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Commercial Property Coverage Outline
Property Insurance is any type of insurance that indemnifies
an insured party who suffers a financial loss because property
has been damaged or destroyed. Property is considered to be any
item that has a value. Property can be classified as real
property or personal property. Real property is land and the
attachments to the land, such as buildings.
Personal Property is
all property that is not real property. The Building and
Personal Property coverage form is the form used to insure
almost all types of commercial property. The insuring agreement
in the Building and Personal Property coverage form promises to
pay for direct physical loss or damage to covered property at
the premises described in the policy when caused by or resulting
from a covered cause of loss. The following is a brief outline
of coverages and how they are used within the Commercial
Building And Personal Property coverage form.
Buildings and Business Personal Property
Coverage for the building includes the building and
structures, completed additions to covered buildings, outdoor
fixtures, permanently installed fixtures, machinery and
equipment. The building material used to maintain and service
the insured's premises is also insured. Business Personal
Property owned by the insured and used in the insured's business
is covered for direct loss or damage. The coverage includes
furniture and fixtures, stock, and several other similar
business property items when not specifically excluded from
coverage. The policy is also designed to protect the insured
against loss or damage to the personal property of others while
in the insured's care, custody or control.
Coverage Extensions and Additional Coverages
In addition to the limits stated in the Building and Personal
Property coverage form, the policy has a coverage extensions
section and an additional coverages section. The coverage
extensions section provides limited coverage for newly acquired
or constructed property, property of others, certain outdoor
property, and the cost to research and reconstruct information
on destroyed records. When coverage is placed on the all risk
form, two additional extensions are added for property in
transit and coverage for certain repair costs related to damage
caused by water. The two additional extensions are covered by
certain perils only. The additional coverage section provides
coverage for indirect losses that result from a direct loss. The
coverage applies to removal of debris, preservation of property,
fire department service charges and pollutant cleanup and
removal. The coverage extensions and the additional coverages
have limitations and are subject to certain conditions.
Limit of Insurance
The most the insurer will pay for loss or damage in any one
occurrence is the limit of insurance stated in the policy
declarations.
Deductible
The standard deductible is $250. However, other deductible
amounts are available and the deductible applies only once per
loss.
Causes of Loss
The term peril is used when discussing losses. A peril is a
cause of loss. Basic property insurance policies are written to
cover the perils of fire, lightning, explosion, windstorm, hail,
smoke, aircraft or vehicle damage, riot or civil commotion,
vandalism, sprinkler leakage, sinkhole collapse, and volcanic
action. Other property insurance policies, often referred to as
the broad form policy, add coverages for water damage, weight of
snow, ice or sleet, breakage of glass and coverage for falling
objects. The broadest coverage is the special form, which is
best known as the all risk form. All risk covers all causes of
loss, except those specifically excluded from coverage. It is
possible for a commercial property policy to have more than one
cause of loss form.
Replacement Cost and Actual Cash Value
Property can be valued in several different ways. Insurance
companies commonly use two approaches to determine value, which
also determines how a loss will be paid; the replacement cost
method and the actual cash value method. Insurers consider
replacement cost of a property item to be the cost to replace it
with new property of like kind. Actual cash value is replacement
cost, minus the accumulated depreciation for age and condition.
Agreed Value
When the agreed value option is used the coinsurance
requirement is removed and the insurer agrees to cover loses for
it's agreed value. As an example, the insured has property
insured for $100,000 and the agreed value is also $100,000, if a
loss occurs, any loss up to $100,000 is covered at 100% When
this option is used the insured and the insurance company agree
on the value of the property before the policy is issued. This
option is usually assigned to one-of-a-kind property.
Coinsurance
Most building and business personal property polices have a
coinsurance clause which requires the insured to carry insurance
equal to at least a specified percentage of the actual cash
value of the property. If a loss occurs, and it is determined
that the amount of insurance carried is less than the amount
required, a penalty could be placed on the insured.
Inflation Guard
An insured can insure a building for its full value at the
beginning of the policy year, but, at the end of the year, it
might not be covered for it's full value. This problem can be
corrected by adding inflation guard coverage. With inflation
guard, the policy limit increases gradually during the policy
term so that the total increase amounts to the desired
percentage increase at the end of the policy term.
Earthquake Coverage
This endorsement extends your cause of loss to include damage
that results directly from an earthquake. Coverage is provided
for replacement of buildings only. All earthquake shocks that
occur within a 168 hour period (one week) are considered to be a
single occurrence. A separate deductible applies and is
determined by the value of the insured property.
Business Income Coverage
Business Income is the net profit or loss that would have
been earned or incurred if the suspension of the business had
not occurred, plus any normal operating expenses that must
continue during the suspension of the business. Business Income
insurance pays the actual loss of business income sustained by
the insured because of a necessary suspension of the insured's
operation during the period of restoration following a loss. The
suspension must result from direct physical loss or damage to
real or personal property. Coverage is provided against the same
causes of loss covered under the insured's property policy.
Under certain conditions, the policy also provides an extension
of coverage for newly acquired property.
The insured's operations are the business activities of the
insured, which occur at the location listed in the policy. The
period of restoration is the period beginning on the date of the
direct loss, and ending when the damaged or destroyed property
could have been restored.
The business income and extra expense form provides the
following additional coverages:
Extra Expenses
Extra Expenses are any expenses over and above those that
would have been incurred during normal operation of the
business. Some of the covered extra expenses are; expenses
incurred to avoid or minimize the suspension of operations,
expense to repair or replace property, and expense paid for
overtime work to speed up the restoration of the business.
Civil Authority
Civil Authority is when access to an insured's premises is
denied by civil authority as the direct result of damage or
destruction of a neighboring or adjacent property belonging to
others. If the damage or destruction is caused by a cause of
loss covered by the insured's policy, this coverage would apply.
