Commercial Property Coverages
Building blocks
Commercial property forms cover buildings and business personal property (BPP) - furniture, stock, fixtures, machinery, and tenant improvements. The Building and Personal Property Coverage Form (CP 00 10) is the workhorse; causes of loss forms are Basic, Broad, and Special (special is open perils). The Business Income (and Extra Expense) form replaces lost net income plus continuing expenses during the period of restoration; extra expense pays costs to resume operations faster than otherwise possible.
Valuation and limits
Most commercial property is written at replacement cost, and coinsurance is common. Agreed value removes the coinsurance requirement; reporting forms suit fluctuating inventory with a deposit premium and periodic reports. Deductibles may be flat or a percentage of value. Other coverages: equipment breakdown, builders risk (structure under construction and materials), inland marine (property in transit or at remote locations), crime (employee dishonesty), spoilage, and ordinance or law (demolition and increased cost of construction).
Coinsurance rule of thumb
Required insurance = coinsurance percentage × value at time of loss. Recovery = (limit carried ÷ required limit) × loss, capped at the policy limit.
Worked example. An 80% coinsurance clause applies to a $500,000 building, so $400,000 is required. The insured carries $300,000 and a $100,000 loss occurs: 300,000 ÷ 400,000 × 100,000 = $75,000, less the deductible.
Traps
Questions blur business income (lost profits and continuing expenses) with extra expense (costs to speed recovery), or forget the coinsurance penalty applies only when the limit falls below the requirement. Tenants must insure their own BPP; the landlord's policy will not respond.
Rule of thumb
Before calculating any payment, ask whether the limit meets the coinsurance requirement.