One of the most common types of business insurance is commercial property insurance, which provides a wide range of coverage for buildings, inventory, equipment, tools, income and more. Losses from fire, break-in, vandalism, wind and other natural or manmade disasters are examples of what is typically covered.
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Property coverage provides first-party coverage on the insured’s tangible assets from a variety of causes of loss. There are many forms and approaches starting with the general and moving to the specific. The range of options allows an agent to work with a customer to develop the approach that is right for them.
Property Coverage—Building and Personal Property Coverage Form
There are four types of property associated with every structure:
- The building or structure itself;
- The business personal property inside the building;
- The personal property of others in the building; and
- The improvements and betterments that have been made for the benefit of the current occupant.
All are covered under the Building and Personal Property Coverage Form. All can be provided with a specific limit or can be combined in various ways as blanket. A separate cause of loss form must be attached.
Automotive operations will normally use this form for most property coverage.
(Refer to ACORD 140) (Refer to PF&M 130.4-2)
Property Coverage—Building and Business Personal Property Coinsurance
Coinsurance is a technique to encourage proper insurance to value. The commercial fire rating section in the ISO manuals contemplate a minimum of 80 percent coinsurance. Any higher coinsurance receives a credit and lower receives a debit. The insured must choose a coinsurance percentage; it is then indicated on the declarations page. Failure to carry sufficient limits to satisfy the coinsurance requirement will cause a penalty at the loss settlement time.
(Refer to PF&M Section 130.6-9)
Property Coverage—Building and Business Personal Property Alternatives to Coinsurance:
Agreed value—suspends coinsurance but requires the insured submit annual signed statements of value indicating the 100 percent value of the property insured and then purchase either 90 percent or 100 percent of that value.
(ACORD 139) (Refer to PF&M Section 130.4-2)
Functional replacement cost—allows the insured to purchase the coverage necessary to rebuild or replace based on utilitarian needs. Examples include: replacing a three-story building that has two vacant stories with a one-story building or replacing wooden office furniture with cubicles.
(Refer to PF&M Section 130.6-29)
Peak season—allows the insured to increase business personal property values at peak times while keeping values lower at other times of the year. The insured picks the time period and the increased amount.
(Refer to PF&M Section 130.6-12)
Reporting forms—allows the insured to pay only for the business personal property needed while maintaining insurance to value. The insured schedules the maximum coverage needed for the year and pays a premium based on 75 percent of the value. He/She then reports the actual values periodically. At the end of the year the carrier calculates the premium difference. The insured will have the exact coverage needed for the time period.
(Refer to PF&M Section 130.6-11)
Property Coverage—Condominium Coverage Form
Unit Owners Coverage
Business personal property owned by a unit owner, and personal property of others in the care, custody or control of the insured, may be covered under this form in the same manner and with the same general options as are associated with the Building And Personal Property Coverage Form except that there are considerations given to the uniqueness of condominium bylaws and coverage requirements. Coverage is provided by ISO but other carriers offer similar forms.
If an automotive operation is a part of a commercial condominium they will need this coverage. Their bylaws should be reviewed carefully to confirm that coverage is adequate.
(Refer to ACORD 140) (Refer to PF&M Section 132.4-2)
Property Coverage—Commercial Output Policy
A commercial output policy is a property coverage part originally designed for the automobile manufacturer but now more appropriate for any large property exposure. The coverage is generally broader than the standard Property Coverage Form, with more flexibility. There are several built-in coverages but the deductibles tend to be higher. Most commercial output policies are unique to each company but the AAIS and the ISO both have developed forms to aid their members. A comparison of forms is necessary to determine the advantages and disadvantages. Particular attention must be paid to exclusions; property included and excluded, inland marine extensions, property at other locations, and any special limitations. The rating system is unique and a decision on whether the rate can be changed during the year is usually necessary.
This coverage could be beneficial to many owners of larger properties.
(Refer to PF&M Section 190.1 and PF&M Section 191.1)
Property Coverage—Boiler and Machinery
This coverage has four separate parts:
- Damage from an accident to the items covered
- Damage to the insured’s other property caused by an accident to the items covered
- Loss of income due to damage to the item and/or damage to the other insured property
- Damage to property of others and bodily injury to others caused by an accident to the items covered.
The items covered are boilers and other heating devices. In addition most machinery and equipment including electronic devices can be included. ISO has a Standard Boiler and Machinery Policy Form. The major writers of this coverage use their own forms but the structure is similar to the ISO version.
