When a person decides they would like to open a commercial business, one of the first items to consider is obtaining insurance coverage. No matter how smoothly a business operates, the unexpected can (and often will) happen. Because of this, it is imperative that business owners have commercial property damage coverage in place.

Commercial Property Damage Coverage

Business owners must consider many factors before opening their doors, one of which is obtaining commercial property damage insurance. This specific type of insurance covers damage to the premises itself, as well as items located within the property, including equipment, furniture, product inventory, supplies, and fixtures, among other items. This coverage can also cover the costs associated with the repair or replacement of stolen, damaged, or destroyed property. 

For business owners that lease their space to run their operations, they will need to review their lease obligations in terms of the insurance. This is because in some cases, tenants will be solely responsible for insuring the building or will be required to continue to pay rent even if the space is inoperable. Reviewing the lease agreement and your associated insurance obligations with legal counsel can help to confirm that the selected commercial coverage is sufficient. 

Typically, there are three different types of commercial property damage policies. Each offers protections to varying causes of damage or loss, including: 

  • Basic form policies: These policies provide the least amount of coverage out of the three. A basic form policy covers damage caused by fire, windstorms, hail, lightning, explosions, smoke, vandalism, sprinkler leakage, aircraft and vehicle collisions, riots and civil commotion, sinkholes, and volcanoes.
  • Broad form policies: Broad form policies cover the causes of loss included in basic form as well as damage from leaking appliances, structural collapses, falling objects, and the weight of ice, sleet, and/or snow.
  • Special form policies: Special form policies provide the most coverage for a commercial property, insuring against damage from all causes of loss except those specifically excluded in the policy. Most of these policies exclude damage from floods, earth movement, war, nuclear disaster, wear and tear, and insects or pests.

Replacement Cost and Actual Cash Value

When it comes to commercial property damage coverage, most policies provide replacement cost coverage, actual cash value coverage, or a combination of both.

  • Replacement cost coverage: Replacement cost coverage will pay to repair or replace the damaged property at its current cost. This means the policy will pay enough to rebuild the building if necessary and replace the property with new items, even if the cost is more than what was originally paid.
  • Actual cash value coverage: Actual cash value coverage pays for the replacement cost minus depreciation. Depreciation is a decrease in value because of wear and tear or age. If a policyholder has actual cash value coverage, the policy might not pay enough to fully rebuild the business.

The Cost of Commercial Coverage

Many factors are considered when it comes to determining how much a policyholder must pay for commercial property insurance. Ultimately, it will largely depend on the value of all the business’s assets including the property itself. Other factors that determine the cost of coverage are often based on risk, such as: 

  • The location of the property: If the area the business is located in is prone to storms and other natural disasters, policyholders may have to pay more in premiums for coverage.
  • The materials used to build the property: If the building was constructed with fireproof materials or if it has new or upgraded electrical wiring, plumbing, and HVAC systems, these factors will impact the cost to insure the property.
  • The type of business: If the business’s industry carries increased risks, insurance will likely come at a higher cost. For example, a realtor’s office generally carries less risk than a restaurant, repair shop, or warehouse.
  • The proximity to fire and police stations: If the business is located near or far from a fire hydrant, fire station, or police station, this could impact the cost of coverage. The same is true regarding the alarm and safety systems the business has in place.

Commercial Property Coverage Attorneys

While having the proper commercial property coverage in place can be a relief to business owners, insurance companies may still take advantage of their policyholders. Unfortunately, many insurance companies utilize bad faith practices after a policyholder has filed a valid claim to make a profit. If you have filed a valid commercial property claim only to have it be wrongfully delayed, grossly underpaid, or denied, the commercial property coverage attorneys at Raizner Law can help. Contact our office today to see how we can best assist with your claim.

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