Commercial Property insurance

Universal Exclusions:

All Commercial Property policies automatically exclude coverage for losses resulting from enforcement of building ordinances; earthquakes or land movement; seizure or destruction by governmental action or authority; nuclear reaction, radiation, and associated radioactive contamination hazards; loss resulting from utility service failures; and war. They also always exclude damage caused by flood; damages to wiring or devices caused by artificially generated electrical current; and explosion of boilers, steamers, pipes, and engines. This is only a partial list; other exclusions may be listed in the policy. Remember also, that some of these exclusions can be covered if added by endorsements.

coverage extensions:

Commercial property policies offer a number of to policyholders who maintain the minimum coinsurance requirement of 80% to value. These coverage extensions are not subject to coverage limits. Let's look at some of the possible coverage extensions.

Valuable Papers and Records extension:

Coverage B provides up to $2,500 towards the recovery or replacement of valuable papers and computer records damaged or destroyed by a covered peril.

Commercial Property insurance Covers:

Direct and indirect lossees related to business property

Newly Acquired Property:

Extension provides thirty days of insurance coverage for new buildings under construction at the insured premises, or for any newly acquired business properties located off the insured premises. Up to $250,000 in coverage is provided for the buildings and structures.

Pollution Clean-Up and Removal coverage:

Provides up to $10,000 in coverage for pollution damages resulting from a covered peril. For example, say an insured gas station suffers vandalism, a covered peril under the gas station's policy. The vandals spread petroleum products all over the grass around the station, and it costs the owner $7,000 to clean it all up. Pollution Cleanup and Removal coverage would pay for this cleanup, leaving $3,000 of available coverage for the remainder of the policy period. In order for this coverage to apply, the insured must notify the insurer in writing within 180 days of the loss.

Extra Expenses 2:

Second, "expediting expenses" include any additional cost necessary to repair or replace property, such as machinery or equipment. These are only covered to the extent that they reduce the loss of business income.

Extra Expense coverage and forgoing coverage for loss of income:

This applies to companies that must continue operating regardless of loss of income, such as: banks, hospitals, newspapers, and utilities. Typically, these companies already have an alternate plan in place for when damage strikes their property.

Replacement Cost :

is available as and endorsement if you follow coinsurance guidelines

Commercial Property insurance Insures:

on an ACV basis

Conditions Pages:

present important principles and conditions of coverage.

Business Income Coverage with Extra Expense:

simply provides both forms of coverage simultaneously. The policy will account for the loss of business income sustained during the Period of Restoration, and also provide coverage for all additional costs associated with getting the business running again

Extra Expenses 1:

First, "true extra expenses" are costs that are necessary to avoid or minimize the halt in business operations. These can include: subcontracting work, relocation expenses, rental of generators to run power at a damaged property, or leasing and rentals involved with continuing a disrupted business. True extra expenses can be covered, even if they do not succeed in reducing the loss of income.

Net Income from Operations:

First, take the Total Revenues and subtract Cost of Goods Sold. The result is the business' Gross Income. Now, take the Gross Income and subtract Operating Expenses. This gives the business

Business Income Coverage:

Form indemnifies the insured for lost income due to damages caused by a covered loss. For example, if your factory is destroyed by tornado, you won't be able to produce any goods, and your business will likely face a substantial loss of income while the factory is being repaired. Business income coverage indemnifies the policyholder for this loss of normal business income. Without Business Income Coverage, most small to medium-sized businesses would go out of business when faced with unexpected disaster.

duties of the policyholder when a loss occurs:

If the insured does not follow these guidelines, the insurer could refuse to pay for otherwise covered losses. First, the insured must notify the police if the loss may have involved a crime, notify the insurer of what property was damaged, and describe the circumstances of the loss to the insurer, including how, where, and when it occurred. Next, the insured must take reasonable steps to prevent further damages to covered properties, and keep track of the cost of doing this, since these expenses may also be covered. The insured will also need to give the insurer a complete list of damaged and undamaged inventory, including quantity, costs, values, and the total loss for the event. And, if requested, they must sign a sworn proof of loss for the insurer within 60 days. They must let the insurer appraise damages by inspecting the property, including all records or books kept by the company. And finally, the insured must cooperate in all investigations and settlement procedures.