Both building owners and tenants, if heating with boilers, will want to consider this coverage in order to prevent coverage gaps.
(Refer to ACORD 155) (Refer to PF&M Section 231.1)
Property Coverage—Legal Liability
This form provides property coverage for direct physical loss or damage, including loss of use, to property of others in the insured’s care, custody and control, for which the insured is legally liable. Coverage is not for the benefit of the insured but is for the benefit of the property owner. That owner must be the one who files a claim for damages. The coverage is provided with a standard ISO coverage form. The insured chooses basic, broad or special cause of loss. The determination of the cause of loss is made based on the wording of the agreement between the property owner and the insured. Since this is legal liability only, the only cause of loss that will actually be covered is that which is required by the contract, so purchasing a broader cause of loss than the contract states is a waste of money.
(Refer to ACORD 140) (Refer to PF&M Section 135.4-2)
Property Coverage—Additional Debris Removal
Whenever there is a building or business personal property loss, debris is created. The debris must be removed in order for the reconstruction to begin. Payment for debris removal in the Building and Personal Property Coverage Form is limited to 25 percent of the loss. An additional $10,000 is provided as an enhancement to the basic form. This may not be sufficient for some insureds, so the option is available to buy additional limits. Limits are purchased on a per- location basis instead of the standard per- building basis. This allows insureds to consider their entire location and determine potential debris removal considerations.
Unusual construction or difficult-to-access places can contribute to an increase of debris removal expense.
Automotive operations often have hazardous waste and special debris concerns that could add significantly to the debris removal cost so this coverage should be considered.
(Refer to ACORD 140) (Refer to PF&M Section 130.6-22)
Property Coverage—Ordinance or Law Coverage
The standard ISO Building and Personal Property Coverage Form excludes coverage for any costs that are associated with building law changes. There are three specific types:
- The first deals with laws that require a building to be torn down if more than a certain percentage is destroyed and it does not meet current codes. There is no coverage for the destruction of the undamaged portion of the building. Coverage A would pay for this.
- Second, there is no coverage for the demolition of the undamaged portion. Coverage B would pay for this.
- Third, there is no coverage to bring a building up to code in order to gain permits to build. Coverage C would pay for this.
Coverage may be purchased under an ISO form using CP 04 05. Some carriers offer this coverage in a slightly different manner.
Automotive operations may be subject to ordinances about particular businesses in certain areas of town that could result in their having to move following a sizable loss. A partial loss could quickly turn into a total loss with only the partial loss covered. In addition, since the public regularly enters the building there could be American with Disabilities Act considerations that could involve increased cost of construction should ANY loss occur.
(Refer to ACORD 140) (Refer to PF&M Section 130.6-8)
Property Coverage—Outdoor Trees, Shrubs and Plants Enhancement
The standard ISO Building and Personal Property Coverage Form considers outdoor trees, shrubs and plants as not covered property. This endorsement changes them to covered property but with a specific limit and some added exclusions. There is an option to include or exclude vehicle damage. The standard ISO Building and Personal Property Coverage Form does provide a limited amount of coverage for trees, shrubs and plants. If this is not sufficient to satisfy a property loss, endorsement CP 14 30 should be considered.
(Refer to ACORD 140) (Refer to PF&M Section 130.4-3)
Property Coverage—Replacement Cost
The standard valuation on an insurance policy is actual cash value. The actual cash value is replacement cost today less depreciation. This valuation basis indemnifies the insured and puts him/her in the same condition after the loss as before. However, since it is difficult to rebuild old for old, the alternative valuation of replacement cost is encouraged. Replacement cost coverage is available in most property forms, inland marine forms and some auto forms. It is an important tool but if the insured wants to have replacement cost valuation, he/she must also insure to replacement cost which can be a large increase of limits and premium.
(Refer to ACORD 140) (Refer to PF&M Section 130.4-2)
Property Coverage—Utility Services – Direct Damage
The standard ISO cause of loss forms exclude loss due to utility service disruption of communication, power or water. This ISO endorsement returns the cause of loss to the policy. The disruption may be due to damage to off-site facilities or power lines as selected by the insured. This does not cover consequential loss due to spoilage.
Automotive operations cannot function without the utility services operating. If there are items that would be damaged by a sudden loss of water, power or communication, serious thought should be given to purchasing this coverage.
(Refer to ACORD 140) (Refer to PF&M Section 130.6-20)