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Insuring Gift Cards – Commercial Lines

Author: Bill Wilson
A Big "I" state association recently posed the following question:
"An insured processes and distributes a large amount of pre-paid gift cards. Apparently, these gift cards (to various retail establishments) are already activated. In their warehouse facility, they may have up to several million dollars’ worth of these (already activated) cards on hand at any given time. The commercial property carrier is considering these cards as a cash equivalent and is limiting coverage accordingly. The commercial crime carrier is shying away from offering coverage as well, and if they were to offer coverage, it would only be for 'crime' perils. The agent is concerned about the exposure from the standard property perils (fire/wind) as well. Have you run into a situation before where an insured has a large amount of inventory of an item that the insurer views as cash? Any advice?"
ISO's HO policies specifically address gift cards. For example, ISO's most commonly used form, the HO 00 03, has a specific sublimit for a certain class of property that includes "stored value cards." ISO's CP and BOP forms are silent. One interpretation could be that, since there is no specific exclusion or limitation on gift cards in the commercial forms, none applies. The logic is that, since ISO's HO and CP/BOP staffs work in the same building, you'd think that the latter would be aware of the HO treatment of gift cards and choose to follow the same tact by specifically addressing them. The “stored value cards” HO policy limitation was added in 2000, so ISO has had almost 14 years to do the same thing in commercial lines but has chosen not to.
ISO's ISO CP 00 10 excludes:
Accounts, bills, currency, food stamps or other evidences of debt, money, notes or securities. Lottery tickets held for sale are not securities;
According to the agent, the property insurer considers gift cards to be "evidences of debt." While one could argue that activated gift cards may have the force of “currency” ("evidences of debt" seems doubtful), I’m not sure they fit into that defined term, depending on what dictionary you use. There is a contract interpretation principle called noscitur a sociis which basically says, “If the contract provision enumerates specific items, a person or thing will fall within the list if the person or thing is associated with the items on the list.” Often such lists in insurance policies will include an ending item such as, “and all similar property” or something like that. But in the excerpt above, it doesn’t imply that this exclusionary list applies to anything other than the listed items.
So, I ran this by VU faculty member and Commerical Crime guru:
Gift cards are "securities " under ISO Crime forms and could be covered there under Insuring Agreements 1 and 3.
This is the definition of “Securities” in the crime forms:
19. "Securities" means negotiable and nonnegotiable instruments or contracts representing either "money" or property and includes:
a. Tokens, tickets, revenue and other stamps (whether represented by actual stamps or unused value in a meter) in current use; and (examples of each are…)
b. Evidences of debt issued in connection with credit or charge cards, which cards are not issued by you; but does not include "money".
So, gift cards CAN be insured as “securities” in the crime forms.
Is this an advantage of a Crime form you were not aware of? This isn’t the only example. Our “Commercial Crime Coverage” webinar is now archived and available on the VU website.
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