Protect & Defend columnist Ed Branam, DVM, is the veterinary and animal services program manager at Safehold Special Risk Inc. A 1977 graduate of the Michigan State University College of Veterinary Medicine, Dr. Branam has worked in the insurance industry for the past 20 years. He is a former Sacramento, California, veterinarian and a former veterinary affairs manager with Hill’s Pet Nutrition.Read Articles Written by Ed Branam
One of the most commonly underinsured exposures I find when conducting risk-management reviews of veterinary practices involves business personal property. Not surprisingly, business personal property, along with employment practices liability and cyberliability/network security, are three of the more expensive risks from the standpoint of annual insurance premiums and deductibles.
Business personal property insurance is a standard component of commercial package policies and typically is required when a commercial loan is sought. However, I’ve found that the policy limits selected by many veterinary facilities are inadequate in addressing catastrophic losses, such as from a fire or natural disaster.
The insurance has three main components:
1. The Contents
Think of contents as anything not permanently attached to the building or that cannot be removed without damaging the structure. In other words, it’s what you would take with you if your practice were moving. Or put another way, open the doors and windows, turn the building upside down, give it a good shake or two, and see what falls out. Of course, that’s a little silly, but you get the idea.
Business contents can be either owned or leased and in the practice’s care, custody or control. Examples include medical and diagnostic equipment and supplies, pharmacy inventory, textbooks and office furniture.
The challenge every veterinary hospital has is the enormous quantity of business personal property, much of it hidden in cabinets, drawers and storage areas or under desks and on top of cages. Inventorying it and determining its value is difficult. Yet, when accurately chronicled, the value of such incidental contents might well exceed that of the more obvious investments, such as in portable cages and surgery, ultrasound, dental, radiographic and laboratory equipment.
2. Tenant’s Improvements and Betterments
Known by the acronym TIB, this category comes into play when a building is rented or leased, and it should be insured as such. A simple way to determine whether the property is an improvement or betterment is to ask yourself, “Is the item permanently attached, or can it be removed without damaging the building?” If you can’t remove it, it’s a TIB.
Don’t forget to consult your lease or the property owner or manager to determine which improvements and betterments are your responsibility to insure. Typically, the tenant is responsible for all TIBs purchased and installed, such as electrical, plumbing, ceilings, walls, floors, fixtures, cabinets and sinks. The landlord often accepts responsibility for replacing everything present at the time of the lease’s signing.
3. The Contract
I include this component in the discussion of business personal property only because it is frequently overlooked on tenant insurance policies, especially when the tenant is not required to insure the building itself as part of a commercial package.
Tenants should confirm whether they are responsible for any non-owned parts of the building. Common examples include heating, ventilation and air conditioning units and water heaters. Even if an item is not a TIB, many leases require the tenant to accept responsibility for the equipment’s maintenance and replacement. Such insurance might not be included in a tenant’s business personal property limit and might require a separate endorsement to the overall commercial package policy.
I recommend always asking your insurance agent to review your lease agreement’s section on insurance requirements.
Keep a Few Things in Mind
Here are other important considerations regarding business personal property insurance:
- Replacement cost: The majority of commercial package policies provide business personal property coverage on a replacement-cost basis. Some policies include an additional inflationary supplement for specific contents, such as medical equipment. If your policy is on a replacement-cost basis, the amount of business personal property coverage required should not be determined by what you paid for the item or its depreciated value. Instead, you’ll want to replace it new at today’s cost.
- Appurtenant structures: Confirm with your insurance agent that any sheds, gazebos or storage containers listed on the policy are covered as either real or business personal property.
- Off-premises property: Commercial package policies might limit or exclude off-premises business personal property. This consideration is critical to veterinary practices offering mobile services or transporting equipment and materials between locations. Again, check with your insurance agent to ensure proper coverage.
Business personal property is a frequently underinsured component of a veterinary practice’s commercial package policy. Many clinics purchase or lease radiographic, ultrasound, surgical laser and diagnostic equipment each year and neglect to add its replacement value to their insurance policy. The same goes for increased pharmacy inventory, newly purchased miscellaneous equipment and office supplies.
Requesting updated personal property coverage whenever new equipment is purchased or leased is essential in the overall risk-management process.
Conduct a thorough annual inventory of your business personal property and review any addendums to your lease agreements. All this is critical in ensuring that your practice is adequately protected in the event of a significant loss.