCormick, Roy C

Unscheduled personal property coverage under a commercial package or homeowners policy does not contribute with scheduled/more specific personal property insurance on a loss to which each would apply in the absence of the other.

Specific insurance provided by scheduling, or under a policy or coverage part applicable to a single type or class of property, should not be written with the intent of using as excess a commercial package policy's coverage for general personal property, even though forms currently used by some insurers do so when both types of insurance apply. Scheduling is an important tool that should be arranged as the sole source of recovery for loss to the item(s) involved. There are important reasons for this, depending on the circumstances, including the following:

Limits of insurance under basic coverage for unscheduled personal property are reserved for general property by separate treatment of the specified property.

Perils and exposures that are not included in the basic coverage generally are covered in the specialized form. Contractors' equipment insurance, geared to use of the subject property at a job site, is an example.

Certain kinds of personal property, for which specialized coverage is available, are excluded from coverage under commercial package forms for general personal property.

Others are subject to sub-limits that may be insufficient. Although various insurers provide for increasing the limit of insurance for such property, the scope of perils covered is normally expanded by specialty insurance and scheduling.

Agents and brokers are well-advised to be familiar with the numerous forms of specialized insurance of an inland marine nature, adaptable to the needs of many commercial clients and prospects. They have been developed to enhance the basic protection of package policies by endorsement of a package, or under a separate monoline policy.

For example, there are: bailees' customers policies for rug and carpet cleaners; contractors' equipment and installation floaters for contractors and service firms; EDP policies for numerous financial and commercial organizations; jewelers block and furriers' customers forms for department and specialty stores; motor truck cargo insurance for household movers, etc. The list is extensive.

Regarding homeowners policies in general, unscheduled personal property coverage (Coverage C) does not pick up a shortfall in loss recovery when scheduled items of valuable property have not been specifically insured for their full value. "Personal property not covered" provisions in widely written homeowners policies make this clear.

For reference purposes, Insurance Services Office forms do not cover "...articles separately described and specifically insured in this or other insurance." American Association of Insurance Services forms state that: "We do not cover...property covered by scheduled insurance..." An understanding of the effect of the provisions is essential when property is specifically insured under a scheduled property endorsement, made part of a homeowners policy, or listed in a separate personal articles floater policy.

Problems might arise, for example, over a stamp collection, which is among the classes of valuable property to which special limits apply under Coverage C of homeowners policies. The insured could not use the $1,000 (or other) special limit for stamps to make up a deficiency in scheduled coverage for loss of all or part of a collection.

This problem for several classes of scheduled personal property can be remedied by attaching to the homeowners policy a personal property replacement cost endorsement which is offered by some insurers. Because of their nature, jewelry and furs, camera and musical equipment, silverware, goldware and pewterware, and golfer's equipment are subject to the replacement cost provisions in the same manner as is general personal property. Variations in replacement cost endorsements make it essential to be familiar with this coverage feature in the particular endorsement that is used.

Property with artistic merit or within the realm of collectors' items, however, is outside the scope of personal property replacement cost endorsements. For such valuable items, notably classes subject to homeowners policy special limits, scheduling is the remedy. Such property includes coin and stamp collections, gun collections, paintings, oriental rugs, antique furniture, rare books, antique silver, manuscripts and autographs.

Of course, the valuables to which a personal property replacement cost endorsement might apply may be specifically covered by scheduling. This alternative is especially significant when basically covered perils and territorial limits warrant expansion.

The mechanism for assuring full coverage for scheduled personal property is periodic appraisal and increase in the amount of insurance, as warranted. It is unfortunate if steps are not taken to avoid the underinsurance that accompanies the ticking of the clock. Sound valuation and proper dovetailing of coverage are ongoing challenges.