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9.3 Building and Personal Property Coverage Form

Coverage​

The Building and Personal Property Coverage Form is the primary coverage form used in commercial property insurance. It serves as the foundation for many commercial property policies because it explains how coverage applies to the property commonly owned, used, or controlled by a business. This form organizes property coverage into three main categories:

  • Commercial buildings
  • Business personal property owned by the insured
  • Personal property of others in the insured’s care, custody, or control

The insured may choose which of these property coverages to include in the policy, depending on the business’s needs and exposures. It is important to note that the Building and Personal Property Coverage Form provides property coverage only. It does not provide liability coverage.

One or more Causes of Loss forms must be attached to the policy to identify the covered perils, limitations, and exclusions that apply to the property coverage. The insured may choose more than one Causes of Loss form when different levels of protection are needed for different categories of property. For example, the insured may select the Causes of Loss – Special Form for building coverage and the Causes of Loss – Broad Form for business personal property coverage. This flexibility allows the policy to be tailored so that each category of property is insured according to the level of risk and coverage needed.

A deductible applies to covered losses on a per occurrence basis. This means the deductible is applied separately to each covered loss event. The standard deductible for the Building and Personal Property Coverage Form is $500, unless a different deductible is shown in the policy declarations.

Note

Policies written using the Building and Personal Property Coverage Form are often referred to as Commercial Property policies. This is because the form provides the basic structure for insuring commercial buildings, business personal property, and personal property of others.

Covered Property​

Building​

The policy covers direct loss of or damage to a commercial building or structure that is described in the Declarations. Building coverage includes the building itself, as well as certain property that is considered part of the building or used to maintain the premises. Covered building property may include:

  • Completed additions: Additions that have been completed and are attached to the insured building are included as part of the building coverage.
  • Fixtures, including outdoor fixtures: Fixtures are items of personal property that have become attached, or affixed, to the building and are intended to remain there. Examples include carpeting, built-in cabinets, decking, and similar attached property.
  • Permanently installed machinery and equipment: Machinery and equipment that are permanently installed in the building are covered as part of the building.
  • Property used to service or maintain the building or premises: This includes personal property owned by the named insured and used to service or maintain the insured building, structures, or premises. Examples include fire extinguishing equipment, outdoor furniture, refrigerators, cooking appliances, and laundry appliances.
  • Additions, alterations, and repairs in progress: Building coverage also includes additions, alterations, and repairs that are in progress. Materials and supplies used for this work are covered if they are located on the described premises or within 100 feet of the premises, unless they are covered by other insurance.

Example

A print shop owns four large commercial printers that are permanently affixed to the cement floor. Because the printers are attached to the building and intended to remain in place, they would be insured as building property rather than as business personal property. Equipment used to service and maintain the premises, such as lawn mowing equipment and snow removal equipment, may also be included under building coverage, unless the policy specifically excludes it.

Business Personal Property​

Business personal property is covered when it is located in or on a building or structure described in the Declarations. Coverage also applies when the property is located in the open or in a vehicle within 100 feet of the described building or premises. Business personal property includes property the insured uses in the course of business, such as:

  • Furniture and fixtures, such as office furniture, shelving, and similar business furnishings
  • Machinery and equipment, such as telephone systems, computers, and other business equipment
  • Stock, meaning merchandise held in storage or for sale, raw materials, and supplies used to pack or ship stock
  • Other personal property owned by the named insured and used in the business
  • Labor, materials, or services furnished by the insured on the personal property of others
  • Tenants’ improvements and betterments, which are fixtures, alterations, installations, or additions made by a tenant at the tenant’s expense to a building or space the tenant occupies but does not own
  • Leased personal property that the named insured is contractually required to insure, unless that property is insured elsewhere in the policy

This coverage is important because it protects the movable property and business-related items the insured owns, uses, or is responsible for in daily operations.

Personal Property of Others​

Personal property of others is covered when the property is in the named insured’s care, custody, or control. For coverage to apply, the property must be located in or on a building described in the Declarations, or it must be located in the open or in a vehicle within 100 feet of the described premises. This coverage applies to property that belongs to someone other than the named insured but is temporarily in the insured’s possession or responsibility. If a covered loss occurs, any claim payment for personal property of others will be made only to the owner of the property, not to the named insured.