The Period of Restoration:

The time frame for when Business Income coverage kicks in is known as "The Period of Restoration." It begins exactly 72 hours after damage occurs, and continues until the date that either the damaged property is restored or that business resumes at a new location. Business Income coverage indemnifies the policyholder for normal business income the policyholder would have expected under normal circumstances only during this Period of Restoration. Generally speaking, Business Income coverage will pay for the loss of what is called net income on a Profit and Loss statement, plus any continuing operating expenses incurred during the period of restoration, such as rent, salaries, payments to the bank, utilities, taxes, administrative and other costs necessary to keep the business running.

Mortgage Clause:

This clause, also called the "Mortgageholders" Condition, clarifies the rights of the mortgagee in relation to the insurance contract. Recall that lenders have an insurable interest in property they help pay for. This condition ensures that the bank or lender that holds the insured's mortgage will be indemnified in the event of a loss. It also establishes the mortgagee's rights to receive notice if the policyholder either fails to adhere to the contract, or does not pay policy premiums. Moreover, if the policyholder commits an act that voids the insurance contract or fails to pay premiums, the mortgageholder may continue paying for the policy without

extra expense coverage:

This coverage is designed to help the insured business reduce their loss of income in the event of a covered loss. When severe damages cause a disruption in normal business operations, the policyholder will often try to keep the business going by "making do" at a damaged factory, contracting work to other businesses, or leasing space elsewhere to continue operations. By covering the costs associated with these efforts, Extra Expense coverage helps the insured business get up and running again and reduce the amount of income lost due to the damages. In general, there are 3 major requirements for extra expense coverage: 1. the extra expense must be necessary. 2. it must be incurred during the period of restoration, and 3. it must be a type of expense that would not have been incurred had there been no loss to the covered property. Extra Expense coverage can apply at either the damaged property itself, or at a new property until necessary repairs are finished at the damaged property. Extra Expense coverage does not require a 72-hour waiting period before coverage can begin. Rather, the Period of Restoration for Extra Expense coverage begins immediately after damage occurs and continues until the damaged property is repaired or replaced, or until a new property is up and running.

Agreed Value option:

This option requires that the company submit two reports: the first report should detail all financial data from the previous 12 months, and the second report should detail its expected financial data over the next 12 months. The company and the insurer then establish an Agreed Value of coverage going forward, based on the financial documents submitted by the company. The company then must purchase a limit of insurance equal to the Agreed Value. The benefit of this coverage option is that all losses are paid in full.

Inflation Guard:

This protects the insured from the effects of rising prices by increasing the limit of insurance on a covered property by a specified percentage on a scheduled basis throughout the policy term. For example, the policyholder may choose to implement an inflation guard that increases the policy limits by 3% at any annual renewal. Inflation guard ensures that the policyholder is maintaining an appropriate level of insurance relative to property value as property values increase over time.

Condominium Coverage form:

This provides insurance protection for condominium buildings and complexes. It includes any common areas of a condominium building, as well as elements of the infrastructure, such as piping, duct work, electrical and wiring units, and other systems important to the function of the condominium as a whole. The condo coverage form also applies to business personal property used by the condominium, including furniture, computers, maintenance equipment, and supplies. It will NOT cover upgrades made by condo unit owners within individual condos, since this is typically covered under most individual condo owner policies. Moreover, the condo coverage form does NOT cover the business or personal property of individual commercial unit owners residing in a condominium. Rather, this can be covered by a Condominium Commercial Unit Owners Form, which is essentially a Business and Personal Property Form for businesses located in a condominium building.

Increased Construction Costs coverage:

activates when a covered loss must be replaced to conform to new building ordinances. For example, say a wind storm damages the roof of an older insured building. In repairing the roof, the contractor must adhere to new building codes that make the repairs more expensive. Increased Construction Costs coverage would indemnify the insured for up to $10,000 for increased costs, or 5% of the limit of insurance for the building, whichever is less. This coverage only applies to buildings insured on a replacement cost basis.

Spoilage endorsement:

adds perishable stock to covered property, and indemnifies the insured when such stock is spoiled due to mechanical breakdown of refrigeration equipment, contamination by refrigerants, or the loss of electrical power. You can calculate the proper indemnity for losses due to spoilage with a simple equation: take the market selling price of the perishable stock at the time of loss, and subtract any discounts the insured would normally expect. Remember, this coverage is separate from Income Loss coverage, so you should not include any expected profit margins when calculating the indemnity. This concludes our discussion of part three of the Commercial Property Policy. Next, we will cover the fourth and final part of the policy: Causes of Loss Forms.

