Commercial Property Insurance Policy Information
Commercial Property Insurance. Protecting your real and business personal property is an important element of any insurance program. Even small commercial operations have a large percentage of their assets and resources tied up in tangible property. A commercial property insurance program can provide the coverage you need if a loss should occur.
The commercial property insurance policy pays for direct physical loss or damage to covered property. The loss must occur at the premises listed and described on the declarations and must result from a covered cause of loss.
You may be a Landlord owning properties for income and investment purposes, you're renting shops or offices out, or are running a business venture and make a living from commercial property. In such cases, it is vital to take all of the necessary measures to ensure that your properties is protected. That means making sure that you've the right level of insurance policy to cover your property investment against unforeseen events such as a major storm, flood, or fire.
If a flood destroys your business and inventory scheduled for delivery, you'll want to be confident that the business can recover with as small disruption as possible. With commercial property insurance, you can protect your business space and its contents. You can even choose to cover lost income or even additional expenses incurred whilst your business is closed.
Commercial property insurance pays to repair or replace your building & business property damaged by a fire, storm, or other covered event - with rates as low as $37/mo. Get a fast quote and your certificate of insurance now.
Below are some answers to commonly asked business property insurance questions:
- How Much Does Commercial Property Insurance Cost?
- What Is Commercial Property Insurance?
- What Do You Need To Know About Commercial Property Insurance?
- What Kinds Of Commercial Property Insurance Are There?
- What Is Covered By Commercial Property Insurance?
- What Additional Commercial Property Insurance Coverages Are Available?
- What Claim Payment Options Do Commercial Property Insurance Polices Offer?
- What Are Common Commercial Property Insurance Coverage Gaps?
How Much Does Commercial Property Insurance Cost?
The average price of a standard Commercial Property Insurance policy for small businesses ranges from $37 to $79 per month based on location, square footage, building usage, building age and more.
What Is Commercial Property Insurance?
Commercial property insurance protects small business owners from losses due to damage to their business property, including the business' physical space or equipment. For insurance purposes, business property includes the physical building in which the business resides, assuming the business owns the building, as well as the property owned by the business that is located within the building and other assets of the business.
This insurance policy helps businesses, including ranches and farms, pay to repair or replace property damaged by a storm, fire, or other event covered by the plan. It also pays for replacement of stolen or lost property.
While the terms of coverage, and the specific property covered, depends upon the specific language of the commercial property insurance policy you purchase, the following types of property may be considered business property:
- the building or where the business is located
- antiques and artwork
- computers and other data processing equipment
- furniture, equipment and supplies
- intangible items such as trademarks, copyrights and other intellectual property
- signs, fences and outdoor property not attached to a building
- televisions, VCRs, DVD players, and satellite dishes
- valuable papers, books and documents
What Do You Need To Know About Commercial Property Insurance?
A complete commercial property insurance policy is one of the smartest investments one can make in their business. Also known as business property insurance or commercial landlord insurance, it protects costly, physical assets of a company such as the building, as well as its contents and any outdoor fixtures like signs and fencing.
Savvy business owners understand that a severe windstorm or fire can shut down a company for an extended period of time, and this often leads to a permanent closure. However, with a comprehensive commercial properties insurance plan, you have got support and financial assistance to assist you recover quickly.
A business property insurance policy can help protect your company from anything from a minor hiccup in business operation to a major financial loss. Whether one owns the building, lease their workspace or works at home, commercial property insurance protects the business' physical assets. Commercial property insurance plans may vary from policy to policy, but they are categorized essentially by the type of event that leads to a loss, and by what is insured specifically.
Basic property insurance typically covers losses caused by explosions or fires, theft, damage from airplanes or vehicles or even acts of vandalism. Additional insurance coverage can be added for breakage of glass and earthquakes. The essential items to be insured in a business property insurance policy include your building, inventory, office equipment, and outdoor items on the premises.
What Kinds Of Commercial Property Insurance Are There?
There are various different commercial property types that one can obtain an commercial property insurance in plan for, so whether one needs cover for a Distribution center, Factory, Cafe, Fast food takeaway, Industrial property, Farm land, Land (Landowners), Gallery, Hospital, Medical center, Nursing/Care home, Hotel, Restaurant, Garage, Multifamily housing building, Office, Public house, Salon, Shop, Shopping center, Studio, Surgery, Warehouse, or Sports facility.
Business property insurance policies protect against diverse causes of damage, also known as "perils." They include:
- Basic form provides coverage for losses resulting from a fire, lightning, windstorm, hail and explosion, plus the cost of removing property to protect it from further damage.
- Broad form includes the basic form coverages, plus extended coverage for other types of perils, such as a roof collapse due to snow or ice, or broken windows caused by a riot and civil commotion.
- Special form includes the basic and broad coverages, as well as all direct physical losses - except those conditions specifically excluded in the policy. Typical exclusions can include damages from earth movement, flood, wear and tear, war, terrorism, nuclear disaster, as well as insects and vermin.