Coverage for personal property of others is especially useful for businesses that regularly have property belonging to customers, clients, or other parties in their care, custody, or control. These businesses are often referred to as bailees. A bailee is a person or business that temporarily possesses property belonging to someone else for a specific purpose. Examples may include repair shops, dry cleaners, storage facilities, or businesses that service customer property. Businesses that do not regularly handle or control the property of others may not need to select this coverage separately. If the exposure is only occasional or incidental, limited coverage may be available through a Coverage Extension instead.

An Insurance Story

One of The Furniture Company’s locations includes both a retail space and on-site repair services. A fire occurs and destroys the building. Fortunately, the company insured the building, its business personal property, and the personal property of others because it regularly accepts customers’ furniture for repair. The building itself and any permanently installed machinery damaged by the fire would be covered under building coverage. The store’s inventory and the furniture located in the employee offices would be covered as business personal property. At the time of the fire, the store also had 10 pieces of furniture that customers had brought in for repairs. The company had invested approximately $200 in labor and parts into each piece, for a total of $2,000. That amount is covered as business personal property because it represents the insured’s labor, materials, or services furnished on the personal property of others. However, the company is also responsible for the value of the customers’ furniture because the furniture was in the company’s care, custody, or control when the fire occurred. Coverage for the customers’ property is provided under personal property of others coverage. Although this may seem like a liability issue, liability policies generally exclude damage to property in the insured’s care, custody, or control. For this reason, businesses that regularly handle customer property should consider whether personal property of others coverage is needed.

Property Not Covered​

Although many types of property may be insured under the Building and Personal Property Coverage Form, some property is identified as property not covered. These items are either excluded because they are not intended to be insured under this form, require a separate type of insurance, or receive only limited coverage through an Additional Coverage or Coverage Extension. Property not covered by the Building and Personal Property Coverage Form includes:

  • Accounts, bills, currency, money, notes, and securities: This includes accounts, bills, currency, food stamps, evidences of debt, money, notes, and securities.
  • Electronic data: Electronic data includes information, facts, and computer programs. However, this exclusion does not apply to prepackaged software held as stock or to coverage provided under the Electronic Data Additional Coverage. Exceptions may also apply to electronic data that controls essential building systems, such as elevators, heating, ventilation, air conditioning, or security systems.
  • Valuable papers and records information: The cost to replace or restore information contained in valuable papers and records is not covered, including information that exists as electronic data, except as provided by the Valuable Papers and Records Coverage Extension.
  • Animals: Animals are not covered unless they are owned by others and boarded by the named insured, or they are owned by the insured as stock and kept inside buildings.
  • Automobiles held for sale: Automobiles held for sale are not covered under this form.
  • Vehicles and self-propelled machines: Vehicles and self-propelled machines, including aircraft and watercraft, are not covered if they are licensed for use on public roads or are operated primarily away from the described premises. This form is not intended to replace commercial auto, aircraft, or watercraft insurance. However, vehicles other than automobiles may be covered if the insured manufactures them or holds them for sale.
  • Certain outdoor and structural property: Bridges, roadways, sidewalks, patios, and other paved surfaces are not covered. Bulkheads, pilings, piers, wharves, and docks are also excluded.
  • Certain foundations and underground property: Foundations of buildings, structures, machinery, or boilers are not covered if they are below the lowest basement floor or, if there is no basement, below the surface of the ground. Retaining walls that are not part of a building, underground pipes, flues, and drains are also not covered.
  • Excavation and land preparation costs: The cost of excavations, grading, backfilling, or filling is not covered.
  • Illegal property or property involved in illegal activity: Contraband, stolen property, and property being illegally transported or traded are not covered.
  • Property in air or water transit: Personal property is not covered while it is being transported by air or by water.
  • Property insured elsewhere: Property that is insured under another coverage part or specifically insured under another policy is not covered by this form.
  • Land and natural property: Land, water, growing crops, and lawns are not covered.
  • Trees, shrubs, and plants: Trees, shrubs, and plants are not covered unless they are stock or unless limited coverage is provided by the Outdoor Property Coverage Extension.
  • Outdoor crops and agricultural property: Grain, hay, straw, and other crops located outside buildings are not covered.
  • Certain outdoor property and equipment: Outside fences, radio or television antennas, satellite dishes, wiring, masts, and towers are not covered, except as provided by the Outdoor Property Coverage Extension.

