Insuring Commercial Property
The coverage form
CP 00 10 Building and Personal Property covers the building, the insured's business personal property, and personal property of others in the insured's care, custody, or control within stated limits. Know the valuation options: actual cash value, replacement cost, and the functional variations. Coinsurance is the heart of the form.
Coinsurance
The insured must carry a limit of at least the coinsurance percentage times the replacement cost of the property at the time of loss. The penalty is (limit carried divided by limit required) times the loss, capped by the policy limit, less the deductible.
Worked example: replacement cost $1,000,000, 80% coinsurance, limit purchased $600,000, covered loss $100,000. Required limit is $800,000, so payment is (600,000 / 800,000) x 100,000 = $75,000, less deductible. Had the insured bought $800,000, the full $100,000 would be paid.
Causes of loss
Basic (limited named perils), Broad (adds glass breakage, water damage, falling objects), Special (risks of direct physical loss unless excluded). Trap: under Special the burden shifts, but exclusions for wear and tear, faulty workmanship, and the vacancy condition still apply.
Time-element coverages
Business income covers lost net income and continuing expenses during the period of restoration, after a 72-hour waiting period for most causes. Extra expense pays costs to continue operations. Trap: business income is net income plus continuing operating expenses, and the period ends when the property should have been repaired with reasonable speed. Agreed value suspends coinsurance, blanket insurance applies one limit to multiple locations, and inflation guard raises limits automatically.