You can buy a single commercial property insurance in plan to cover a business venture with more than one location, unless those locations have different functions & risk profiles. For instance, you might have a factory at one location and an administrative office at another. In case your business has operations at several locations, ask your insurance agent if you need separate plans.
What Is Covered By Commercial Property Insurance?
Commerical property insurance policies protect businesses and other organizations against loss exposures in connection with property that they own or for which they are contractually responsible.
Business property policies cover physical loss or damage to the company's buildings and contents and loss of income or increase in expenses resulting from the inability to use the damaged building and contents.
A commercial property insurance will cover you against specific risks associated with a shop, office, as well as other commercial tenants. The following are some of the crucial aspects of a business that business property insurance helps protect:
- Your buildings, fixtures & fittings: including fences, gates, car parks, landscaping, outdoor signs, and underground pipes and cables.
- Business interruption (or rental income protection): in case your business has to close following a flood, fire, or forced entry, we will make up the shortfall in your business income.
- Cover for stock/inventory and cash on premises: this is available with some commercial property plans. You will get a percentage increase in terms of stock coverage at peak seasons as well.
Remember, a commercial property policy covers you for risks linked to third-party businesses renting from you. In case your tenants are living in your building property, you will need a specific residential property insurance plan, or a combination of both policies, through comprehensive property insurance.
A few current commerical property insurance questions that we are often asked are:
- Does Business Insurance Cover Riots And Looting?
- Does Business Interruption Insurance Cover COVID-19 Coronavirus?
For more detail on commercial property coverage, following is policy coverage information based on the ISO Building And Personal Property Coverage Form:
When there is a limit of insurance for building on the declarations, the building or structure listed and described is covered property. The following is also considered covered building property:
- Completed additions
- Fixtures. This includes outdoor fixtures.
- Permanently installed machinery and equipment
- Personal property the insured owns and uses to service or maintain the building or premises
- Additions under construction, alterations, and repairs that other insurance does not cover. The materials, equipment, supplies, and temporary structures that are on or within 100 feet of the premises and used to make the additions, alterations, or repairs are also building.
COVERED PERSONAL PROPERTY
When there is a limit of insurance for personal property on the declarations, coverage applies to the following property if it is inside the building or structure at the designated premises. It is also covered if it is outside the building or structure but within 100 feet of the building or premises. Such personal property outside can be either in the open or in or on a vehicle.
- Furniture and fixtures
- Machinery and equipment
- All other personal property the insured owns and uses for business
- Labor, materials, or services the insured furnishes or arranges on personal property of others
- The insured's interest in any improvements and betterments it made or acquired if the insured is a tenant
- Leased personal property the insured has a contractual responsibility to insure
Note: If the declarations has a limit for covered personal property of others, all coverage for leased property transfers to that limit and is removed from covered personal property.
COVERED PERSONAL PROPERTY OF OTHERS
Personal property of others is covered when there is a limit of insurance on the declarations but only when:
- It is in the insured's care, custody, or control
- It is either inside the building or structure at the listed and described premises or outside within100 feet of the building or premises in either the open or in or on a vehicle.
The insurance company pays for loss or damage to personal property of others for only the account of that property's owner.
PROPERTY NOT COVERED
The following property is not covered unless endorsed or otherwise provided for:
- Accounts, bills, currency, food stamps, evidences of debt, money, notes, or securities. Lottery tickets held for sale are not considered securities.
- Animals. However, animals owned by others and that the insured boards are covered. Animals that the insured owns that are inside a building and that are considered stock are also covered.
- Automobiles held for sale
- Bridges, roadways, walks, patios, or other paved surfaces
- Bulkheads, pilings, piers, wharves, or docks
- Contraband or any property involved in illegal transportation or trade
- Costs necessary to research, replace, or restore information on valuable papers or records
- Costs to excavate, grade, fill, or backfill
- Foundations below the basement or the ground's surface if there is no basement
- Grain, hay, straw, crops, fences, radio or television antennas, and satellite dishes and trees, shrubs, or plants. Stocks of trees shrubs or plants are covered. Trees, shrubs, and plants in vegetated roofs are also covered.
- Land, water, growing crops, or lawns. However, lawns on vegetated roofs are covered.
- Most electronic data. Owned stock that consists of prepackaged software is covered. Data used to run heating, ventilating, air conditioning, lighting, elevators, or security systems is also covered.
- Personal property while on aircraft or watercraft
- Property that another coverage form or policy insures or covers, except for the excess of the amount due from that other insurance, whether collectible or not
- Retaining walls that do not make up part of a covered building
- Underground pipes, flues, or drains
- Vehicles or self-propelled machines licensed for use on public roads or operated principally away from the described premises
COVERED CAUSES OF LOSS
There are three available causes of loss forms. The basic and broad forms list the causes covered. The special form covers any cause of loss not excluded.
- Causes of Loss - Basic Form - This causes of loss form includes fire, lightning, explosion, windstorm, hail, smoke, aircraft, vehicles, riot, civil commotion, sprinkler leakage, vandalism, sinkhole collapse, and volcanic action.
- Causes of Loss - Broad Form - This causes of loss form is an intermediate level form that includes breakage of glass, falling objects, weight of snow, ice, or sleet, and water damage in addition to the causes of loss on the Causes of Loss-Basic Form.
