When it comes to insuring a business, one might assume that any damage will be covered. This is not the case, however, as most insurance policies include caveats regarding what can and cannot be covered. Commercial property owners should be aware of what is considered property damage for a business under their insurance policy.

Commercial Property Damage

Commercial properties will more than likely be damaged throughout their time in operation. Instances of vandalism, damage from natural disasters, and wear and tear over the years are all potential causes of commercial property damage; however, just because a property has been damaged, doesn’t mean the loss will be covered under a commercial insurance policy.

Most often, insurance policies will classify property damage as physical damage to tangible property, such as a building, desk, or computer. Most property damage claims involve injury to tangible property owned by the business or under a business owner’s control. It’s important to note, however, that the specifics of what constitutes actionable property damage is defined by and included within the policy language of each individual insurance contract. Despite this, complex policy language can sometimes make it difficult to distinguish between what is and isn’t covered. Reviewing a policy with experienced legal counsel can help decipher it.

There are three different types of commercial insurance policies that cover property damage, including:

  • General Liability Insurance: General liability insurance covers common liability claims made by third parties.
  • Business Auto Liability Insurance: Business auto liability insurance covers third-party damage claims resulting from business vehicle use.
  • Commercial Property Insurance: Commercial property insurance covers damage to business property caused by an unexpected event like a fire, vandalism, or a natural disaster.

Often, these policies are bundled together into what is known as a business owners’ policy (BOP). While individually each of these three policies covers different events, both the business premises and their contents can generally be covered after direct, tangible property damage has occurred. Some insurance policies, however, require specific perils be named within the contract in order for them to be covered, while others do not; these are known as named and all perils policies: 

  • Named Perils: Insurance policies that list out named perils will only cover costs related to events specifically enumerated within the policy; these typically include fire, theft, vandalism, and wind damage.
  • All Perils: All perils coverage affords broader protection and generally covers any damage not specifically excluded within the policy.

Wear and Tear vs. Property Damage

While there are many ways a commercial property can become damaged, it’s important to know whether or not an insurance company will consider the damage caused by a covered cause of the loss or due to wear and tear. This distinction is one of the most common reasons insurance companies use to determine whether a property is damaged by a covered cause of loss. If the insurance company considers the damage to be from wear and tear, it generally will not be covered. This can become tricky, as there aren’t always clearly defined standards for what constitutes “wear and tear,” leaving the determination to the discretion of an insurance adjuster when the claim is investigated. Despite this, “wear and tear” is most often found if it appears a property has not been well maintained.

  • Wear and tear: Wear and tear to a property can occur if a property owner does not adequately maintain it. For example, wear and tear is often claimed if a commercial property has a roof that is over 10 years old,  has never had any maintenance work done to and it begins deteriorating, which causes water to leak into the property. This is not a covered cause of loss because the damage is the result of the property owner’s failure to maintain the roof.
  • Property damage: If a covered event such as a fire, windstorm, or vandalism causes property damage, that will more likely be covered under an insurance policy. For example, if a commercial property that has been regularly maintained and experiences a wind and/or hailstorm that causes damage to the building and equipment located inside of it, the property damage would likely be covered. This is because the property owner can prove the property was appropriately inspected and maintained through business records and was damaged as a direct result of a covered weather event.

Insurance Carriers Can Still Act in Bad Faith

Even if a commercial property owner is well versed in their policy’s coverage and works to maintain the property, valid insurance claims for damage can still be denied, underpaid, or even delayed. This is because insurance providers aim to make more money to the detriment of their policyholders by not paying out valid claims. 

Insurance companies act in bad faith when they choose to grossly underpay, delay or flat-out deny a valid insurance claim. By law, insurance companies must abide by various legal requirements, including giving proper notification of the receipt of a claim to the insured, letting them know whether or not a claim has been denied and why, and doing so within an allotted timeframe. When an insurance company fails to abide by these legal requirements or the terms of their own policy, they are acting in bad faith. When this happens, it is in the best interest of the insured to hire experienced legal counsel.

Property Damage Coverage Attorneys

At Raizner Law, we understand just how frustrating it can be for commercial property owners to deal with the actual real-world ramifications of property damage, all while going back and forth with an insurance carrier. If you are dealing with an insurer that has wrongfully delayed, underpaid, or denied your valid property damage claim, contact us today to learn more about how we can help.

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