The Vacancy That Wasn't Quite Vacant
Harborview Retail Inc. insures a two-storey mixed-use building under a commercial property form with a vacancy provision stating that if the building is vacant for more than 60 consecutive days, certain perils (vandalism, water damage, glass breakage, and sprinkler leakage) are excluded and any loss is reduced by 15%. The ground-floor retail tenant moved out on 1 February, leaving fixtures and shelving behind. Harborview's property manager visited weekly, kept the utilities on, ran the taps, and stored seasonal inventory in the rear stockroom. On 20 April a pipe in the second-floor washroom burst and caused $180,000 of water damage. The insurer denies coverage, citing 78 days of vacancy. Harborview argues the building was never vacant because inventory was stored there and the manager attended regularly.
1. Analyze whether the building was 'vacant' within the meaning of the vacancy provision, identifying the facts that cut for and against the insurer.
Read the worked answer
The outcome turns on the policy's definition of 'vacant,' which typically means empty of occupants and contents, or not being used for the purpose for which it was intended, rather than merely unoccupied. The adjuster should not rely on the ordinary dictionary sense.
Facts favoring the insurer: the retail tenant left on 1 February, so the ground floor ceased to be used for its intended purpose; 78 days elapsed before the loss, exceeding the 60-day trigger; fixtures and shelving left behind are not 'contents' in the sense of personal property used in the business; and the second floor appears to have been unused throughout.
Facts favoring the insured: the building was not empty. Seasonal inventory was stored in the rear stockroom, utilities remained connected, and the property manager attended weekly and ran the taps. Many forms define vacancy to exclude buildings that are 'unoccupied but not vacant' where the insured is actively maintaining the premises, and some treat a building under renovation or actively marketed for lease as not vacant.
The critical question is whether the rear stockroom storage amounts to use of the building for the purpose for which it was intended. A single stockroom holding seasonal goods is a thin basis for calling a two-storey retail building 'in use,' but it is enough to create a genuine dispute. The adjuster should obtain the lease termination date, the inventory records, the manager's visit log, and any listing agreement. If the building was actively marketed for lease and the storage was bona fide business use, the better view is that the vacancy provision was not triggered; if the storage was a pretext, the 15% reduction and the water-damage exclusion apply.
2. Assume the vacancy provision does apply. Explain the coverage consequence and what Harborview could have done to preserve coverage.
Read the worked answer
If the provision applies, the consequence is two-fold. First, water damage is among the perils excluded during vacancy, so the $180,000 loss would be excluded entirely, not merely reduced. The 15% reduction applies to losses from perils that remain covered; it does not resurrect an excluded peril. The insured would therefore recover nothing for the burst pipe unless it can show the loss fell outside the exclusion's wording.
Second, even if a covered peril had caused the loss, recovery would be reduced by 15% before the deductible, so a $100,000 covered loss would pay $85,000 less the deductible.
To preserve coverage, Harborview could have: (1) obtained a vacancy permit endorsement, which restores the excluded perils for a stated period and premium; (2) kept the ground floor genuinely in use, for example by leasing it short-term or using it for the insured's own operations; (3) notified the insurer of the change in occupancy, since most commercial forms require prompt notice of a change that increases the risk; or (4) arranged builder's risk or renovation coverage if the building was being refurbished. The broader lesson is that vacancy is a material change in risk, and the insured's duty to notify is independent of the vacancy clause itself. Silence for 78 days is the real underwriting failure here.