Additional Coverages​

Certain coverages are automatically included in the Building and Personal Property Coverage Form at no additional premium to the insured. These included coverages provide limited protection for specific types of losses or property exposures. Although they are automatically provided, each coverage is still subject to the policy’s limits, conditions, and exclusions.

Debris Removal​

The Debris Removal Additional Coverage pays the expense of removing debris after a covered direct physical loss to covered property. This coverage does not increase the policy’s limit of insurance. The amount available for debris removal is included within the applicable limit and is subject to a maximum of 25% of the amount paid for the direct physical loss. This additional coverage is important because cleanup costs can be a necessary part of recovering from a covered property loss.

However, an additional amount may be available when the covered loss and debris removal expenses use up the applicable limit of insurance. If the total of the direct physical loss and debris removal expense exhausts the policy limit, the insurer will pay up to an additional $25,000 per occurrence for debris removal. This additional amount helps provide limited extra protection when cleanup costs exceed the amount available under the regular policy limit.

An Insurance Story

One of The Furniture Company’s retail stores is insured for $100,000. A fire damages the store, causing a direct physical loss of $90,000. The company also incurs $20,000 in debris removal expenses. The Debris Removal Additional Coverage allows up to 25% of the direct physical loss for debris removal. In this example, 25% of the $90,000 fire loss equals $22,500. However, debris removal coverage is still subject to the applicable policy limit. The insurer first pays the $90,000 direct fire loss. Because the policy limit is $100,000, only $10,000 of the regular policy limit remains available for debris removal. This means the insurer may pay $90,000 for the fire damage and $10,000 for debris removal under the policy limit. The total amount of the fire loss and debris removal expense is $110,000, which exceeds the $100,000 policy limit. Because the policy limit has been exhausted, the Debris Removal Additional Coverage provides up to an additional $25,000 per occurrence for debris removal. The remaining debris removal expense is $10,000, so the additional coverage is enough to pay the rest of the debris removal cost. In total, the insurer pays $110,000 for the claim.

Preservation of Property​

The policy provides temporary protection for insured property that is being moved or stored at another location because it is endangered by a covered peril. When covered property is removed from the described premises to protect it from a covered cause of loss, the property is covered on an open perils basis for up to 30 days. This means the property is protected against direct physical loss unless the loss is specifically excluded. This coverage helps protect property while it is being moved to safety or temporarily stored away from the threatened location.

Fire Department Service Charge​

The policy provides up to $1,000 as an additional amount of insurance for fire department service charges. This coverage applies when a fire department is called to protect covered property from a covered cause of loss. The amount is paid in addition to the policy limit, and no deductible applies to this coverage.

Pollutant Clean-Up and Removal​

The policy provides Pollutant Clean Up and Removal Additional Coverage when the discharge, dispersal, seepage, migration, release, or escape of pollutants is caused by or results from a covered cause of loss. This coverage pays the insured’s expenses to extract pollutants from land or water at the described premises. The most the insurer will pay is $10,000 for all such expenses during each 12-month policy period. This limit is an aggregate limit, meaning it is the total amount available for all covered pollutant cleanup and removal expenses during that 12-month period. The coverage is paid in addition to the limit of insurance.

Increased Cost of Construction​

This Additional Coverage applies only to buildings insured under the Replacement Cost Optional Coverage. If a covered building is damaged by a covered cause of loss, this coverage helps pay the increased cost of complying with an ordinance or law that regulates the repair, rebuilding, or replacement of the damaged parts of the building. The most the insurer will pay is $10,000 or 5% of the limit of insurance applicable to the damaged building, whichever is less. This amount is paid in addition to the policy limit.

