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3. IL-00-17

Form IL 00 17 - Common Policy Conditions

The IL 00 17 - Common Policy Conditions is a foundational form used in commercial insurance. It establishes a standard set of conditions that apply to all coverage parts included in a Commercial Package Policy (CPP) or a monoline policy. Its primary purpose is to ensure consistency and clarity regarding the general rules and obligations governing the relationship between the insurer and the named insured, regardless of the specific coverages purchased. This form avoids the need to repeat these common conditions in each individual coverage part. The IL 00 17 typically includes six key conditions: Cancellation, Changes, Examination of Your Books and Records, Inspections and Surveys, Premiums, and Transfer of Your Rights and Duties Under This Policy.

Classes of Business It Applies To

The IL 00 17 is an "interline" form, meaning it's not specific to one line of business but is designed to be used across various commercial insurance coverages. It is a mandatory component for most Insurance Services Office (ISO) commercial lines policies. Therefore, it applies to a vast array of industries and business types that would purchase a CPP or a monoline policy. Examples include, but are not limited to:

• Retail Operations: A local grocery store with a CPP including property, general liability, and spoilage coverage.
• Manufacturing Companies: A small to medium-sized factory insuring its building, business personal property, and liability exposures.
• Service Businesses: An accounting firm with a policy covering its office contents and professional liability.
• Real Estate Owners: Owners of commercial buildings, such as office complexes or shopping centers, who have commercial property and liability coverage.
• Contractors: Construction businesses that carry general liability and inland marine (for tools and equipment) coverage.
• Organizations with Crime Coverage: Businesses that purchase commercial crime coverage as part of a package or as a standalone policy.
• Businesses with Inland Marine Coverage: Companies requiring coverage for goods in transit or specialized equipment, such as those using the Annual Transit Coverage Form or Motor Truck Cargo Owners Coverage Form.

Essentially, any business purchasing a standard commercial package policy or a monoline policy where the IL 00 17 is specified will be subject to its conditions.

Special Considerations

Several conditions within the IL 00 17 warrant special attention:

• Cancellation: This clause outlines how the policy can be canceled by either the first Named Insured or the insurer.
  • The first Named Insured shown in the Declarations is the only insured who can request cancellation, which is typically done by mailing or delivering advance written notice to the insurer.
  • The insurer can cancel by providing written notice to the first Named Insured. The notice period is generally 10 days for nonpayment of premium and 30 days for other reasons, though state-specific mandatory forms or regulations may alter these periods. For example, if an insurer cancels due to non-payment, they must mail notice at least 10 days before the cancellation date. If the first Named Insured cancels, the premium refund may be less than pro rata (e.g., a short-rate basis might apply); if the insurer cancels, the refund will be pro rata. Cancellation is effective even if the premium refund has not yet been made or offered. Proof of mailing the notice is generally sufficient proof of notice.
• Changes: This condition states that the policy contains all the agreements between the insured and the insurer.
  • Any changes to the policy terms must be made by a written endorsement issued by the insurer and made part of the policy. Only the first Named Insured shown in the Declarations is authorized to request changes, with the insurer's consent. For instance, if a business wants to add a new location to their property coverage, they must request this change, and if the insurer agrees, an endorsement will be issued. An email to the agent without a formal endorsement from the insurer is not sufficient to effect change.
• Examination of Your Books and Records: The insurer has the right to examine and audit the insured's books and records related to the policy.
  • This examination can occur at any time during the policy period and for up to three years after the policy expires. This is particularly relevant for policies where the premium is based on auditable exposures like sales or payroll. For example, a general liability policy premium might be based on the insured's annual sales, and the insurer can audit the sales records to confirm the correct premium.
• Inspections and Surveys: The insurer has the right, but not the obligation, to make inspections and surveys of the insured's property and operations at any time.
  • The insurer may provide reports on conditions found and recommend changes. It's crucial to understand that these inspections are primarily for underwriting and rating purposes (insurability and premiums) and are not safety inspections for the benefit of the insured or third parties. The insurer does not warrant that conditions are safe, healthful, or compliant with laws, regulations, codes, or standards. An exception exists where inspections relate to certification of boilers, pressure vessels, or elevators under state or municipal statutes. For example, an insurer might inspect a manufacturing plant to assess fire hazards, but this doesn't mean they are guaranteeing the plant is free of all hazards or meets all safety codes.
• Premiums: The first Named Insured shown in the Declarations is responsible for paying all premiums and will be the payee for any return premiums paid by the insurer.
• Transfer of Your Rights and Duties Under This Policy (Assignment): The insured cannot transfer their rights or duties under the policy to another person or organization without the insurer's written consent.
  • For example, if a business owner sells their business, they cannot simply transfer their existing insurance policy to the new owner without the insurer's written approval. The only exception is in the case of the death of an individual Named Insured; in this situation, the deceased's rights and duties are automatically transferred to their legal representative, but only while that representative is acting within the scope of their duties as such. Until a legal representative is appointed, anyone having proper temporary custody of the deceased's property will have those rights and duties with respect to that property.

Key Information for Agents and Underwriters

• First Named Insured Dominance: It is critical to identify the first Named Insured correctly on the Declarations page, as this entity holds significant control over the policy, including the right to cancel, request changes, receive return premiums, and receive notices from the insurer. Underwriters should verify the legal standing and authority of the entity designated as the first Named Insured.
• Premium Audits: The "Examination of Your Books and Records" condition is the basis for conducting premium audits. Underwriters should clearly communicate audit provisions to insureds with policies subject to audit (e.g., workers' compensation, general liability based on payroll or sales). Agents should prepare clients for potential audits and the importance of maintaining accurate records.
• Inspection Limitations: Agents and underwriters must be clear that insurer inspections are for underwriting purposes and do not constitute a safety certification or warranty. This can prevent misunderstandings and potential E&O claims if an insured or a third party attempts to hold the insurer liable for failing to identify a hazard that later causes a loss. For example, if an insurer inspects a property and doesn't identify a loose handrail, and someone later falls, the insurer is generally not liable for that injury based on the inspection.
• Assignment Clause: The strict "Transfer of Your Rights and Duties" condition means that in business sales or acquisitions, the existing policy generally cannot be assigned to the new owner. Underwriters will need to assess the new ownership and issue a new policy if they choose to accept the risk. Agents must advise clients accordingly to prevent coverage gaps during transitions of ownership.
• Endorsement Requirement for Changes: All policy changes must be documented by an endorsement issued by the insurer. Agents should ensure clients understand that verbal requests or informal communications are insufficient to alter coverage. Underwriters must ensure endorsements are properly issued and attached to the policy.
• State Variations: While the IL 00 17 is a standard form, some conditions, particularly cancellation and nonrenewal, can be modified by state-specific endorsements or laws. Underwriters and agents must be aware of and apply any mandatory state-specific provisions that supersede the language in the IL 00 17. For instance, Texas law requires specific endorsements that modify cancellation and nonrenewal conditions.
• Policy Completeness: The "Changes" condition emphasizes that the written policy, including endorsements, constitutes the entire agreement. This underscores the importance of ensuring all agreed-upon terms are formally documented within the policy.