The insured's premises would be covered for the loss of income
during the period of suspension, up to a maximum of two weeks.
Alterations/New Buildings
Alterations/New Buildings provides coverage for loss of
income resulting from a delay in beginning operations. The delay
must be the result of damage to new buildings or structures,
either completed or under construction. Damage to additions or
alterations to existing buildings are also covered. The damage
must be the result of a covered cause of loss.
Extended Business Income
This coverage provides the time needed for the insured's
former customers to return once the business suspension is over
by providing coverage for loss of income until sales return to
normal, or up to a maximum of thirty days.
Optional Coverages
Maximum Period of Indemnity
Maximum Period of Indemnity is a restriction of the period
of restoration provided under the policy. If this option is
selected the insured's loss payment is limited to the lesser
of (1) the amount of loss sustained during the 120 days
immediately following the loss or (2) the policy limit. The
coinsurance requirement does not apply if this option is
chosen.
Monthly Limit of Indemnity
Monthly Limit of Indemnity is an option that allows the
insured to recover a percentage of the actual policy limit
during each thirty day period of interrupted operations. If a
loss occurs, payment would be made for the lesser of the
actual amount of the loss, or the maximum amount allowed to
recover with this option. Under this option, the coinsurance
requirement does not apply.
Extended Period of Indemnity
Extended Period of Indemnity is an option that extends the
"extended business income coverage" over the
standard thirty-day period. The insured can extend the
coverage to 60 days, or up to a maximum of 360 days. The
selected time would depend on the time the insured estimates
it would take for revenues to return to normal after a
suspension of the business.
Agreed Value
Agreed Value is an option that requires the insured to
complete a business income report/worksheet showing the actual
financial data for the previous twelve months, and estimated
financial data for the next twelve months. An agreed value is
determined from the financial data submitted. If a loss occurs,
the insured's policy limit must be equal to the agreed value
amount, if loses are to be paid in full. When this option is in
force, the coinsurance clause does not apply.
Equipment Floater Coverages
The primary function of the ACORD Equipment Floater
Application #146 is to collect underwriting and rating
information for the Contractors Equipment Form. However, the
application may be used for any other Inland Marine coverage
that will fit into its structure. Since there areseveral Inland
Marine Coverage Forms that fit into the structure of this
application this document will briefly explain the many kinds of
inland marine policies that cover many kinds of loss exposures.
Inland marine policies are divided into two categories; filed
and non-filed. Filed policies are characterized by a large
number of potential insureds and reasonably similar loss
exposures. The rates and forms of filed policies must be filed
with the state insurance department. Non-filed policies are
characterized by a relatively small number of potential insureds,
and diverse loss exposures or both. The rates and forms for
Non-filed policies are not filed with the state.
Non-Filed Forms
Contractors Equipment Floater
The property covered on the contractors equipment floater
might range from simple hand tools to very large cranes.
Virtually any type of mobile equipment or tool can be insured.
The equipment covered can be used in a wide variety of
operations such as, home improvements to strip mining. It
might be used to build roads, buildings, pipelines, or many
other types of structures. The coverage provided is for direct
physical loss to the equipment. Rental reimbursement coverage
can be added by endorsement to cover the cost of renting
substitute equipment if covered property is out of service by
a covered cause of loss.
Builders Risk / Installation
The inland marine builders risk portion of the policy form
covers structures being built, temporary structures at the
building site, and building materials that have not yet become
part of the building. The building materials are covered while
on the insured location, in transit, or in storage at another
location. Business income coverage can also be provided on the
policy. The installation portion of the policy usually insures
a contractor's interest in building supplies or in fixtures
that the contractor has been hired to install.
Electronic Data Processing Equipment Form
The inland marine electronic data processing policy is used
to insure damage to data processing hardware, software, and
media. The policy also covers the extra expense to continue
data processing operations following a covered loss that
resulted in damage to the system.
Bailee Policy
Bailee policies are written to insure dry cleaners, repair
shops, public warehouses, and several other types of
businesses with large amounts of the customers' goods in the
insured's possession. There are two major types of bailee
policies. The Bailee Liability Policy covers damage to
customer's goods only if the insured is legally liable for the
damage. The Bailee's Customers Policy covers damage to
customers' goods without regard to the bailee's liability.
Filed Policy Forms
Sign Coverage Form
The sign coverage form is used to insure neon fluorescent,
automatic or mechanical electric signs, and lamps. All covered
signs must be written on a schedule with a limit of insurance
shown for each item on the schedule.
Equipment Dealers Coverage Form
The primary purpose of the equipment dealers coverage form
is to insure the stock in trade of dealers in agriculture and
construction equipment. Coverage is provided for customers
equipment in the care, custody, or control of the named
insured. The coverage can be written on a reporting basis or
non reporting basis.
Commercial Articles Coverage Form
The commercial articles coverage form is used to cover
photographic equipment and musical instruments used on a
commercial basis. Coverage is provided for photographers,
motion picture producers, professional musicians, and others.
The form is not intended to provide coverage for dealers of
these types of property. Coverage can be written on a schedule
or blanket basis.
Mail Coverage Form
The mail coverage form is written for banks, trust
companies, insurance companies, investment brokers and similar
firms that frequently ship securities by mail. The mail
coverage form purpose is to cover securities and other
negotiable instruments while in transit by first class mail,
certified mail, express mail, or registered mail.
Jewelers Block Coverage Form
This form was designed to meet the needs of retail jewelers.
The form provides coverage for damage to the jeweler's stock of
jewelry, precious and semi precious stones, watches, precious
metals and similar merchandise. Similar property of others in
the insured's care, custody, or control is also covered.
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