Commercial property insurance is designed to protect the following:
- Personal Property and Inventory/Stock
- Property of Others
- Loss of Income (from covered perils)
Unlike General Liability insurance, which covers you for your liability to others, commercial property policies protect against assets which you own or which are on your premises. There are three types of policies you may purchase:
- Basic Form – the least expensive and least comprehensive
- Broad Form – broader than Basic, but still very “bare bones”
- Special Form – most comprehensive property coverage available
Insurance carriers require you to insure your property to full value. There are three ways to value your property:
- Replacement Cost
- Actual Cash Value (Replacement Cost minus Depreciation)
- Agreed Value
WHY YOU SHOULD ALWAYS INSURE TO FULL VALUE
If you are trying to save money and not concerned about broad coverage, you could look at purchasing a Basic Form property policy using Actual Cash Value to insure the values very low. The dangers of under-insuring your property are based on a clause in most property policies called Coinsurance – which imposes a penalty at the time of loss if you are under-insured. Coinsurance penalties can result in significantly reduced claims payments at the time of loss.
The best way to buy property coverage is to fully insure at replacement cost value all your company’s property. The cost/benefit of skimping on your coverage is usually not worth it. We almost always recommend Special Form property policies with full Replacement Cost Value. (Whenever possible, we attempt to negotiate away coinsurance clauses to remove the risk of discovering you’re under-insured when it’s too late!)
WHY PURCHASE COMMERCIAL PROPERTY INSURANCE?
The most common reasons our clients buy insurance for their property is to protect against perils like fire, wind, theft, lighting and water damage. Luckily, if you purchase a Special Form (described above), you will also be covered for a very broad spectrum of possible losses for a nominal cost. The Hartford published a study revealing the most common losses faced by small businesses.
Ordinance or Law
Many property policies contain restrictions on coverage for the increased costs of construction and demolition of buildings, in order to comply with required building ordinances following a loss. Coverage is available for this exposure, called Ordinance & Law, is usually available for additional premium, but is worth the cost if you have an older building.
As discussed above, this can cause you to get “shorted” during if you are deemed to be under-insured at time of loss. Coinsurance clauses require you to insure your property to within a certain percentage of the full value. For example, an 80% coinsurance clause obligates you to insure your property up to 80% of value (whether if be replacement cost or actual cash value). The challenge is estimating an accurate value on the front-end. Note that insurers do NOT use market value. Whenever possible, ask for a property policy with Agreed Value (i.e. waive Coinsurance) to avoid these potential coverage gaps.
Cleanup and removal of pollutants is usually very limited in a commercial property policy (e.g. $10,000 and restricted to pollutants “caused by a covered loss”). Additional coverage may be purchased and is recommended if you own an older building with possible exposure to mold, asbestos, etc.
If your property is vacant for more than 60 consecutive days, then certain coverage restrictions may apply (e.g. exclusions for vandalism, glass breakage and theft). Most insurers consider a property vacant if it’s less than 30% occupied. It’s wise to request a vacancy permit in order to purchase back the excluded coverage, especially theft, whenever possible.
Commercial property policies contain very little coverage for restoration of electronic data, yet this is becoming a common exposure within businesses. Cyber insurance was created to address this exposure for damage to your own software, including costs for notification, lost revenue and PR, but also for third party liabilities which may arise due to breach of sensitive customer data.
If any portion of your business depends on electronic or mechanical equipment, then we recommend considering additional coverage for Equipment Breakdown (historically referred to Boiler & Machinery coverage). Any type of major mechanical failure or electrical arcing which may damage your equipment, is not covered by the commercial property policy unless endorsed to include such exposures.
Flood & Earthquake
Commercial property policies most often exclude coverage for flood or earthquake. If your property is located in areas with potential to these hazards, then we recommend endorsing the property policy or purchasing separate flood insurance coverage. Flood coverage is typically offered by insurance carriers through independent agents, but is actually underwritten with rates set by FEMA.
Utility Services: Direct Damage and Time Element
Commercial property policies usually do not cover loss from utility services disruption. Direct damage to your property can be caused by utility disruptions, but even more important is the possibility of lost revenue. If you are a retail business, this is even more imperative.
There are circumstances where a traditional commercial property policy doesn’t offer the correct coverage and cannot be endorsed to accommodate your unique exposures. For this reason, there are a number of other types of insurance policies:
- Builders Risk & Installation Floaters – coverage for buildings under construction, whether you own them or not (e.g. contractors may purchase on behalf of their projects)
- Bailee’s Legal Liability – coverage for property of others in your “care, custody or control” – not covered under commercial property policy unless within 100 feet of your premises
- Warehouse Legal Liability – coverage for customers’ goods – intended for operators of warehouses or self-storage facilities
- Tenant Legal Liability – coverage for property damage caused by your tenants
- Marina Operators Legal Liability – coverage for damage to customers’ boats while stored and transported – intended for operators of marinas and boat dealerships
- Ship Repairer’ Legal Liability – coverage for damage to customers’ boats while working on them – intended for marine contractors
- Commercial Crime Insurance
- Flood Insurance
- Business Owners Insurance – Combine property and liability to reduce costs and enhance coverage
>> LEARN ABOUT OTHER COMMERCIAL INSURANCE SOLUTIONS