Peak Season endorsement:

allows the insured party to temporarily increase coverage limits at specified intervals over the course of the year in order to account for increased inventories. The endorsement must indicate two things: first, the amount by which the insured wants coverage increased, and second, the exact dates the increased level of coverage will apply. Merchants may pursue Peak Season endorsements due to an increased level of stored merchandise during the winter holidays, or a fireworks manufacturer may seek a Peak Season endorsement to cover large inventories prior to the Fourth of July.

Monthly Limit of Indemnity:

also removes the coinsurance requirement, but this time, the policyholder parcels his stated limit of coverage into a fractional maximum of coverage available per month. For instance, the policyholder may choose to divide his stated limit of coverage by 1/3, 1/4, or 1/6. This fraction is likewise shown on the declarations page.

Coverage B

applies to business personal property, or simply the property of the business that is not affixed to the structure. Coverage B can include furniture, loose fixtures, loose equipment and machinery, and all other business-owned personal property used primarily for business purposes. The form also covers the value of labor, services, and materials furnished on the personal property of others, such as the labor and materials used by a repair shop in repairing a client's couch. Inventory or products held for sale are also covered. Leased business personal property can fall under Coverage B if the business is contractually obligated to provide insurance for the leased property. As with Coverage A, Coverage B extends to business personal property within 100 feet of the business premises

Preservation of Property, or Property Removal coverage:

applies to property that the insured removes (or attempts to remove) from danger if a covered peril is imminent. While the property is being removed and while it is stored at another location, it remains covered for any cause of loss for up to 30 days.For example, Levon expects an approaching hurricane to cause extensive damage to his corner store. Hoping to reduce his losses, he moves most of his merchandise to a storage unit before the storm hits. Since Levon is trying to prevent losses from a covered peril, Property Removal coverage will apply to any damages to this merchandise, no matter what the cause. So, if a fire destroys the storage unit with Levon's property inside, the policy would still cover it under wind, since wind was the reason Levon moved it in the first place.

Limits of Loss Payment:

at 40%/80%/100%. In this case, the insured is allowed to recover 40% of coverage limits in the first 30 days of the Period of Restoration, 80% in the second 30 days, and up to 100% of the limit if the Period of Restoration is longer than 60 days. So, if a company buys Extra Expense coverage with a limit of $500,000 and limits of loss payment established at 40/80/100, the insured would be able to recover the following amounts during the Period of Restoration: $200,000 for the first 30 days, $400,000 for the second, and up to $500,000 for the remainder of the Restoration Period.

Replacement Cost endorsement:

changes the loss settlement terms from actual cash value to a replacement cost valuation. If a policyholder purchases this coverage on a 15 year-old printing press, which then becomes destroyed in a fire, the policy would pay to replace the printing press with a new printing press capable of functioning with the same speed and accuracy as the old one. The replacement cost endorsement will always require the policyholder to meet at least the 80% level of coinsurance, and it does not apply to property of others on the insured premises. With replacement cost, the policy agrees to pay the ACV of damaged property up front. Then, once the policyholder has actually repaired or replaced the property, the insurer will pay the difference remaining between the replacement cost and the actual cash value within a specified time frame, usually two years for commercial claims.

loss payment condition:

clarifies how, when, and to whom a claim will be paid. Essentially, loss claims are paid to the named insured, but only up to the amount of insurable interest held by the policyholder. If damaged properties share ownership, appropriate compensation will be paid to listed loss payees on the declarations page. The insurer will either pay: the value of lost or damaged property; the cost of repairing or replacing damaged property; the agreed or appraised value of damaged property; or to repair, rebuild or replace damaged property with other property of like kind and quality. The insurer will agree to pay within 30 days of receiving the sworn proof of loss from the policyholder.

Builders Risk Coverage Form

common coverage extensions: Debris Removal, Fire Department Service Charges, and Preservation of Property, but then adds several that apply more specifically to construction projects. The cleanup of pollutants is covered, as well as temporary structures, such as scaffolding, when at the insured location. Coverage for property at other locations pays up to $10,000 for losses to materials stored at other locations that are intended to become a part of the insured premises. Property in Transit coverage provides up to $25,000 of protection for property during transportation to the construction site. And lastly, Sewage Backup coverage pays up to $5,000 for damages caused by the backup of sewer systems or drainage.