Electronic Data​

Electronic data includes information, facts, or computer programs that are stored as or on computer software. It also includes data stored on disks, drives, or other data processing devices. The Electronic Data Additional Coverage pays the cost to replace or restore electronic data that has been destroyed or corrupted by a covered cause of loss. The most the insurer will pay is $2,500 for all covered electronic data loss sustained during any one policy year. This coverage is paid in addition to the policy limit.

Coverage Extensions​

Coverage Extensions allow the insured to extend coverage beyond the basic coverage provided by the policy. However, these extensions must be earned; they are not automatically available in every situation. To qualify for these Coverage Extensions, the Declarations must show a coinsurance percentage of 80% or higher. When this requirement is met, the insured may extend the insurance provided by the Building and Personal Property Coverage Form in certain specified ways. These extensions are important because they provide limited additional protection for specific property exposures that may not be fully covered under the standard policy provisions.

Newly Acquired or Constructed Property​

Coverage may be extended to apply to certain newly acquired or newly constructed buildings. This extension may cover new buildings being constructed on the described premises, as well as newly acquired or newly constructed buildings at other locations. The most the insurer will pay under this extension is $250,000 at each building. This extension gives the insured temporary protection for new building exposures, but the insured should report the new property to the insurer so the policy can be properly updated.

Coverage may also be extended to apply to newly acquired business personal property. This extension provides temporary coverage for business personal property acquired after the policy begins. The most the insurer will pay is $100,000 at each building. This extension does not provide coverage for personal property of others. It applies only to business personal property owned or used by the insured.

Coverage for newly acquired or newly constructed property is temporary and ends at the earliest of the following:

  • The policy expires
  • 30 days pass after the insured acquires the property or begins construction
  • The insured reports the values of the newly acquired or newly constructed property to the insurer

This means the insured should notify the insurer promptly when new property is acquired or construction begins. Reporting the property allows the insurer to update the policy and determine the appropriate coverage and premium.

Personal Effects and Property of Others​

Coverage may be extended to apply to personal effects owned by the insured, as well as personal effects owned by the insured’s partners, officers, members, managers, and employees. This extension may also apply to personal property of others while that property is in the insured’s care, custody, or control. The most the insurer will pay under this extension is $2,500 at each described premises. It is important to note that coverage for the insured’s personal effects does not include loss caused by theft.

Valuable Papers and Records (Other Than Electronic Data)​

This Coverage Extension pays the cost to replace or restore lost information contained in valuable papers and records. Unless a higher limit is shown in the Declarations, the most the insurer will pay under this extension is $2,500 at each described premises. This extension is important because the standard property coverage form does not generally cover the cost to recreate information contained in valuable papers and records unless coverage is specifically provided.

Property Off Premises​

Coverage may be extended to apply to covered property temporarily located away from the described premises. This extension applies when covered property is temporarily at a location the insured does not own, lease, or operate. It may also apply while the property is at a fair, trade show, or exhibition. However, this extension does not cover property while it is in or on a vehicle. It also does not cover property in the custody of a salesperson unless that salesperson is at a fair, trade show, or exhibition. The most the insurer will pay under this Coverage Extension is $10,000.

Outdoor Property​

The Outdoor Property Coverage Extension provides limited coverage for certain outdoor property that is normally excluded under the Building and Personal Property Coverage Form. This extension provides up to $1,000 for each loss involving outdoor fences, radio and television antennas, satellite dishes, trees, shrubs, and plants. For coverage to apply, the loss must be caused by one of the following covered causes of loss:

  • Fire
  • Lightning
  • Explosion
  • Riot or civil commotion
  • Aircraft

A special sublimit applies to trees, shrubs, and plants. The most the insurer will pay for any one tree, shrub, or plant is $250.

Non-owned Detached Trailers​

Business personal property coverage may be extended to apply to non-owned detached trailers used in the insured’s business. For this Coverage Extension to apply, the trailer must be in the insured’s care, custody, or control at the described premises. The insured must also have a contractual responsibility to pay for loss or damage to the trailer. Coverage applies only while the trailer is not attached to a vehicle. Losses that occur during the hitching or unhitching process are not covered under this extension.

Unless a higher limit is shown in the Declarations, the most the insurer will pay for this Coverage Extension is $5,000. This coverage applies as excess insurance, meaning it pays only after any other applicable insurance has been used.

