An agency insures a merchant that sells doors with policy form CP 00 10 10 12. The merchant sent an invoice to his customer for partial payment of material and labor for a project to install the doors in a building. The merchant received a request from the buyer of the doors to provide evidence of insurance on the doors while they are stored at the merchant's premises.

There is no agreement in place that states responsibility for damage to the doors while at the merchant's premises other than an invoice for partial payment of material and labor. The merchant has an inventory of doors that far exceeds this project and may use any doors from his inventory for this project or other projects.

Q: Should the doors be insured by the buyer or the merchant? Should the merchant purchase business personal property of others or business personal property coverage?

Response 1: The merchant should insure the doors until they are installed. The CP 00 10 10 12 form includes “stock," which it defines as “merchandise held in storage or for sale, raw materials and in-process or finished goods, including supplies used in their packing or shipping."

I think that addresses the situation you described. It would be an ongoing nightmare for this or any other merchant to constantly adjust their policy's business personal property of others limit to reflect constantly changing jobs and their values.

In this case, the buyer can be issued an ACORD 28 Evidence of Commercial Property Insurance form that shows the business personal property limit and terms, including stock.

Response 2: First of all, when your customer is asked to provide evidence of coverage, who is he being asked to cover: himself, his customer, or both? Once you've answered that, the next step is an agreement that spells out responsibility for insurance in this situation. The answer can probably be discovered in the Uniform Commercial Code (UCC) but without a clear agreement there will always be room for argument involving your client, his customer and the insurance companies for both parties.

There's no question in my mind that the doors constitute your insured's business personal property. However, the extent of that coverage is determined by the proportion of the value that has been paid by the customer. Because the customer has paid a portion of their value, the doors could be considered business personal property of others, subject to all the policy conditions for that class of property. 

Then, you need to consider coverage on the doors while they're away from your insured's premises in the course of transportation and installation. That will require different coverage, and you might consider a specialty form that covers this property at all stages.

Response 3: The merchant is covered for loss by the CP 00 10 10 12 form. The insured's interest is covered as the doors are stock and the interest of the buyers is covered under Personal Property of Others:

c. Personal Property Of Others that is:

(1) In your care, custody or control; and

(2) Located in or on the building or structure described in the Declarations or in the open (or in a vehicle) within 100 feet of the building or structure or within 100 feet of the premises described in the Declarations, whichever distance is greater.

However, our payment for loss of or damage to personal property of others will only be for the account of the owner of the property

Response 4: A property form should not be used for inventory. An inland marine policy would be appropriate for the merchant to cover his owned inventory. The buyer might have a builders risk form operating for the project, and construction materials off-premises may sometimes be added to that kind of policy.

Response 5: Given that the buyer is looking for evidence of coverage, the buyer is expecting the merchant to cover the doors. While I think it is best in this situation for the merchant to insure the doors, that decision is one that should be made by the two parties and clarified in writing. Because the value varies and the merchant also has a general inventory of doors, a blanket limit on the merchant's policy covering business personal property and personal property of others is a good solution. 

Just keep in mind that, in CP 00 10 10 12, there is no off-premises coverage for personal property of others. If the insured is delivering and installing the doors, the property coverage could be coordinated with an installation floater. 

Response 6: Absent something to the contrary in a contract or purchase order, I think the door merchant would be responsible for damage to the doors in his care, custody and control—until they are safely delivered to the buyer. Unless there is specific contract language that the buyer should insure with a waiver of subrogation in favor of the merchant, the merchant likely would be tagged for any damages.

If only a partial payment is made on the doors, both the merchant and the buyer have an interest that should be insured. Have you considered a stock throughput policy to insure the products as they go from the factory to the warehouse and then ultimately are delivered to customers?

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