Sam owns Sam's Sports, a sporting goods store located in Happyville. Sam's store is situated in an area that attracts skiers in the winter and hikers in the summer. The store's inventory levels fluctuate significantly throughout the year. Inventory is highest in the fall and spring, just before the skiing and hiking seasons begin.

Sam operates his store in a building he rents. He has purchased a commercial property policy that covers his inventory and other business personal property.

His inventory is covered under a specific limit that is relatively high. The limit is the maximum value of inventory that Sam is likely to have at any time during the policy period.

Sam is concerned that he is paying too much for insurance. At certain times of the year the value of his inventory is much lower than the limit on his policy. He would like his premium to be based on the average value of the stock he has on hand during the year. Sam phones his insurance agent, who suggests Sam try a value reporting form.

A value reporting form (or endorsement) is used to cover property that changes in value during the policy period. Such forms are used to cover personal property under standard commercial property policies. They are also used to cover buildings under builders risk policies.

Value Reporting Form

Sam chooses to insure his inventory on a reporting basis when his property policy renews on January 1, 2015. Like many insurers, Sam's property insurer uses a standard reporting form developed by ISO.

Sam chooses a limit of $7 million for his inventory. This is the highest value of inventory that Sam expects to have on hand at any point during the policy period. Sam pays a provisional premium based on a percentage (typically 75%) of the limit. His premium will be adjusted at the end of the policy period based on the values he has reported.

Next, Sam and his insurer agree on the appropriate reporting period. Values may be reported daily, weekly, monthly, quarterly or annually. Which option is best for a particular policyholder depends on how often and how much the property fluctuates in value. Sam chooses to report values every month.

Covered Locations

While Sam has only one store, many businesses have multiple locations. A policyholder can choose to insure, on a reporting basis, property situated at one or more of the locations scheduled in the declarations. The declarations should indicate which locations are covered on a reporting basis.

Besides scheduled locations, three other types of locations may be covered under a reporting form. These types of locations are covered only a limit is scheduled in the policy.

• Reported Locations These are locations that are not listed in the declarations but that are reported to the insurer when reporting coverage begins. For example, suppose that Sam is using a friend's warehouse for a few months to store some inventory. He reports the storage unit (which is not listed on his policy) to his insurer at the beginning of the policy period.
• Acquired Locations These are locations that the policyholder acquires during the policy period.
• Incidental Locations These are locations the policyholder uses that don't fit into the other categories.

Reporting Requirements
Reporting forms impose strict requirements regarding the filing of reports. Under the standard ISO form, the initial report must be filed within sixty days of end of the first reporting period if your previous policy was not written on a reporting form by the same insurer. If your reporting policy is a renewal of previous a reporting policy issued by the same insurer, your first report is due within thirty days of the end of the first reporting period.

For example, suppose that Sam switches to a reporting form when his policy renews on January 1, 2015. Sam remains with his existing insurer. Sam chooses to report values monthly so his first report must be filed by April 1 (sixty days after January 31). All subsequent reports must be filed within 30 days from the end of the reporting period (last day of each month).

Because Sam has chosen to report values on a monthly basis, his report should show the values on hand on the last day of the month. For example, Sam's report for June should show the value of his inventory on June 30. Had Sam elected quarterly reporting, he would file reports every three months. Each quarterly report would show his inventory value on the last day of the month for each of the three months in that quarter.

Note that if Sam had more than one location, he would be required to file a separate report for each location. The only exception is incidental locations. Sam could report these locations on a "per state basis.

Reporting forms are subject to serious penalties for inaccurate or late reports. These penalties are explained in a Part Two of this article.