Coverage A:

concerns the insured building and its structures. Coverage B applies to the personal property of the insured business, and Coverage C deals with the personal property of others. After an overview of these basic coverages, we'll discuss other coverages, endorsements, and extensions that apply to the Building and Personal Property Coverage Form.refers to the buildings and structures listed on the declarations page of a policy. It also includes any additions, additions under construction, and any construction equipment and building materials within 100 feet of the insured property. Unlike homeowner's policies, which automatically cover all outbuildings, commercial policies require that each structure--such as pools, docks, and fences--be stated separately on the declarations page in order to be covered.Machinery, fixtures, and equipment inside the building are covered if they are permanently installed and affixed to the building. This includes flooring, heating, ventilation, refrigeration, cooking, and dish-washing equipment. Property used to maintain the business, such as ladders and fire extinguishers, are also considered Coverage A.

Declarations Page:

contains information common to every type of insurance policy. It states the name and address of the insured party, the property covered by the policy, the deductible, limits, term, and expiration of the policy. Finally, it identifies all coverage forms and endorsements that apply to the policy

coinsurance:

encourages policyholders to maintain a level of insurance that is close to the full value of their properties. If a policyholder buys insurance that totals 80% or more of his property's actual cash value, then he has met the coinsurance requirement and is considered "fully insured." The benefit of being "fully insured" is that the insurer will fully cover all partial losses to the insured property, minus the deductible. On the other hand, if the policyholder insures his property for less than 80% of its actual cash value, he becomes a "co-insurer" on the property. That means he must pay a certain percentage of all partial losses. This percentage is based on how severely underinsured the property is. Let's look at some examples.

Other Insurance condition:

establishes how the policy will respond if the insured property is covered by more than one policy. Some policies will provide no coverage when there is other insurance in place, while others will agree to pay once the primary policy has exhausted its coverage limits. Usually, each insurer will agree to pay its share of the loss according to its share of all policy limits. The Other Insurance condition plays an important role in enforcing the Principle of Indemnity. It keeps the insured from collecting twice or trying to "double recover" for losses covered under multiple policies. This would be insurance fraud and punishable under criminal law.

Valuation condition:

establishes that the policy will pay for losses depending on whether the coinsurance requirement has been met. If the insured has met the 80% coinsurance requirement, then losses up to $2,500 are usually settled at replacement cost (RCV). However, if the insured does not meet the 80% coinsurance requirement, the insurer will impose a coinsurance penalty, which can lower the valuation to actual cash value (ACV) or lower. The valuation condition also clarifies that stock sold but not yet delivered will be indemnified at its net selling price, and where required by law, glass with safety glazing will be replaced or fixed at its replacement cost

Cancellation/Non Renewal condition:

establishes the rules for when an insurer can cancel a policy or deny renewal. Essentially every commercial policy we will study requires the insurer to provide written notice of its intent to cancel a policy at least forty-five days before the policy is canceled. If the insurer does not notify the policyholder early enough, it will have to offer an additional 30 days of the policy's coverage with the same premium rates as before.

Appraisal condition:

establishes the rules the insurer and the policyholder must follow if they disagree on the value of a loss. Either party can demand an appraisal of damages. Such a demand requires that both parties hire their own appraisers. In turn, those appraisers must select an impartial umpire. If the appraisers of both parties can agree on the amount of loss, the case is settled for that amount. If the appraisers cannot agree, the umpire decides the value. Each party must pay for its own appraiser, and the two parties split the costs of the appraisal process and the umpire.

Commercial Property insurance Doesn't cover:

farms and 1-4 family dwellings

Profit and Loss statement:

helps determine the approximate loss of Net Income. The three amounts you will need to know to calculate Net Income are: Total Revenue, Cost of Goods Sold, and Operating expenses. Total Revenue is the total amount of revenue from all sales and services provided. Cost of Goods Sold is the cost of any materials and labor that went into those sales and services. Lastly, Operating Expenses means the cost of paying employees and providing funds for other administrative needs.

Recovered Property condition:

helps enforce the Principle of Indemnity. It states that, if either party recovers property involved in a claim after the claimant has already been indemnified, that party must notify the other of the recovery. If the insured wishes to keep the recovered property, she must return any money that the insurer already paid her for that property. If, instead, she wishes to keep the money that she got from the insurer, she must forfeit her rights to the recovered property to the insurer.