Business Personal Property Temporarily in Portable Storage Units​

Business Personal Property Coverage may be extended to apply to covered property that is temporarily stored in a portable storage unit, including a detached trailer. For coverage to apply, the portable storage unit must be located within 100 feet of the described building or premises. The most the insurer will pay under this Coverage Extension is $10,000. Coverage is temporary. It ends 90 days after the property is placed in the storage unit. Coverage also does not apply if the portable storage unit has been located at the described premises for more than 90 consecutive days.

Limits of Insurance​

The most the policy will pay for loss or damage in any one occurrence is the limit of insurance shown in the Declarations for the covered property. Limits of insurance may be written in different ways, depending on how the property is insured. The applicable limit may be written on a specific basis, a blanket basis, or a scheduled basis. Understanding how the limit is written is important because it determines the maximum amount available for a covered loss to that property.

The policy includes a separate limit for outdoor signs. The most the insurer will pay for loss of or damage to an outdoor sign is $2,500 per sign in any one occurrence. This limit applies whether the sign is attached to the building or located separately on the premises.

Loss Conditions​

In addition to the Common Policy Conditions and the Commercial Property Conditions, the Building and Personal Property Coverage Form includes additional conditions that apply specifically to this coverage form. These conditions help explain how the policy responds to covered losses, how limits and deductibles apply, and what responsibilities the insured and insurer have under the property coverage.

Abandonment​

The insured may not abandon property to the insurer. This means the insured cannot give damaged, unwanted, or partially damaged property to the insurer and require the insurer to accept responsibility for it. Unless the insurer agrees otherwise, the insured remains responsible for the property after a loss.

Appraisal​

If the insurer and the insured do not agree on the value of the property or the amount of loss, either party may request that the disagreement be resolved through the appraisal process. The appraisal process is used to determine the value of the damaged property or the amount of the covered loss. Once the appraisal decision is made, the decision is binding on both the insured and the insurer.

Duties in the Event of Loss or Damage​

After a loss occurs, the insured must follow certain duties so the insurer can investigate the claim and determine whether coverage applies. The insured’s duties after loss include the following:

  • Notify the police if a law may have been broken: If the loss may involve a crime, such as theft, vandalism, or arson, the insured must notify the police.
  • Give prompt notice to the insurer: The insured must notify the insurer promptly after the loss. This initial notice does not have to be in writing.
  • Describe the loss: The insured must provide a description of the loss as soon as possible, including how, when, and where the loss occurred.
  • Protect covered property from further damage: The insured must take reasonable steps to protect covered property from additional damage after the loss.
  • Provide an inventory when requested: If the insurer requests it, the insured must provide a complete inventory of damaged and undamaged property.
  • Allow inspection of property, books, and records: The insured must permit the insurer to inspect the damaged property, as well as relevant books and records.
  • Submit a signed, sworn proof of loss: If requested by the insurer, the insured must provide a signed and sworn proof of loss containing the information needed to investigate the claim. This proof of loss must be submitted within 60 days after the insurer requests it.
  • Cooperate with the insurer: The insured must cooperate with the insurer during the investigation and settlement of the claim.

The insurer has the right to examine any insured under oath as part of the claim investigation process. Each insured may be examined separately and outside the presence of other insureds. This allows the insurer to obtain individual statements and clarify facts related to the loss, coverage, or claim.

Loss Payment​

The insurer has several options for settling a covered property loss. The insurer may choose to pay the value of the lost or damaged property, or it may pay the cost to repair or replace the property. The insurer may also choose to take the damaged property at an agreed or appraised value. In some cases, the insurer may arrange for the damaged property to be repaired, rebuilt, or replaced instead of simply issuing a payment. These options allow the insurer to determine the appropriate method of claim settlement based on the circumstances of the loss and the terms of the policy.

The insurer will not pay more than the insured’s financial interest in the covered property. This means the insured may only recover for the amount of loss they actually have in the property and cannot receive more than their ownership or insurable interest. After the insurer receives the signed, sworn proof of loss, or after the insurer and insured reach an agreed settlement, claim payment will be made within 30 days.