- Causes of Loss - Special Form - This causes of loss form covers any cause of loss not excluded or limited.
This coverage form includes following additional coverages as described. Each has its own limit of insurance, description of coverage, limitations, and exclusions:
- Debris removal - The cost to remove the debris of covered property after a covered loss occurs is limited to 25% of the value of the direct damage loss. However, the total value of the debris removal and the direct damage loss cannot exceed the limit of insurance. This coverage form provides an additional limit of $25,000 if the debris removal cost exceeds either of these limitations.
- Electronic data - There is coverage for damage to electronic data on a per-policy annual aggregate basis as a result of certain designated causes of loss occurring. The limit is $2,500.
- Fire department service charge - This coverage form provides a $1,000 limit per premises to apply to certain charges the insured must pay for fire department protection and service.
- Increased cost of construction - The insured may have to make improvements to damaged property after a covered loss due to an ordinance or law with respect to construction, reconstruction, or repair being enforced or the insured complying with it. In that case, this coverage form provides a $10,000 limit or 5% of the value of the direct damage loss, whichever is less.
- Pollutant clean up and removal - This coverage form covers pollution clean up and removal caused by or that resulting from a covered cause of loss. The limit is $10,000 on a per-policy annual aggregate basis.
- Preservation of property - Covered property the insured removes to protect it from loss or damage from a covered cause of loss is covered in transit and at any location for up to 30 days. No exclusions apply to property this coverage form insures while being preserved.
The following coverage extensions apply to personal property inside the building at the listed and described premises. They also apply to such property outside the premises in the open or in or on a vehicle within 100 feet of the premises. However, these extensions apply only at locations where coverage is written at 80% or higher coinsurance or on a value-reporting basis. Each extension is subject to specific limits, coverage descriptions, limitations, and exclusions. The limits for these extensions are additional amounts of insurance.
- Business personal property temporarily in portable storage units -This coverage extension insures such property for up to 90 days. The unit must be on premises or within 100 feet of the building or premises. A $10,000 sub-limit is available. The storage unit must be temporary and may be a trailer. Coverage on property inside the unit ends after the unit has been on the premises more than 90 days.
- Newly acquired or constructed property - This coverage extension provides a $250,000 limit on building and a $100,000 limit on business personal property coverage for certain newly acquired or constructed property for up to 90 days.
- Non-owned detached trailers - This coverage extension insures such trailers that the insured is contractually responsible to insure. The limit is $5,000. However, coverage does not apply when the trailer is attached or connected to any motorized vehicle.
- Outdoor property - This coverage extension insures fences, radio or television antennas, satellite dishes, and trees, shrubs, or plants, other than stock of trees, shrubs, and plants on vegetated roofs. Coverage applies to loss or damage due to fire, lightning, explosion, riot, civil commotion, or aircraft causes of loss and any debris removal expenses. The limit is $1,000 in each occurrence and the debris expense must be paid within that limit. There is also a $250 sub-limit on any one tree, shrub, or plant.
- Personal effects and property of others - This coverage extension provides a $2,500 limit on personal effects and property of others for the designated covered causes of loss. Theft coverage for personal effects is excluded.
- Property off-premises - This coverage extension provides a $10,000 limit at locations the insured does not own or occupy. This extension of coverage does not apply to property in transit or at exhibitions.
- Valuable papers and records (other than electronic data coverage) - This coverage extension insures loss of or damage to valuable papers and records stored in other than an electronic format. The limit is $2,500. Limited causes of loss apply.
Exclusions are part of every insurance coverage form or policy. It is important to be aware of these exclusions before a loss occurs so additional insurance may be purchased or cash reserves established to handle such a loss. All covered causes of loss forms are subject to the following exclusions.
- Ordinance or law - This is any increase in the cost of a loss because of enforcing or complying with ordinances or laws. This applies even if the building must be torn down and rebuilt to meet and comply with building codes and ordinances.
- Earth movement - This is any form of earth movement. This includes earthquake, mudslide, mudflow, and volcanic eruption. There is an exception for limited coverage for loss or damage due to volcanic action.
- Governmental action - This is when the government takes over property for any reason and damages it, unless the damage is done in order to stop the spread of a covered fire.
- Nuclear hazard - This is any loss or damage caused by nuclear radiation, radioactivity, and similar events.
- Utility services - This is when a utility service fails due to a problem at a location away from the insured's premises. Coverage also does not apply to a problem on the insured's premises from equipment used to bring the off premises utility service onto the premises.
- War and military action - This is all and any war, warlike act, or military action.
- Water damage of any kind that water causes - This includes flood, backup of sewers and drains, wind driven rain, and similar events.
- Damage to property that mold, mildew, and fungus causes - This is excluded unless it is caused by or results from a covered fire loss.