Contingent Business Interruption coverage:

indemnifies a business when it loses income because of covered losses to its key suppliers or key customers.

Debris Removal coverage:

indemnifies the insured for the cost of removing the debris of covered property that has been damaged by a covered peril. It is limited to 25% of the total claim for property damages. So, if there are $50,000 worth of covered damages, the Debris Removal Limit would be $12,500 (25% x $50,000). However, this coverage also allows $25,000 of additional insurance in two cases: first, if the cost of covered damages and debris removal together exceed the policy limit, and second, if the cost of debris removal exceeds 25% of the claim. For example, say Susie's Toy Factory has a $100,000 policy. The factory suffers $60,000 of damage in a fire. Debris Removal could pay up to $15,000 (25% of $60,000), plus an additional $25,000, if needed. But, if the property damages are so high that the 25% debris removal coverage would exceed Susie's $100,000 policy limit, Susie would only be allowed up to $25,000 in additional insurance. Her total claim would be limited to $125,000. It is also worth noting that Debris Removal coverage can apply, even if the insured chooses not to repair or replace covered losses.

Electronic Data coverage:

indemnifies the insured for the costs of replacing or restoring electronic data lost or damaged by a covered cause of loss. Viruses and malicious code are covered causes of loss, so long as they are not introduced by employees of the insured. For example, if an employee inadvertently downloads a harmful virus when accessing his personal email account, Electronic Data Coverage would not apply. However, if an outside hacker breaks in to a company computer system and plants a virus or key logger, then Electronic Data would apply. This coverage provides up to $2,500 in indemnification to the policyholder per year, with no limit to the number of occurrences. This limit does not apply to electronic data which is integrated in and operates or controls the building's elevator, lighting, heating, ventilation, air conditioning or security system. Those are some of the options for additional coverage in the commercial property policy. Next, we're going to look at some possible coverage extensions to the policy.

Vacancy condition:

insurers often restrict coverage on properties they determine to be "vacant." A building is deemed "vacant" when less than 31% of its total available square footage is occupied for 60 consecutive days. Once a building is considered vacant, the insurer will suspend all coverage for vandalism, sprinkler leakage, glass breakage, water damage, and theft, and it will reduce coverage for everything else by 15%.

Basic Causes of Loss Form:

is a named-peril form, meaning losses are covered only by the specific perils named in the insurance coverage. A basic policy form covers the following perils: fire, lightning, explosions, windstorm and hail damage, and smoke damage. It also covers damages caused by aircraft or vehicles not owned by the insured; riot and civil commotion, including damage caused by striking employees; and damage from vandalism and malicious mischief. Damages from sprinkler leakage, volcanic events and shock waves, and even sinkhole collapse are also covered under the Basic Form

Protective Safeguard endorsement:

is a way for the insured to save on policy premiums. It adds a condition to the policy requiring that the insured have certain safety devices in place in order for the coverage to apply. In return, the insured receives a premium discount. This endorsement generally states that, if the insured fails to notify the insurer of any known impairments or problems with the required safety systems, the insurer will suspend and possibly deny coverage at that location. For example, say jewelry store owner seeks a discount on her annual premium by adding a protective safeguard endorsement. As part of the endorsement, she agrees to install a burglar alarm and have a guard on the premises 24 hours a day. If the jeweller then decides that she can't afford these safety precautions and lays off the guard without informing the insurer, the insurer can deny coverage if the store is robbed. Insureds using this endorsement for automatic sprinkler systems may shut off their systems for repair of leaks or the removal of frozen water for up to 48 hours without notifying the insurer. If repairs take longer than 48 hours, the insurer must be notified immediately.

Extended Business Income:

is an additional coverage that kicks in when the insured business is still not back to normal revenue levels, even after the Period of Restoration expires. Recall that, for Business Income coverage, the period of restoration ends when the insured reaches (or should have reached) operational capability at the current location or at a new permanent location. If the business' income is still lower than normal when it reaches this point, the Extended period of indemnity will continue coverage for up to 60 days. This is not additional insurance, however; it is still capped by the limit of Business Income coverage.