Recovered Property​

If lost or damaged property is later recovered, the insured has the option to keep the recovered property. If the insured chooses to keep it, the insured must reimburse the insurer for the amount of the loss settlement already paid. Whether the insured or the insurer keeps the recovered property, the insurer is responsible for the reasonable costs of recovery. The insurer will also pay any necessary expenses to repair the recovered property, subject to the applicable limit of insurance.

Vacancy​

The Vacancy provision explains when a building is considered vacant and how vacancy can affect coverage. This provision is important because certain losses may be excluded or limited if the building has been vacant for the required period of time. In other words, vacancy does not automatically remove all coverage, but it can reduce or eliminate coverage for specific causes of loss listed in the policy.

The Vacancy provision defines vacancy differently depending on whether the insured is a tenant or the building owner. If the insured is a tenant, the rented or leased unit or suite is considered vacant when it does not contain enough business personal property for the insured to conduct customary business operations. If the insured is the building owner or general lessee, the entire building is considered vacant unless at least 31% of the total square footage is being used for customary operations. This requirement may be satisfied if the building owner uses the space to conduct business operations or if the space is rented to a lessee who uses it to conduct its customary operations. Buildings that are under construction are not considered vacant.

If a building has been vacant for more than 60 consecutive days before a loss occurs, the Vacancy provision restricts coverage. When the vacancy condition applies, the policy will not pay for loss or damage caused by:

  • Vandalism
  • Sprinkler leakage
  • Building glass breakage
  • Water damage
  • Theft or attempted theft

If the loss is caused by a covered peril that is not specifically excluded by the Vacancy provision, coverage may still apply. However, the insurer will reduce the amount otherwise payable by 15%. This reduction acts as a vacancy penalty and reflects the increased risk associated with a building that has been vacant for more than 60 consecutive days.

In summary, vacancy can affect coverage in two different ways. For certain causes of loss, vacancy may eliminate coverage entirely. For other covered causes of loss, coverage may still apply, but the insurer will reduce the claim payment by 15%. This condition is important because a vacant building presents a higher risk of loss, and the policy responds by limiting the amount of protection available after the building has been vacant for more than 60 consecutive days.

A Vacancy Permit Endorsement may be added to the policy to restore coverage for certain losses involving scheduled vacant buildings. This endorsement allows the insurer and insured to specifically identify the vacant building and provide coverage that would otherwise be limited or excluded by the Vacancy provision. However, even when a Vacancy Permit Endorsement is added, losses caused by vandalism or sprinkler leakage may still be excluded. This endorsement is useful when a building is expected to remain vacant, but the insured still needs property protection during that period.

Example

A 100,000-square-foot office building contains 10 offices, each measuring 10,000 square feet. Three of the offices are leased and are being used by tenants to conduct customary business operations. A fourth tenant moved out 90 days ago. This means only 30,000 square feet, or 30% of the building’s total square footage, has been occupied during that time. Because less than the required amount of the building has been occupied for more than 60 consecutive days, the building is considered vacant under the building owner’s Commercial Package Policy. As a result, the policy will not pay for loss or damage caused by certain perils while the building is vacant. These include: vandalism, sprinkler leakage, building glass breakage, water damage, theft or attempted theft. This example shows why the vacancy condition is important. Even if a building is partially occupied, it may still be considered vacant if the occupied portion does not meet the policy’s requirements.

Valuation​

In the event of a covered loss, the policy will generally settle the loss on an actual cash value basis, unless the policy provides another valuation method. Actual cash value means the value of the property at the time of loss, usually taking depreciation into account. If a different valuation provision applies, such as replacement cost coverage, the policy will explain how the loss will be valued.

If the loss is $2,500 or less and the insured has met the applicable coinsurance requirement, the policy will pay the loss on a replacement cost basis. However, certain property is always valued on an actual cash value basis when it is attached to the building. This means depreciation is considered when determining the amount payable. Property that is always valued at actual cash value includes:

  • Awnings or floor coverings
  • Appliances used for refrigeration, ventilation, cooking, dishwashing, or laundering
  • Outdoor equipment and furniture

This condition is important because it explains when replacement cost valuation may apply and identifies property that remains subject to actual cash value valuation.

