A standard property insurance policy leaves something to be desired in addressing special EDP-related exposures. Electronic data processing equipment and its software is particularly susceptible to damage from electrical or magnetic disturbance and changes in temperature or humidity—perils that are excluded in a standard “special” perils property policy. Except for prepackaged software programs, which are typically covered on an actual cash value basis, coverage for programs and data in a standard property policy is essentially limited to replacement with blank tapes or diskettes plus transcribing expense. Finally, business interruption coverage in connection with damaged EDP Media (not equipment) is limited to 60 days from the date of loss or the time when the other damaged property is repaired, whichever is longer. Therefore, if the building repairs are complete, but normal operations cannot resume because replacement computer programs, data or media are not readily available, an uninsured business interruption loss may result.
The best way to resolve these coverage inadequacies for EDP exposures is to buy a special EDP policy. Typically, EDP policies provide “special” peril coverage similar to that provided by “special” property forms, PLUS coverage for all electrical and magnetic damage, mechanical breakdown and often temperature and humidity changes as well. Some insurers include these perils in the basic form, while others make them available by endorsement for an additional premium. Usually these broader coverages are subject to a higher deductible as well. Valuation can be on either a replacement cost or actual cash value basis, and coverage may be available on a blanket as well as a scheduled basis. Media coverage includes the cost to reconstruct software developed in-house (subject to the limit of liability selected for the coverage, if necessary.
Perhaps most importantly, an EDP policy will respond appropriately to extra expense or income loss from the loss of EDP equipment, programs and data, provided that these coverage options in the policy have been elected and adequate limits of liability have been established.