Agreed Value Coverage:

is an optional coverage that lets the policyholder and the insurer agree on a specified value for property before a policy is written. Once an agreed value has been established, that value then becomes the limit of insurance on the insured item, and the coinsurance requirement is waived. If the insured piece of property is lost or destroyed during the policy period, the policyholder will be indemnified the full amount of the agreed value. Agreed Value coverage is often applied to rare property or high-value collector's items on a scheduled basis. For example, a novelty store may place an antique statue near its entrance to attract customers. While the actual cash value of the antique is highly speculative, the novelty store may decide to insure it on an agreed value basis to protect their financial interest in it. If the statue is destroyed, the insurer will pay the agreed value listed in the policy.

Differences in Conditions Coverage Form:

is designed to bridge certain coverage gaps left open by the exclusions in a standard commercial policy. Differences in Conditions forms only cover perils that could lead to catastrophic losses to large- scale industrial or commercial risks. Since they are meant to cover the gaps left by other policies, these forms will exclude any perils that are typically covered under commercial policies. Differences in Conditions forms usually do not require coinsurance, since the perils covered are so catastrophic that they rarely cause only partial losses. In addition, the associated premiums would likely cost too much for the policyholder to bear. Instead, Differences in Conditions forms tend to carry very large deductibles. This type of coverage can be purchased as a separate policy or added as an endorsement to an existing policy. Now that we have gone over the different types of coverage forms, let's go over some of the popular coverage endorsements that are available.

Ordinance or Law endorsement:

is designed to provide insurance protection for additional costs associated with repairing or rebuilding a facility damaged by a covered peril in order to comply to current building codes. Often, an older factory or commercial property that has been damaged by a covered peril will need extra, upgraded repairs to meet the requirements of new or more stringent building codes. However, the cost of these upgrades is not always covered by a replacement cost commercial policy. This leaves the policyholder with thousands, or even millions, of dollars in additional expenses, over and above what the policy pays. An Ordinance or Law Coverage Form will protect the policyholder from these additional costs, up to policy limits.

Leasehold Interest Coverage Form:

is for businesses that have leased the property in which they are working. Ideally, a business seeks to acquire what is known as a "favorable lease." A lease is considered favorable when it is acquired below market value, giving the business lower rent-rates than normal. Often, the business can lower its rent even more by signing a longer lease contract, say 5 years. But if the leased property becomes damaged or destroyed, the business will have to break its lease and find another property to rent. Leasehold Interest Coverage is a type of "time element" coverage that pays for the difference between the cost of the old rental and the new, often more expensive, rental. It takes into account both the amount of rent the policyholder was paying and for how long.

Coverage C:

is for the Personal Property of Others. This coverage applies to the property owned by someone else when it is in the care, custody, and control of the insured business. Coverage C commonly provides $2,500 in coverage. For example, if a client had his laptop stolen from the offices of Tom's business, the loss would be covered by Tom's insurance under Coverage C for up to $2,500. An important fact to remember is that Coverage C applies only to the locations listed on the declarations page of a policy.

Subrogation:

is the transfer of rights that allows an insurer to recover its losses. The insured also retains the right to sue for the difference, if any, between the amount of damages and the amount paid by the insurer.

Liberalization condition:

means that, if the insurer increases the coverage of a certain type of policy without raising the premium, everyone who already holds that kind of policy will automatically receive the increased coverage. This change will take place within 45 days of the increase in coverage. For example, XYZ insurance decides to make their product more attractive to non-insureds by Liberalization condition means that, if the insurer increases the coverage of a certain type of policy without raising the premium, everyone who already holds that kind of policy will automatically receive the increased coverage. This change will take place within 45 days of the increase in coverage. For example, XYZ insurance decides to make their product more attractive to non-insureds by

Concealment, Misrepresentation, and Fraud condition:

of a policy protects the insurer from the dishonesty of the insured. It states that, if the insured conceals or distorts relevant material facts, the insurer may deny coverage. For example, If the insured were to hide certain facts about the services offered by his business (failing to mention that the business serves alcohol, for instance), this would be qualified as concealment. Again, if the insured were to tell his insurer that his warehouse does not contain flammable materials, when in fact it contains tanks of gasoline, the insurer could deny coverage.

Business Income coverage:

offers the policyholder an option of establishing the level of coinsurance at 50, 60, 70, 80, 90, 100, or even 125% of the business's normal income.