Different valuation rules apply to certain types of property. Stock that has been sold but not yet delivered is valued at its selling price. This means the policy considers the amount the insured would have received from the sale when determining the value of the loss. Glass is valued at its replacement cost. This means the policy pays the cost to replace the damaged glass without applying depreciation, subject to the policy’s applicable limits and conditions.

Tenants’ improvements and betterments are valued based on whether repairs are made promptly. If the tenant-insured repairs or replaces the damaged improvements and betterments promptly, the loss is valued at actual cash value. If repairs are not made promptly, the insurer will not pay the full actual cash value. Instead, the insurer will pay only a proportion of the loss. The amount payable is based on the relationship between the remaining time in the lease and the amount of time left in the tenant’s use of the improvements and betterments. This valuation method recognizes that tenants’ improvements and betterments are attached to property the tenant does not own and may lose value if they are not repaired or replaced during the lease period.

Additional Conditions​

The following conditions apply in addition to the Common Policy Conditions, the Commercial Property Conditions, and the Loss Conditions. These additional conditions further explain how coverage applies under the Building and Personal Property Coverage Form. They address specific policy requirements that affect valuation, limits of insurance, mortgageholder rights, coverage territory, coinsurance, and other important coverage provisions.

Coinsurance​

The coinsurance condition requires the insured to carry insurance equal to a specified percentage of the value of the covered property. This percentage is usually 80%, but the required percentage is shown in the Declarations. To satisfy the coinsurance requirement, the insured must insure the covered property for at least the required percentage of its value at the time of loss. If the insured does not maintain the required amount of insurance, a coinsurance penalty may apply to a partial loss. This condition encourages the insured to carry adequate insurance limits and helps ensure that the property is not underinsured.

When a partial loss occurs and the insured has not met the coinsurance requirement, the insurer applies the coinsurance formula to determine the amount payable before the deductible. The formula is: Amount of Insurance Carried ÷ Amount of Insurance Required × Amount of Loss = Amount Payable Before Deductible

This formula compares the amount of insurance the insured actually carried to the amount of insurance the policy required. If the insured carried less than the required amount, the insurer will pay only a proportion of the loss.

Example

*An insured owns a commercial building with a current replacement value of $1,000,000. The building is insured for $600,000, and the policy includes an 80% coinsurance requirement. A $500 deductible applies to covered losses. The building sustains a $100,000 partial fire loss. To determine how much the insurer will pay, apply the coinsurance formula. First, determine the amount of insurance required: $1,000,000 × 80% = $800,000 The insured should have carried at least $800,000 in insurance to satisfy the coinsurance requirement. However, the insured carried only $600,000. Next, apply the coinsurance formula: $600,000 ÷ $800,000 = 0.75 This means the insured carried only 75% of the required amount of insurance. Now multiply that percentage by the amount of the loss: 0.75 × $100,000 = $75,000 The amount payable before the deductible is $75,000. Finally, subtract the deductible: $75,000 − $500 = $74,500 The insurer will pay $74,500 for the loss. If the insured had carried at least $800,000 in coverage, the coinsurance requirement would have been met, and the partial loss would not have been reduced by a coinsurance penalty. Because the insured carried only 75% of the required amount, the insurer pays only 75% of the partial loss before applying the deductible. If the loss had been a total loss, the insurer would pay no more than the applicable policy limit.

Mortgage Holders​

If a mortgageholder or trustee is shown in the Declarations for a damaged building, the policy will protect that party’s financial interest in the covered property. When a covered loss occurs, the insurer will pay each mortgageholder listed in the Declarations according to their order of precedence. This means payment is made in the order of each mortgageholder’s legal priority, up to the amount of that mortgageholder’s financial interest in the property. A mortgageholder may still have the right to receive payment for a covered loss even if foreclosure or a similar legal action has begun against the insured building.

