ISR Additional Benefit 7 – Directors’ & Employees’ Clothing & Tools of Trade

This week I look at the 7th and final Additional Benefit afforded by the Australian Mark IV Industrial Special Risks(“ISR”)  Policy, Directors’ & Employees’ Clothing and Tools of Trade.

As the name suggests, the benefit is provided so as cover is afforded to the property of directors and employees who may be at one of the listed situations of the Insured. By providing this cover, it is not necessary for the Insured to have accepted or assumed to have accepted responsibility to insure such property prior to the loss as is the case with other property which is at the situation but which is not the property of the named Insured(s).

The wording of this benefit reads:

Subject to the liability of the Insurer(s) not being increased beyond the Limit(s) of Liability already stated herein, the Insurer(s) will also indemnify the Insured for:…

(g)       Damage to clothing and tools of trade belonging to directors and employees of the Insured whilst on the premises.”

The cover here is for clothing and tools of trade only, and not personal property or personal effects. The difference between these terms can be seen from the definitions below:

  • Clothing[1]: “1.garments collectively; clothes; raiment; apparel. 2. a covering”.
  • Personal Effects[2]: a person’s moveable and more intimate property as clothing, toilet articles, keys, etc”.
  • Personal property[3]: one of the two main classes into which English Law has divided property, comprising all from of property other than interests in freehold land”.

Clothing was included as in many industries, especially where the employees get quite dirty, and the employer supplies work clothes which are left at the situation for laundering each night. The cover is for the clothes the staff wear to and from work and which may be in a locker room during the work day. Of course, it extends to all clothes and would cover a suit jacket, overcoat or any other item of apparel owned by any employee or director.

While this clause includes tools of trade, it is quite narrow in its cover and would not include prescription glasses, handbags and the like, nor would it cover trophies, works of art, framed certificates, etc that employees often have at work and which may not be covered under their own domestic covers due to the fact that:

  • many direct Insurers delete the cover, or
  • the item may be regarded as permanently removed, rather than temporarily removed, from the dwelling.

Why tools of trade was included in the standard cover is that in many trades, hand tools are owned by the employee. This goes for mechanics right through to chefs.

The Mark V wordings use ‘Personal Effects’ rather than ‘Clothing’, but drop off ‘Tools of Trade’. Another difference is that the Mark V wording includes clubs of the Insured, such as social or welfare clubs. If the Insured has such a club, it may be prudent to seek an amendment to this clause to include the property of the club, or to record the club as a named Insured. There are several published endorsements that extends the standard cover with the two I tend to use the most being:

CLUBPPC4 PROPERTY OF EMPLOYEES AND CLUBS (D)

Paragraph (g) of The Indemnity is amended to read:

“(g) damage (limited to the amount shown in the Schedule per person or club) to personal effects (excluding money) belonging to directors and employees of the Insured or the property of welfare, sports and social clubs of the Insured, whilst on the Premises.

The indemnity under this paragraph (g) shall apply whether or not Damage occurs to Property Insured in circumstances giving rise to indemnity under Section 1 of this Policy.”

This endorsement is in effect the same as PROPERTY OF EMPLOYEES AND CLUBS (A), Endorsement Code CLUBAVS4, but rather than use the $2,000 limit that has been in place since 1990, it allows the broker /adviser to set the sub-limit.

Some insurers require an overall limit any one loss but this is against the spirit of the original endorsement. Having said this, more and more insurers require it.

Many insurers are reluctant to provide cover for visitors to the Insured’s premises, particularly the premises of clubs. As a result I drafted this endorsement.

Turning back to the standard wording found in the ISR Mark IV policy, there is no Sub-Limit per employee or director, or for all claims under the Clause. Naturally most underwriters do impose a Sub-Limit, which is recorded on the Schedule.

As I have stated in other posts to this blog, if there is no Sub-Limit recorded and the cover is provided in the ISR Policy  then it does not mean there is no cover; on the contrary, it means it is covered to the overall Limit of Liability.

The basis of settlement for Directors’ and Employees’ clothing and tools of trade in the standard wording is indemnity.

As a result I typically seek to have the cover extended to reinstatement and replacement using the following endorsement, which is a companion to CLUBPPC4 PROPERTY OF EMPLOYEES AND CLUBS (D) reproduced above.

VALPEPC4 VALUATION OF PROPERTY – EMPLOYEES & CLUBS (B)

In Section 1, Basis of Settlement (h) is amended to read:

“(h) On personal effects (excluding money) belonging to directors and employees and on the property of welfare, sports and social clubs:

The necessary cost of replacement or repair at the time and place of replacement or, if not replaced with reasonable despatch, the replacement cost at the time and place of the damage subject to due allowance for wear and tear,depreciation and betterment. In no case shall the Insurer’s liability exceed the Sub-Limit shown in the Schedule in respect of Property of Employees & Clubs (D).

[1] The Macquarie Dictionary, Revised 3rd Edition, edited by Delbridge A., Bernard J.R.L., Blair D., Peters P. and Yallop C., 2001, The Macquarie Library Pty Ltd, Sydney, p.370.

[2] Ibid., p.1424.

[3] Ibid., p.1425.

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