Broad Form:

option of the Cause of Loss form is also a named peril policy covering all the perils listed under the Basic Policy Form, with the addition of the following perils: breakage of glass, falling objects, and weight of ice, snow and sleet. The Broad form also covers water damage from sources other than sprinkler leakage, such as damage resulting from a water or steam system or appliance. There are additional coverages for collapse, if the collapse is caused by: any covered perils listed in the policy; hidden decay, hidden insect or vermin damage; weight of people, personal property, rain collecting on a rooftop; or the use of defective materials or construction methods, but only if occurring during a period of construction or remodeling.

Maximum Period of Indemnity coverage:

option removes the coinsurance requirement and places certain restrictions on the Period of Restoration. With the Maximum Period of Indemnity coverage, the policyholder still receives coverage for the actual business income loss sustained and extra expenses incurred but only up to 120 days, OR until the policyholder has exhausted policy limits, whichever comes first. For example, let's say a policyholder maintains $100,000 in Business Income coverage, and a fire ravages the insured's factory. 120 days is about 4 months. The example shows two different loss possibilities for Maximum Period of Indemnity: the first chart ends at 120 days while the second chart ends when the policy limit is reached.

Special Form:

option under the Cause of Loss form is an open peril policy which covers all known perils except for those specifically listed in the exclusions section. Because it is an open peril policy, this time we'll list the exclusions instead of the coverage. Some common exclusions to the Special Form include: wear and tear, rust and decay; smog damage; damage, other than collapse, caused by vermin infestation; settling or cracking buildings; explosion of steam boilers; and damages caused by off-premises utility outage. In addition, the Special Form will not cover damages caused by dishonesty on the part of the insured or employees; losses to property left in the open rain, snow or ice conditions; governmental intervention; errors or faults in planning, zoning, design, workmanship, or materials; voluntary surrender of property; and missing property.

Control of Property condition:

protects the property of the insured from the negligent actions of persons other than the named insured. For example, a business owner has purchased an insurance policy to cover his office space, and one of his employees commits a negligent act that results in the destruction of covered business property. Under the Control of Property condition, insurance coverage would still apply. The Control of Property condition also protects the covered property from damage caused on purpose by persons other than the insured, such as angry terminated employees causing property damage as revenge for being fired. In addition, the Control of Property condition states that, if the insured has multiple properties covered, any breach of policy conditions will only affect coverage on the property where the breach occurred.

Legal Liability Coverage Form:

provides insurance protection against negligent damage to the personal property of others while in the insured's care or on the insured's premises. Legal Liability coverage also provides for the legal defense of claims brought against the insured by another party. Legal Liability coverage most frequently applies to bailees or warehouse operators who are entrusted to provide an element of safety for a large quantity of other people's possessions. "Bailees" are business operators who hold the property of others for the purpose of storage, repair or servicing, such as dry cleaners, computer repair shops, or businesses that refurbish furniture. Warehouse operators can include public storage facilities, private warehouses for retailers or distributors, and specialized warehouses such as cold storage or manufacturers storage. Legal Liability coverage has no deductible and requires no coinsurance. While it does cover theft, it will not cover the "unexplained disappearance" of another's property. Legal Liability coverage may also apply to negligent damage to buildings occupied by the insured.

Builders Risk Coverage Form:

provides insurance protection for buildings under construction or renovation. Builders Risk Coverage includes protection for building materials, foundations, fixtures, and supplies, as well as any equipment, machinery, and temporary structures used in the construction of permanent or temporary buildings and structures. Builders risk coverage is sold on the basis of the completed value of the building, and the insured must carry 100% coinsurance on the policy to receive full coverage for partial losses.

Earthquake and Volcanic Eruption Form:

provides protection against earth movements and volcanic eruption. This coverage consists of a percentage deductible. It covers whatever damage occurs during a "single occurrence." A "single occurrence" on the Earthquake and Volcanic Eruption Form involves any and all eruptions or earthquakes that take place within a single 168-hour period - that is, 7 days. This form excludes damages resulting from water damage including but not limited to tidal waves or tsunamis caused by earthquakes. This form may also be used solely to purchase insurance for Earthquake-Sprinkler Leakage Only, which provides insurance protection against damages caused by sprinkler leakage resulting from an earth movement.

Outdoor Property extension:

provides up to $1,000 in coverage for damage to television and radio antennae, detached signs, and trees, plants, or shrubs. Trees, plants, and shrubs are subject to a maximum of $250 coverage per unit. Outdoor property is covered from the perils of fire, lightning, explosions, riots and civil commotion, and damage by aircraft.