If the insured’s claim is denied because the insured failed to comply with the terms of the coverage form, the mortgageholder may still have the right to receive payment for a covered loss. To preserve this right, the mortgageholder must meet certain requirements. The mortgageholder must:

  • Pay any premium due under the policy
  • Submit a signed, sworn proof of loss within 60 days after being notified that the insured failed to do so
  • Notify the insurer of any known change in ownership or occupancy of the property

This condition protects the mortgageholder’s financial interest in the building, even when the insured’s own actions or failure to comply with policy requirements affects the insured’s claim.

If the mortgageholder receives payment for a covered loss and the insured’s claim is denied, the mortgageholder’s rights may transfer to the insurer. These rights include the mortgageholder’s subrogation rights, or right to recover from another party, as well as the mortgageholder’s rights under the mortgage. The transfer applies only to the extent of the amount the insurer paid to the mortgageholder. This allows the insurer to step into the mortgageholder’s position and seek recovery after making payment for the loss.

If the insurer cancels the policy, the insurer must provide advance notice to the mortgageholder. This notice requirement protects the mortgageholder’s financial interest in the insured building by giving the mortgageholder an opportunity to respond before coverage ends.

Optional Coverages​

Additional coverages may be available under the Building and Personal Property Coverage Form when they are specifically selected by the insured. These coverages are not automatically included. To apply, they must be shown in the Declarations, and any required additional premium must be paid. This allows the insured to add optional coverages when the business has property exposures that require protection beyond the standard coverage form.

Agreed Value​

Under the Agreed Value Optional Coverage, the insured and the insurer agree in advance on the value of certain covered property. The agreed value is shown in the Declarations and becomes the applicable limit of insurance for that property. When this optional coverage applies, the Coinsurance condition is suspended for the covered property during the period stated in the policy. This option can help avoid a coinsurance penalty because the insurer and insured have already agreed on the property’s value before a loss occurs.

Agreed Value Optional Coverage applies only to loss or damage that occurs during the specific period shown for the optional coverage. This period begins on the effective date and ends on the expiration date listed for the Agreed Value coverage. This coverage does not automatically renew. If the insured wants Agreed Value coverage to continue after it expires, the insured must select the coverage again and meet any requirements set by the insurer. This is important because once the Agreed Value period ends, the Coinsurance condition may apply again unless the coverage is renewed or extended.

Inflation Guard​

Under this Optional Coverage, the limit of insurance for covered property automatically increases by the annual percentage shown in the Declarations. The increase does not apply all at once. Instead, the annual percentage is applied gradually throughout the policy year at a daily rate of 1/365. This means the limit increases a small amount each day during the policy period. This coverage helps the insured keep up with gradual increases in property values, construction costs, or replacement costs during the policy term.

Replacement Cost​

The insured may purchase Replacement Cost Optional Coverage to value covered losses on a replacement cost basis instead of using the actual cash value valuation method provided in the standard form. Replacement cost valuation pays the cost to repair or replace damaged property with property of like kind and quality, without deducting for depreciation, subject to the policy’s limits and conditions. However, Replacement Cost Optional Coverage does not apply to:

  • Personal property of others, except tenants’ improvements and betterments
  • Contents of a residence
  • Works of art, antiques, rare articles, and similar property
  • Stock, unless the stock replacement cost option is shown in the Declarations

This optional coverage is important because it can provide broader loss valuation than actual cash value, but it does not apply to every type of covered property.

The insurer will pay a loss on a replacement cost basis only if the damaged or destroyed property is actually repaired or replaced as soon as reasonably possible after the loss. If the insured does not repair or replace the property within a reasonable time, the insurer may settle the loss using another valuation method, such as actual cash value, according to the policy terms.

If a damaged building is rebuilt at a different location, the insurer will not pay more than the amount it would have cost to rebuild the building at the original location. This condition limits the insurer’s responsibility to the cost of replacing the building where it was originally located. If the insured chooses to rebuild somewhere else and the cost is higher, the insured is responsible for any additional expense.

Extension of Replacement Cost to Personal Property of Others​

This Optional Coverage allows loss to personal property of others to be settled on a replacement cost basis instead of an actual cash value basis. When this optional coverage applies, the insurer may pay the cost to repair or replace damaged personal property of others without deducting for depreciation, subject to the policy’s limits, conditions, and applicable requirements.