CAUSES OF LOSS-SPECIAL FORM ADDITIONAL EXCLUSIONS
Due to the broad nature of the special causes of loss form, additional exclusions must be added to control insurance costs. Many of these exclusions address losses that are considered "costs of doing business." Others are catastrophic loss exclusions and still others are better covered under a more specialized coverage form or policy. The following loss events are excluded:
- Acts or decisions, including the failure to act or decide, by any person, group, organization, or government entity that causes or results in loss or damage. However, if such an act or decision contributes to a covered cause of loss occurring, the loss or damage to covered property from that cause of loss is covered.
- Animal infestations, such as those that involve bats, termites, raccoons, birds, and others. However, sudden events that involve animals, such as a bear damaging property to obtain food or a deer crashing through a sliding glass door, are covered.
- Collapse of any kind that causes loss or damage. However, limited collapse coverage is provided as an additional coverage. This means that collapse coverage is limited to the specific types of collapse listed and described, not to every kind of collapse.
- Delay or loss of market. Coverage does not apply if the insured cannot maximize its profits because of a delay in meeting a deadline or it loses a customer because a contract date expires.
- Dishonest acts by the named insured, its partners, employees, and others entrusted with property.
- Electric arcing damage caused by artificially generated electricity arcing.
- Faulty, inadequate, or defective planning, design, materials, or maintenance that results in loss or damage. However, if the faulty, inadequate, or defective planning, design, materials, or maintenance contribute to a covered cause of loss occurring, the loss or damage from that cause of loss is covered.
- Loss or damage by water or other liquids caused by or that results from plumbing or other building systems freezing if heat in the building is not maintained or if water systems in an unheated building are not drained.
- Marring and/or scratching. Normal handling of personal property subjects it to nicks and scratches that reduce its value. The insured must deal with this issue outside of insurance coverage.
- Mechanical and machinery breakdowns are regular occurrences and are a normal part of doing business. For these reasons, loss or damage due to such incidents is excluded.
- Neglect on the insured's part to save and preserve damaged property from further loss.
- Pollutant discharge of any kind, except as provided in additional coverages.
- Property in the open that rain or other climatic elements damages. Property stored outdoors and not otherwise protected must be able to withstand weather conditions.
- Settling, cracking, and shrinking occurs naturally and involves both buildings and personal property. This exclusion applies to the resulting loss or damage.
- Smoke from agricultural or industrial smudging. These losses are usually intentional and preventable.
- Steam boiler explosion that causes loss or damage. Boiler and machinery or equipment breakdown coverage forms and policies cover such events.
- Trick, fraud, or deceit on the part of others against the insured or its employee that leads to covered property being turned over to the perpetrator and lost
- Water that seeps for more than 14 days that causes loss or damage and that continues without the insured acting or notifying anyone.
- Wear and tear affects virtually every kind of property. It is an issue the insured must assume outside of insurance coverage.
- Weather conditions that cause an excluded cause of loss to occur that results in loss or damage to covered property. However, if the weather conditions cause a covered cause of loss to occur, coverage applies for the subsequent loss or damage from the covered cause of loss.
LIMITS OF INSURANCE
The most the insurance company pays for any one loss or damage to covered property is the limit of insurance on the declarations that applies. The sub-limit for coverage on signs is $2,500. Limits for Fire Department Service Charges, Pollutant Clean-up and Removal, Increased Cost of Construction, and Electronic Data Additional Coverages and all Coverage Extensions are considered additions.
Coverage and recovery applies only to losses that exceed the deductible on the declarations. The deductible applies per loss (not per coverage) and may not apply at all to certain additional coverages.
This section of the coverage form outlines and explains the following loss conditions:
- The insured cannot abandon damaged property to the insurance company without its consent.
- The appraisal loss condition explains how the insured and the insurance company can resolve disputes and agree on the value of lost, damaged, or destroyed property.
- The duties in the event of loss or damage condition explains what the insured must do after a loss in order to preserve property, save it from further damage, and maintain coverage.
- The loss payment condition explains how the insurance company handles and pays losses.
- The recovered property condition provides details on actions the insured and the insurance company must take if property is recovered after the company paid the claim for it.
- The vacancy condition defines vacancy differently for tenants and building owners. It also explains how losses may be denied or reduced if the vacancy or unoccupancy extends beyond 60 consecutive days.
- The valuation condition explains how the insurance company determines the value of a loss.
This section of the coverage form explains the following additional conditions:
- The coinsurance condition explains how the coinsurance penalty is calculated if the insured does not insure to value.
- Mortgageholders have special rights that extend beyond the insured's rights. However, they must initiate certain actions, take certain steps, and do certain things to keep those rights. This condition explains the mortgageholder's rights and responsibilities.
The following optional coverages can be provided if there is an appropriate entry on the declarations:
- Agreed value coverage waives the coinsurance penalty. However, it requires that the insured provide an annual statement of values at policy inception and at every subsequent renewal so that this provision applies beyond the policy expiration date.
- Inflation guard protection automatically increases insurance limits throughout the policy year.
- Replacement cost valuation eliminates applying depreciation to determine the value of buildings and/or personal property after a covered loss occurs. It does not apply to certain listed types of property.
- Replacement cost for personal property of others allows the insured to extend replacement cost valuation to personal property of others in its care, custody, or control.
