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3. CP-02-02

Form CP 02 02: Suspension Or Reinstatement Of Coverage

The CP 02 02 Suspension Or Reinstatement Of Coverage endorsement is a crucial tool within Commercial Property insurance. It serves a dual purpose: to formally suspend coverage for specific properties or perils as outlined in the endorsement, or, conversely, to reinstate coverage that was previously suspended by this or a similar endorsement. This endorsement is not a standalone policy but modifies an existing Commercial Property Coverage Part, typically built around a form like the CP 00 10 Building and Personal Property Coverage Form. Its use provides a clear, documented understanding between the insurer and the insured regarding changes in the scope of active coverage.

Classes of Business and Scenarios

This endorsement is versatile and can apply across various classes of business where the insured's risk profile changes temporarily. Common scenarios include:

• Seasonal Businesses: A resort hotel in a summer destination might suspend certain coverages, like those for outdoor equipment or specific buildings, during the off-season when the property is largely unoccupied or operations are significantly scaled down. For example, coverage for outdoor pools or detached recreational facilities might be suspended during winter months.
• Properties Undergoing Major Renovation or Vacancy: If a commercial building is vacant for an extended period or undergoing significant renovations where certain perils become more likely (e.g., vandalism) or specific property is removed, the insurer or insured might initiate a suspension of certain coverages, or the insurer might require it to manage the increased hazard. For instance, theft coverage might be suspended if security measures are compromised during a major construction phase, or coverage on specific machinery might be suspended if it's taken off-site for overhaul.
• Mutual Agreement for Risk Management: An insured might request a suspension of a specific peril coverage to reduce premiums during a period where they believe the risk is negligible or managed by other means. Conversely, an underwriter might require suspension if a previously acceptable risk becomes unacceptable without corrective action (e.g., suspension of windstorm coverage until a damaged roof is fully repaired).
• Phased Operations or Occupancy: For large commercial complexes or new constructions, coverage might be phased in. This endorsement could be used to reflect the suspension of coverage on portions of the property not yet completed or occupied, and then later used to reinstate coverage as phases become operational.

Special Considerations

Several important factors must be considered when utilizing the CP 02 02 endorsement:

• Specificity is Key: The endorsement must clearly identify the specific property, locations, or perils for which coverage is being suspended or reinstated. Ambiguity can lead to disputes at the time of a claim.
• Premium Adjustments: Suspension of coverage typically results in a return premium to the insured for the period of suspension. Conversely, reinstatement of coverage may involve an additional premium. The method of calculating these premium adjustments should be understood.
• Impact on Other Coverages: Suspending one aspect of coverage (e.g., a specific peril) does not necessarily affect other coverages unless explicitly stated. However, it's crucial to review the entire policy to understand any interdependencies. For example, suspending coverage on a building might impact Business Income coverage related to that building.
• Conditions for Reinstatement: If coverage is suspended due to an unacceptable risk (e.g., faulty wiring, impaired protective safeguards), the insurer will typically require evidence that the hazardous condition has been rectified before agreeing to reinstate coverage. This might involve inspections or certifications.
• No Coverage During Suspension: It is paramount for the insured to understand that no coverage applies to the specified property or perils during the formal suspension period. Alternative risk management measures (e.g., increased security, temporary relocation of assets) might be necessary.
• Documentation: The endorsement serves as formal documentation of the change in coverage. Both the insurer and the insured should retain copies.

Key Information for Agents and Underwriters

Agents and underwriters should be mindful of the following when dealing with the CP 02 02:

• Underwriting Rationale: The reason for suspension or reinstatement must be clearly documented in the underwriting file. If suspending due to increased hazard, the underwriter must outline the conditions under which reinstatement will be considered.
• Risk Assessment:
  • Suspension: When suspending coverage, underwriters must assess any remaining exposures and ensure the policy still accurately reflects the risks being retained by the insurer. They should also consider if the suspension creates a moral hazard.
  • Reinstatement: Before reinstating coverage, especially if it was suspended due to an underwriting concern, a thorough re-assessment of the risk is necessary. This may involve new inspections, updated financial information, or confirmation that corrective actions have been completed. For example, if coverage was suspended because a building's sprinkler system was inoperative, proof of repair and a satisfactory new inspection would be required prior to reinstatement.
• Pricing Implications:
  • Calculate return premiums for suspensions accurately, based on the unexpired policy term and the portion of coverage being suspended.
  • Determine appropriate additional premiums for reinstatements, considering any changes in exposure or risk characteristics since the suspension.
• Coverage Gaps: Agents must clearly communicate the implications of suspension to the insured, ensuring they understand precisely what is no longer covered and for how long. It's crucial to advise the insured on potential coverage gaps and discuss whether alternative solutions or risk mitigation strategies are needed during the suspension period.
• Communication with Insured: Clear and timely communication is vital. The insured must understand the effective date and time of the suspension or reinstatement, the specific coverages affected, and any conditions or requirements for future reinstatement.
• Relation to CP 00 10: This endorsement directly amends the coverages provided under the CP 00 10 or a similar base property coverage form. It is essential to ensure consistency and avoid contradictions between the endorsement and the main policy language.