Commercial Property Insurance

Most property claims that disappoint a business owner were decided at placement, not at the adjuster stage.

• Earthquake is a separate decision. Where the property form excludes it, commercial earthquake coverage is what answers damage to the building and to business property such as inventory and equipment, and business interruption can often be included. It has its own exclusions worth knowing: fire, damage to vehicles, land damage such as sinkholes and erosion, and flooding caused by the quake, including a water main break or a tsunami, which belongs to a flood policy.
• Flood is a separate policy, and the market you buy it in matters. There are two routes: the federal National Flood Insurance Program and non-NFIP coverage. Non-NFIP policies may pay full replacement cost where NFIP payments account for depreciation, and may include loss of business during the rebuilding phase, which NFIP does not cover. Flood coverage also commonly carries a waiting period of about 30 days before it takes effect, so it is not something to arrange when a storm is already forecast.
• Decide whether equipment failure is covered before it happens. Systems breakdown coverage is the only part of a property program that answers an internal failure, and it reaches equipment across the whole building rather than only production machinery, including heating, air conditioning, refrigeration, elevators, networks, telephone systems and electronic devices. Computer equipment is typically covered for physical hardware damage rather than software failure or malware. The income extension is usually the more valuable half. Do not assume a manufacturer's warranty stands in for it, because warranties tend not to reach accidental damage caused by human error.
• Read the vacancy clause before a tenant leaves. Many commercial property policies treat a building as vacant unless 31 percent of its total square footage is occupied and being used for its intended purpose. A strip mall with most of its units empty can meet that test even while it is being actively re-leased. The clause then limits the policy: a standard form typically ceases coverage for water damage, theft, sprinkler leakage and vandalism after 60 days of vacancy, and a loss that occurs during a vacancy may be paid at a reduced amount, commonly by as much as 15 percent.
• Cover the vacancy rather than hope it ends first. Vacant building coverage supplements the property policy during a planned or unplanned vacancy, generally on a named peril basis that can include fire, wind, water damage, sprinkler leakage, theft and vandalism, and it can add liability coverage for an accident on the property while it stands empty.
• Check how the associated costs are handled. Debris removal, building code upgrades triggered by a rebuild, and weather damage to the property while reconstruction is under way are each addressed differently from one policy to another, and each one is capable of being the largest line on the claim.
• What drives the premium. The type of building, where it is located, the type of business operating in it, and whether fire alarms and security systems are in place.