Property Off-Premises extension:

provides up to $10,000 for covered business property temporarily not located on property owned, leased, or rented by the insured. Property Off- Premises coverage excludes property that is off-premises for the purpose of being sold.

Personal Effects and Property of Others extension:

provides up to $2,500 in coverage for damage or destruction of belongings of the insured or employees of the insured, or personal items in the care, custody, and control of the insured. The loss must occur on the insured premises. This extension does NOT apply to the theft of personal effects.

Non-Owned Detached Trailers extension:

provides up to $5,000 in coverage for any non- owned trailers damaged during use if being used for business purposes on the insured premises. This extension only applies if the non-owned trailer is not attached to a vehicle, and if the insured has a contractual responsibility to pay for damages to the trailer.

Order of Civil Authority:

refers to when a governmental agency, such as the fire or police department, restricts access to an area. When such an order is issued due to a covered peril, Order of Civil Authority coverage can indemnify the policyholder for the loss of business income.

coverage form:

serves to define, limit, and explain what property or property interest is covered in the policy. Each coverage form has its own set of conditions and exclusions separate from the conditions and exclusions listed in the general policy. There are a variety of coverage forms; a policy can contain just one or several of these forms, depending on the business.

Legal Action Against an Insurer condition:

sets certain requirements that must be met before an insured can sue an insurer. First, the insured must meet all the obligations set by the policy, and have complied with all terms. Second, it states that an insured has two years from the date of a loss to file a lawsuit.

Vacancy condition:

stablishes when a building is considered "vacant." A building is deemed vacant if its doors have been closed - that is, not open for business - for sixty consecutive days. A building may also be deemed vacant if less than 31% of the available square footage is occupied for a period of sixty days. For buildings deemed vacant, some types of damage are automatically suspended from coverage. These include: vandalism, sprinkler leakage, broken glass, water damage, and theft. Other damage types may be severely reduced in coverage.

Causes of Loss form:

states exactly what perils are insured under the attached coverage, and which perils are specifically excluded from coverage. In this section, we will first go over a list of universal exclusions common to all Commercial Property Policies; then we'll look at the three different Causes of Loss forms: Basic Form, Broad Form, and Special Form.

Changes in Policy condition:

states that any change to a policy must be added by endorsement, and agreed on by both the insurer and the insured named on the policy.

No Benefit to Bailee condition:

states that insurance coverage will not apply to property that is in the custody of a third party, even if it is with the insured's granted permission. For example, Acme & Co. contracts ABC Trucking to deliver some products to a customer. If the product is damaged in transit, Acme & Co.'s insurance policy will

Abandonment condition:

states that the insurer holds no financial responsibility for properties abandoned by the insured. In other words, if the policyholder leaves an insured property abandoned, this automatically negates coverage for the property, since an abandoned property presents a huge risk to the insurer - a risk that the insurer did not account for when calculating adequate premiums for the policy. Insurers also use the abandonment condition to reiterate that they are not financially responsible for cleaning up after, disposing of, or demolishing damaged properties.

Profit and Loss statement:

the Cost of Goods Sold is always subtracted when calculating Net Income. This means that Business Income coverage does not indemnify for the Cost of Goods Sold, such as the labor, material, inventory, and supervision costs that go into the actual making or selling of a product. Moreover, Business Income coverage will often have a periodic reporting requirement, which helps determine the limits of coverage and premiums for the policy. These reports are often quarterly or monthly to account for seasonal variations in business activity.

Value Reporting Form:

the insured first purchases a limit of insurance sufficient to cover the highest amount of property value he may realize over the course of the policy period. Then, each month the insured submits a "value report" that tells the actual value of property covered, so that the insurer can adjust the premium accordingly. The policyholder is required to submit timely and accurate "value reports" within 30 days of the end of each reporting period. If the policyholder misses a deadline, the insurer will use the values submitted in the last report. If the insured undervalues the property, the insurer may penalize the insured with a fine that is equal to the percentage that the insured under-reported.

fire department service charges:

when the insured uses emergency services in an effort to protect covered property.The limit for Fire Department Service Charge will be noted on the Declarations page of the policy. This limit applies to each premises, and can be increased by the insured at the time the policy is purchased or renewed. There is no deductible for this coverage.