What Additional Commercial Property Insurance Coverages Are Available?
Most companies offer coverages that you can add to your policy for an extra cost:
- Boiler and machinery coverage covers boilers, air conditioning units, compressors, steam cookers, electric water heaters, and similar machinery.
- Business interruption coverage pays for the income you lose if your business can't operate normally because it was damaged or destroyed.
- Extra expense coverage pays additional costs to return your business to normal after it's damaged.
- Newly acquired or constructed buildings coverage insures a new building if you add it to your policy. You usually must add the new building within 30 days after starting construction or acquiring it.
- Ordinance or law coverage pays extra construction or repair costs to meet current building codes.
- Valuable papers coverage provides limited coverage for your business records and other valuable papers.
What Claim Payment Options Do Commercial Property Insurance Polices Offer?
Commercial property insurance policies pay for losses based on either the replacement cost of an item (replacement cost coverage) or its actual cash value (actual cash value coverage), or even a combination of both.
- Replacement cost coverage (RC) refers to the amount of cash necessary to replace, repair, or rebuild property on the-same premises, with comparable quality and materials based on current construction costs without deducting any-amount for depreciation. Replacement cost differs from market value and does not include the value of the land.
- Actual cash value coverage ACV insurance reimburses you for the value of lost, damaged or stolen goods after depreciation is taken into consideration. If your business gets destroyed and you only have this coverage, you might-not be able to completely re-build.
Typically, the premiums for plans covering property insured on an actual cash value basis are lower as a lower limit is used because of the deduction for depreciation. That amount might not be enough in case you choose to insure the property on a replacement cost basis. Your insurance agent is able to work with you to ensure you have your property insured adequately.
What Are Common Commercial Property Insurance Coverage Gaps?
Inadequate Limits Based On The Wrong Valuation Basis
When inadequate limits of property insurance have been purchased and a loss occurs, the limits of insurance may be used up before the insured has been compensated for the entire loss. Thus, inadequate limits may cause the insured to incur an out-of-pocket loss.
Businesses sometimes make the mistake of determining the value of the insured firm's covered property based on accounting reports. "Book" value is useful only for accounting purposes. It should not be used as the insured value of property.
Less Than Optimal Valuation Provisions
The manner in which property is valued is important because it is a major factor in determining limits of insurance to carry and the amount of recovery the insured will receive after a loss.
So valuation provisions in policy forms must be carefully considered to ensure they are appropriate and will afford adequate compensation for any losses that occur.
some businesses may choose to buy insurance that applies on an actual cash value (ACV) basis because it is cheaper than replacement cost coverage. The primary disadvantage of ACV coverage is that loss payments are also reduced. The insured must pay the cost of depreciation out of pocket. This can be a huge gap.
Using Specific Rather Than Blanket Limits
Commercial property insurance limits are usually arranged on either a scheduled basis or a blanket basis.
Although specific scheduled limits are somewhat more straightforward, there are advantages to the use of blanket limits. It is usually a good idea to use blanket limits, if possible, whenever a policy covers more than one type of property and/or property at more than one location.
Blanket limits are generally preferable to single limits because blanket limits offer greater flexibility and protection.
Using A Per Occurrence Limitation Or Margin Clause
Per occurrence limitation of liability provisions and margin clauses are typically attached to policies with blanket limits, and they essentially convert blanket limits to specific, per location limits. This eliminates or at least reduces the advantages of blanket insurance.
No Agreed Value Clause
An agreed value clause can be used to suspend the operation of the coinsurance clause, thereby eliminating the possibility of a coinsurance penalty.
Failure To Include All Locations
Commercial property insurance policies are generally designed to cover property at locations listed (or "scheduled") in the policy as covered locations.
Many policies provide very little coverage for property at unscheduled locations. So it's essential to ensure that all locations, scheduled and unscheduled, are covered.
Not Considering Debris Removal Costs
Since money spent on debris removal costs usually reduces the remaining limit of insurance available to replace damaged property, it is important to consider debris removal costs when establishing the property limit.
Debris removal costs can be substantial. The remaining property limit should be high enough to pay for repairing or replacing that property once the debris has been removed.
No Ordinance Or Law Coverage
Commercial property insurance is basically designed to repair or replace the property that was damaged or destroyed with similar property of like kind and quality. This might not be possible if building codes or other laws require extensive and expensive changes to comply with current requirements.
Building codes, zoning laws, the Americans with Disabilities Act (ADA), and other laws may significantly increase the cost of repairing or replacing a damaged building.
The cost of complying with these laws is insurable, but the exposure is too often overlooked, creating a coverage gap.
Coverage gaps may also occur when building ordinances or laws extend the time period needed to repair or rebuild a damaged building, and the insured has not purchased the time element version of ordinance or law coverage.
No Flood And/Or Earthquake Coverage
Earthquakes and floods can cause catastrophic losses for business entities, both direct damage losses and time element losses. Yet, relatively few properties that are exposed to these risks are insured against them.
Flood and earthquake insurance can be difficult and sometimes costly to buy.
