Recently we received a very informative and well-written e-mail from Ellis Hershman our representative at Heritage Insurance Services. This is the company which provides our shop coverage, and many other shops internationally. We have copy-pasted the e-mail with Ellis' permission for your benefit. We hope that each of you find it as informational as we do.
~ Cassandra
General Manager
Use of Homeowner Policies to Insure Musical Instruments
We often get asked to explain why someone should insure their personal instruments/equipment with us, versus placing them on a schedule on a homeowner policy. Homeowner policies vary from company to company, and from policy form to policy form. Generally speaking, the most common homeowner policy is the “HO-3” policy form, which can have a special endorsement (the “HO-61” endorsement) attached to the policy at the client’s request. This endorsement covers “Scheduled Personal Property”, and is copy written by the Insurance Services Office, who then provides the insurers with the endorsement form. The most common and practical use of this endorsement is to cover valuables such as jewelry or fine arts. Even if an insurer uses their own forms and definitions for scheduled personal property, the intent shadows the HO-3 and HO-61 forms.
The basic problems with using this endorsement to insure musical instruments and equipment are as follows:
A.) “You agree not to perform with these instruments for pay unless specifically provided for under this policy.” So reads the HO-61 endorsement. Seldom, if ever, will a homeowner carrier approve professional use of an instrument. Therefore, if you play for any remuneration at all, you have voided the terms and coverage of the policy contract.
The professional is best covered under a Heritage Musical Instrument Policy, as it is designed to cover those who earn money from the playing of their instruments.
B.) The value of the property (instruments/equipment) insured is not agreed upon, but will be ascertained ay the time of loss or damage. Even though an appra isal was requested at the placement of the coverage, the carrier may still deviate from that figure. The insurer may disagree with the insured as to the value and push the settlement into arbitration or litigation.
With an appraisal, Heritage policies provide agreed value coverage, which guarantees the amount the insured will be paid for the loss.
C.) There is nothing specific with regard to devaluation caused by breakage in the homeowner form. Claims representatives may agree or disagree on this point. Policies are quiet on this issue.
Heritage policies specifically include devaluation.
D.) Agents and employees of homeowner insurance companies generally have a very limited knowledge of musical instruments; that is, their value, devaluation, repair costs, etc. This type of knowledge can be of immense help win solving coverage and claims problems quickly.
Heritage Insurance Services maintains communication with literally hundreds of resource people in the various music trades, and uses a professional consultant to coordinate claims and valuations.
E.) Many homeowner carriers will not accept high valued musical instruments on their policies. Some companies may refuse all musical instruments and equipment.
Heritage Musical Instrument Insurance insures instruments from the low four figures to the high seven figures. Large or small values are not a problem.
F.A.Q.
If I loan or give custody of my instrument to an individual or business entity, is it covered should a loss occur?
The answer is both yes and no, depending upon some variables.
The Heritage policy designed for collectors and players will cover such entrustment on a worldwide basis, subject to the same terms and conditions that apply to the owner. So, in this case, the answer is yes.
If your policy is written by another carrier other than Heritage, you must read your policy carefully and ask the agent to define the extent of coverage. There are significant limitations placed on this exposure and it takes a trained eye to ferret them out. For instance, policies may exclude coverage while being worked upon by a repair shop, and limit the provision of coverage for mysterious disappearance or failure to return instruments. Dishonesty of entrustment can be excluded as well. So, the answer may be no, depending on your policy and the circumstances.
Beyond the issue of coverage, there is another possible consequence that should be mentioned. The word is “subrogation” and the person who takes possession of the instrument needs to understand what this means. If you relinquish custody of your instrument, you are insured and you will be paid should a loss occur, as your policy may apply to such. However, the person taking custody of the instrument is not an insured under your policy, and there is nothing to prevent your insurer from seeking restitution from that individual or entity if they discern negligence, or if they have signed a contract agreeing to be responsible for the instrument.
Someone taking custody of a non-owned instrument can avoid the subrogation process in a couple of ways:
1- If permitted by the insurer, have their name/names added to the owner’s policy for the period of the loan. (Heritage usually allows this action)
2- Add the instrument to your own policy or take out insurance on the instrument and have the owner added as a “loss payee.”
3- Have the owner waive the subrogatory interest of their carrier in writing prior to taking possession of the instrument. (Be careful; not all policies allow their policy holders to do this, so check with your agent before executing.) Heritage policies allow their insured’s to waive subrogation in writing prior to a loss occurring.
Does this really happen?
A player borrowed a bow and accidentally left it in a taxi cab and could not recover the bow. The insurer paid the loss to the owner, and turned to the player for restitution. The player wanted nothing to do with this action or responsibility, until they stepped off stage after a concert and received service of a lawsuit. The loss was substantially settled by the player without further litigation.
War Stories
This Could Happen to You!
A client with multiple homes was keeping one of his guitars at a secondary home in another part of the country from where his primary residence is located. A caretaker stopped by to routinely check on the home, and found that a water pipe leading to the hot water heater had exploded, sending gallons of water into the home. The guitar was located nearby and sustained significant water damage, having possibly been lying in water for some time before being discovered. The guitar was declared a total loss, and the client has been compensated for the full stated value of the instrument.
Heritage Insurance Newsletter, July 2009
