Commercial Property Insurance Notes

Business Personal Property (BPP)

• Covers items like furniture and computers.

• BPP coverage extends up to 100 feet from the premises.

Improvements and Betterments

• Covers the insured's interest as a tenant for fixtures installed or altered at the tenant's expense.

• Includes items affixed to the building.

Personal Property of Others

• Covers personal property in the care, custody, or control of the insured.

• Example: A tornado damages a machine shop, also damaging a customer's equipment; the damage to the customer's equipment is covered.

Additional Coverages

• Debris removal.

• Cost of preserving property.

• Fire department service charges.

• Pollutant cleanup.

• Cost to replace destroyed data.

• Potential extensions to cover personal effects of employees, newly acquired property, and property off-premises.

Deductibles and Coinsurance

• Standard deductibles: $250$, $500$, $1,000$, $2,500$, $5,000$, or higher.

• Coinsurance requirement (typically 80%) must be met to avoid penalties.

Policy Endorsements

• Agreed Value Option: Suspends the coinsurance clause if the amount of insurance equals the agreed value.

• Replacement Cost: Covers the cost to replace something without deducting depreciation.

• Inflation Guard: Automatically increases the amount of insurance by an annual percentage (e.g., 3% or 4%). Intended to help you keep up with the cost to insure your property adequately.

Cause of Loss Forms

• A cause of loss form must be added for a complete contract, specifying covered perils.

• Cause of Loss Basic Form: Provides coverage for 11 basic causes of loss.

  • Fire

  • Lightning

  • Explosion

  • Windstorm or Hail

  • Smoke

  • Aircraft or Vehicles

  • Vandalism

  • Riots

  • Sprinkler Leakage

  • Sinkhole Collapse

  • Volcanic Action

• If a cause of loss is not listed, there's no coverage; very similar to homeowner's policies, but not identical.

Cause of Loss Broad Form

• Includes all causes of loss covered by the basic form plus:

  • Falling Objects

  • Weight of Snow, Ice, or Sleet

  • Water Damage

  • Collapse from Hidden Decay or Insect Damage

• If the cause of loss isn't listed, there is no coverage.

Cause of Loss Special Form

• Insures against risk of direct physical loss unless specifically excluded.

• Typical exclusions: Enforcement of ordinance or law, flood, earth movement, and mold.

• The burden of proof is on the insurance company to show why a loss should not be covered.

• Generally the best form compared to broad or basic forms.

Endorsements

• Additional Covered Property Endorsement: Extends coverage to property like fencing, underground pipes, and drains.

• Additional Building Property Endorsement: Specifies that real or personal property is part of the building to avoid ambiguity.

• Joint or Disputed Loss Agreement Endorsement: Requires the CPP and equipment breakdown insurance carrier to each pay half of the loss after policy conditions are satisfied.

Reporting Forms

• Used for businesses with large fluctuations in business personal property values.

• Requires the insured to report periodically the value of insured BPP.

• An advance premium is paid initially, with the final premium determined at the end of the policy period based on reported values.

• Under-reporting property values limits recovery to the proportion that the last reported value bears to the correct values.

• Similar to a coinsurance penalty.

• Peak Season Endorsement: Increases the amount of insurance during a specific period to reflect higher inventory values.

  • Example: A manufacturer of snowboards would benefit from this during snow season.

Business Income Insurance

• Covers indirect losses like loss of income, rent, or extra expenses during a restoration period after physical damage.

• Covers the loss of business income, continuing expenses, and extra expenses due to a covered peril.

• The business income and extra expense form covers loss of income due to suspension of operations from direct physical loss or damage to property.

• Business income is defined as net profit or loss before income taxes that would have been earned and continuing normal operating expenses, including payroll.

• Example: A business expected $75,000$ net income but earns only $25,000$ due to limited operations after a loss; the business income loss is $50,000$ (75,000 - 25,000 = $50,000).

Extra Expenses

• Necessary expenses incurred during the restoration period.

• Examples: Cost to relocate temporarily, increased rent, rental of substitute equipment.

• Coinsurance options range from 50% to 125%, depending on the expected shutdown time.

  • Higher percentage for longer shutdowns (over one year), lower percentage for shorter shutdowns (six months or less).

Additional Business Income Coverages

• Loss of business income and extra expenses caused by actions of civil authority (e.g., prohibiting access to the insured's property due to damage to nearby property).

• Business income coverage for direct physical damage loss to buildings or alterations/additions.

• Extended business income provision: Covers reduction in earnings for a limited time after repairs are completed.

• Coverage for suspension of operations caused by interruption of computer operations from a covered cause of loss.

Optional Coverages

• Maximum period of indemnity (120 days) to eliminate coinsurance.

• Monthly limit of indemnity to eliminate coinsurance, limiting the