No Equipment Breakdown Coverage
Businesses that buy property coverage on their buildings and contents often fail to insure this property against losses caused by equipment breakdown, leaving themselves with a gap in coverage which can create exposures.
Commercial property policies cover many common causes of loss, but most property insurance forms exclude the following perils:
- Loss or damage caused by explosion of steam boilers, steam pipes, steam engines, or steam turbines owned, leased, or operated by the insured.
- Loss or damage to steam boilers, steam pipes, steam engines, or steam turbines caused by or resulting from a condition or event inside this equipment.
- Loss or damage to water boilers or other water heating equipment caused by an event within the equipment, other than an explosion.
- Loss or damage caused by artificially generated electric current, including electric arcing, that disturbs electrical devices, appliances, or wires.
- Loss or damage caused by mechanical breakdown, including rupture or bursting caused by centrifugal force.
Equipment breakdown coverage is designed to cover the perils listed above.
Inadequately Insuring Vacant Property
A vacant or partially vacant building may be especially susceptible to loss by vandalism and other causes. Property insurance policy provisions concerning vandalism often create coverage gaps.
Buildings under construction or renovation are not considered vacant. The vacancy limitation applies only when a building has been damaged or destroyed and the building was vacant for more than 60 days before the loss or damage occurred.
In that case, the insurer will not pay for any loss or damage caused by any of the following even if they are covered causes of loss: vandalism, sprinkler leakage (unless the insured has protected the system against freezing), building glass breakage, water damage, theft, and attempted theft.
'Real Life' Court Cases Involving Commercial Property:
S. Kornreich & Sons, Incorporated et al
The insured property-owners were partners who purchased and operated several multiple-unit apartment complexes, which they had protected with a commercial property policy. The insured purchased an additional apartment complex and almost one month after purchase; the insured asked the broker on the policy to add coverage for the new complex. The request also asked for the coverage to be backdated to the date of purchase. Almost two months later, but still barely within the 90-day newly acquired property clause, the agent requested the complex to be added to the policy.
The insurer responded by stating that coverage would not be backdated as additional information was needed and until received, a quotation would not be provided and if quoted, would be based upon its own merits and the existing rate would not be used, further, coverage would be subject to an inspection.
The broker responded by providing partial information and requesting confirmation of coverage. The insurer repeated its original response and requested the remainder of the information. The broker never responded, nor did the insurer bill for coverage.
About five months later a fire occurred to the apartment complex, seriously damaging it. The insured filed a claim with the property insurer who in turn, denied coverage. The insured then filed a suit against the insurer and the broker alleging breach of contract, negligence, and breach of fiduciary duty, among other things. The broker also filed a cross-suit against the insurer.
The trial court ruled in favor of the insurer on both the original suit and the cross-suit. The trial court ruled that the 90-day property coverage extension had expired almost four months prior to the loss and the insurer had never affirmed permanent coverage.
Upon appeal, the decision of the lower court was affirmed in favor of the insurer.
(S. Kornreich & Sons, Incorporated et al., Cross-Plaintiffs/Appellants v. Genesis Insurance Company, Cross-Defendant/Respondant. Superior Court of Loss Angeles County, CalCtApp. No. B089803. July 15, 1997. CCH 1997 Fire and Casualty Cases, Paragraph 6216.)
MRI Healthcare Center of Glendale, Inc., Plaintiff and Appellant, v. State Farm General Insurance Company
As a result of storms in the spring of 2005, MRI Healthcare Center of Glendale, Inc. (MHC's) landlord was required to repair the roof over the room that housed its Magnetic Resonance Imaging (MRI) machine. However, the roof repairs could not be done unless and until the MRI machine was demagnetized or "ramped down." Unfortunately, once the machine was ramped down, it failed to ramp back up.
This failure purportedly constituted "damage" to the MRI machine resulting in loss of business income to MHC. Since this chain of events was set in motion by the spring storms, MHC claimed that they were the "efficient proximate cause" of the loss. Because the storms were covered under the State Farm General Insurance Company (State Farm) policy issued to MHC, MHC claimed it was entitled to recover both the amount it spent to repair the machine and the loss of business income sustained while the machine was inoperable.
When State Farm refused to pay the claims in August 2007, MHC sued for breach of contract and breach of the implied covenant of good faith and fair dealing. The trial court denied summary judgment in favor of MHC and granted it for State Farm. MHC appealed.
Under Business Personal Property coverage, the State Farm policy stated it would pay for accidental direct physical loss to business personal property by an insured loss. The Loss Of Income coverage stated it would pay if the suspension during the period of restoration were caused by accidental direct physical loss to property caused by or resulting from an insured loss. A provision under Losses Not Insured stated that State Farm would pay accidental direct physical loss resulting from certain losses unless the resulting loss itself is excluded.
State Farm's investigated MHC's claim for water damage from a leak in the roof in an area adjacent to the MRI area. Its investigation revealed that the leak was due to "wear, tear, deterioration and faulty workmanship" and not from a covered accidental direct physical loss.
On appeal, MHC argued that the trial court erred, in part, because it focused on the "wrong" event as the "proximate or efficient" cause of damage to the MRI machine and in finding that the damage was not accidental. It also asserted error in failing to recognize coverage for accidental direct physical damage resulting from certain causes of loss otherwise excluded.
The appellate court agreed with State Farm and held that the rainstorms were not the "direct" cause of MHC having to demagnetize the MRI machine to allow repairs to be made to the room. It determined that the MRI machine's failure to "ramp up" after being repaired was not a "physical loss." In addition, damage to the MRI machine from demagnetization was not accidental. Finally, the rainstorms were not the "efficient proximate cause" of MHC's loss.
Correspondingly, the same reasons for granting State Farm's motion for summary judgment supported denying MHC's. There can be no breach of the implied covenant of good faith and fair dealing unless policy benefits are due under the contract. The conclusion that a bad faith claim cannot be maintained unless policy benefits are due is in accord with the policy in which the duty of good faith is firmly rooted.
That guiding principle is based on contract law and the rule that neither party will do anything that will injure the rights of the other to receive the benefits of the agreement. The trial court's judgment was affirmed.
(Court of Appeal, Second District, Division 8 (California). MRI Healthcare Center of Glendale, Inc., Plaintiff and Appellant, v. State Farm General Insurance Company, Defendant and Respondent. No. B213985. Aug 4, 2010. 187 Cal.App.4th 766, 115 Cal.Rptr.3d 27)
Types Of Small Business Insurance - Requirements & Regulations
Perhaps you have the next great idea for a product or service that you know will appeal to your local area. If you've got a business, you've got risks. Unexpected events and lawsuits can wipe out a business quickly, wasting all the time and money you've invested.
Operating a business is challenging enough without having to worry about suffering a significant financial loss due to unforeseen and unplanned circumstances. Small business insurance can protect your company from some of the more common losses experienced by business owners, such as property damage, business interruption, theft, liability, and employee injury.
Purchasing the appropriate commercial insurance coverage can make the difference between going out of business after a loss or recovering with minimal business interruption and financial impairment to your company's operations.
Insurance is so important to proper business function that both federal governments and state governments require companies to carry certain types. Thus, being properly insured also helps you protect your company by protecting it from government fines and penalties.
Small Business Insurance Information
In the business world, there are many risks faced by company's every day. The best way that business owners can protect themselves from these perils is by carrying the right insurance coverage.
The The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight.
Commercial insurance is particularly important for small business owners, as they stand to lose a lot more. Should a situation arise - a lawsuit, property damage, theft, etc. - small business owners could end up facing serious financial turmoil.
According to the SBA, having the right insurance plan in place can help you avoid major pitfalls. Your business insurance should offer coverage for all of your assets. It should also include liability and casual coverage.
Types Of Small Business Insurance
Choosing the right type of coverage is absolutely vital. You've got plenty of options. Some you'll need. Some you won't. You should know what's available. Once you look over your options you'll need to conduct a thorough risk assessment. As you evaluate each type of insurance, ask yourself:
- What type of business am I running?
- What are common risks associated with this industry?
- Does this type of insurance cover a situation that could feasibly arise during the normal course of doing business?
- Does my state require me to carry this type of insurance?
- Does my lender or do any of my investors require me to carry this type of policy?
A licensed insurance agent or broker in your state can help you determine what kinds of coverages are prudent for your business types. If you find one licensed to sell multiple policies from multiple companies (independent agents) that person can often help you get the best insurance rates, too. Following is some information on some of the most common small business insurance policies:
|Business Insurance Policy Type||What Is Covered?|
|General Liability Insurance||What is covered under commercial general liability insurance? It steps in to pay claims when you lose a lawsuit with an injured customer, employee, or vendor. The injury could be physical, or it could be a financial loss based on advertising practices.|
|Workers Compensation Insurance||What is covered under workers compensation insurance? This type of insurance protects a business and its owner(s) from claims by employees who suffer a work-related injury, illness or disease. Workers comp typically provides the injured employee with benefits to cover medical expenses, a portion of his/her lost wages, rehabilitation costs if applicable, and permanent partial or permanent total disability.|
|Product Liability Insurance||What is covered under product liability insurance? I pays an injured party's settlement or lawsuit claim arising from a defective product. These are usually caused by design defects, manufacturing defects, or a failure to provide adequate warning or instructions as to how to safely use the product.|
|Commercial Property Insurance||What is covered under business property insurance? General liability policies don't cover damages to your business property. That's what commercial property insurance is for. It protects all of the physical parts of your business: your building, your inventory, and your equipment, giving you the funds you need to replace them in the event of a disaster. If you work from home, you might consider a Home Based Business Insurance policy instead.|
|Business Owners Policy (BOP)||What is covered under a business owners policy (BOP)? This is a policy designed for small, low-risk businesses. It simplifies the basic insurance purchase process by combining general liability policies with business income and commercial property insurance.|
|Commercial Auto Insurance||What is covered under business auto insurance? This type of insurance covers automobiles being used for business purposes. This could include a fleet of business-only vehicles or a single company car. In some cases it might cover your car or your employee's car while they're being used for business. These policies have much higher limits, ensuring you can cover your costs if one of these vehicles gets into an accident.|
|Commercial Umbrella Policies||What is covered under commercial umbrella insurance? This type of policy is a sort of "gap" insurance. It covers your liability in the event that a court verdict or settlement exceeds your general liability policy limits.|
|Liquor Liability Insurance||What is covered under liquor liability insurance? It covers bodily injury or property damage caused by an intoxicated person who was served liquor by the policy holder.|
|Professional Liability (Errors & Omissions)||What is covered under professional liability insurance? This type of business insurance is also known as malpractice oe E&O. It covers the damages that can arise from major mistakes, especially in high-stakes professions where mistakes can be devastating.|
|Surety Bond||What is covered under surety bonds? Bonding is a contract where one party, the SURETY (who assures the obligee that the principal can perform the task), guarantees the performance of certain obligations of a second party, the PRINCIPAL (the contractor or business who will perform the contractual obligation), to a third party, the OBLIGEE (the project owner who is the recipient of an obligation).|
Who Needs General Liability Insurance? - Virtually every business. A single lawsuit or settlement could bankrupt your business five times over. You might also need this policy to win business. Many companies and government agencies won't do business with your company until you can produce proof that you've obtained one of these policies.
Business Insurance Required by Law
If you have any employees most states will require you to carry worker's compensation and unemployment insurance. Some states require you to insure yourself even if you are the only employee working in the business.
Your insurance agent can help you check applicable state laws so you can bring your business into compliance.
Other Types Of Small Business Insurance
There are dozens of other, more specialized forms of small business insurance capable of covering specific problems and risks. These forms of insurance include:
- Business Interruption Insurance
- Commercial Flood Insurance
- Contractor's Insurance
- Cyber Liability
- Data Breach
- Directors and Officers
- Employment Practices Liability
- Environmental or Pollution Liability
- Management Liability
- Sexual Misconduct Liability
Whether you need any or all of these policies will depend on the results of your risk assessment. For example, you probably don't need an environmental or pollution policy if you're running an IT company out of a leased office, but you would need data breach and cyber liability policies to fully protect your business.
Also learn about small business insurance requirements for general liability, business property, commercial auto & workers compensation including small business commercial insurance costs. Call us (855) 767-7828.
Additional Resources For Commercial Property Insurance
Read up on small business commercial property insurance, including how business property insurance protects your company's building's and/or their contents from damage, destruction, theft and vandalism.
- Apartment Building
- Business Interruption
- Commercial Flood Insurance
- Commercial Property
- Commercial Property Insurance Policy Coverage Forms
- Condo Association
- Contractors Equipment
- Duplex Rental Property
- Electronic Data Processing Equipment
- Equipment Breakdown Protection Insurance
- Homeowners Association Insurance
- Inland Marine
- Jewelers Block
- Manufacturing And Mercantile Rental Property
- Mobile Home Park
- Non-Residential Building Operators
- Office Buildings
- Safeco Landlord Insurance
- Shopping Center & Strip Mall
- Vacant Land
- Vacant Property
- What Are Commercial Property Insurance Endorsements?
Rental property owners, real estate developers and property managers should keep an accurate survey of each property they own or that is in their care. This survey should include inventories of furnishings and equipment at those properties. These documents establish the extent of their insurable interest, facilitate the arrangement and placement of insurance and minimize controversy and confusion if a loss occurs.
Insurance coverage on property, general liability and professional or errors and omissions liability should be arranged and placed for every real estate and rental property risk.
The main goal of any commercial property insurance program is to protect the insured's real and business personal property. Buildings and their contents property usually represents a significant portion of its total assets, regardless of the size of the business. A commercial property program can provide the coverage you need if a loss should occur.
The ISO Commercial Property Building and Personal Property Coverage Form is an insurance industry standard that provides this needed coverage. As a result, it should always be reviewed and used as a benchmark for comparison when evaluating any commercial property coverage form.
This policy treats business personal property as more than just the contents of a building. When there is a limit of insurance on the declarations, property can be covered if inside the building or structure or within 100 feet of the building or premises and either in the open, or even in or on a vehicle.
There are many endorsements available to tailor the ISO Commercial Property Coverage Forms. Some are mandatory for all policies while others are mandatory for specific classifications and types of business. Others are optional and permit a standard form to be customized to meet a specific risk's coverage needs. Endorsements broaden, restrict, delete, modify, or add coverage.
These policies can provide the following additional coverages for small specific limits of insurance: debris removal, preservation of property, fire department service charge, pollutant clean up and removal, increased cost of construction and electronic data.
Minimum recommended small business insurance coverage: Building, Business Personal Property, Business Income and Extra Expense, Employee Dishonesty, Money and Securities, Accounts Receivable, Computers, Signs, Valuable Papers and Records, General Liability, Employee Benefits, Umbrella, Hired and Non-owned Auto & Workers Compensation.
Other commercial insurance policies to consider: Earthquake, Equipment Breakdown, Flood, Computer Fraud, Forgery, Contractors' Equipment, Fine Arts, Cyber Liability, Employment-related Practices, Automobile Liability and Physical Damage, and Stop Gap Liability.