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
Practice owners view a commercial insurance policy the same way a veterinary textbook appears to a layperson: lots of pages, small type, indecipherable words. One can only hope that in the event of an insurance claim, appropriate coverage is found somewhere within all the verbiage. Though understanding everything in your commercial insurance policy isn’t practical, what is important is to have a basic understanding of the components and know where to look and how the details affect your coverage.
A standard commercial insurance policy has three main sections:
- Section I: Property
- Section II: Liability
- Section III: Common policy conditions
This article will focus on Section I: Property. I will review the last two sections in the next issue.
The commercial property form consists of eight areas labeled A through H. Each details a specific component of the property coverage provided within the policy.
The first part, simply titled “Coverage,” outlines the types of property covered or excluded. This part includes additional coverages and coverage extensions provided within the policy. For example:
A commercial property policy provides two basic categories of coverage for direct physical loss to property that your business either owns, leases or is required to be insured by contract. The categories are:
Buildings: This subsection often is referred to as real property. These are the actual physical buildings and structures associated with the business. It typically includes permanently installed fixtures; machinery and equipment such as cabinets; flooring; heating, ventilating and air conditioning; built-in reception desks; and file cabinets.
Business personal property: Often called contents coverage, this refers to the business property that does not qualify as building property. Business personal property, or BPP, is typically considered anything not permanently attached that you would take when moving from the location. BPP can be owned, leased, or in the care, custody or control of the business. Examples include medical equipment and supplies, pharmacy inventory, textbooks and furniture.
Tenant’s improvements and betterments, or TIB, are considered business personal property when renting or leasing the real property. A simple method to determine whether property is an improvement or betterment is to ask, “Is the item permanently attached or removable without damaging the building?” If it can’t be removed, it’s TIB. State laws and court decisions have helped to resolve disputes over the definition of TIB.
Here are important considerations:
- Make sure that any appurtenant structure, such as a shed, gazebo or storage container, that is not specifically listed on the insurance policy is covered as either real or business personal property.
- Business personal property is frequently an underinsured component of a veterinary hospital’s commercial insurance policy. Practices that purchase digital radiography, ultrasound, surgical laser and diagnostic equipment sometimes neglect to add its replacement value to their insurance policy. Likewise, the value of pharmacy inventory is frequently grossly underestimated. Conducting a thorough annual inventory of your business personal property is a critical component of making sure that your business is adequately covered in the case of a loss.
- Tenants who rent or lease their buildings need to take contractual requirements into consideration when purchasing a commercial insurance policy.
Certain classes of property typically are not covered. Examples include land, grading, backfilled foundations, bulkheads, pilings, retaining walls, underground pipes and drains. Certain types of business personal property are better insured under other insurance products and is likewise often excluded.
Most commercial property policies automatically include coverage for certain additional exposures. Examples include debris removal, pollutant cleanup and removal, preservation of property, fire department service charges, business income and civil authority.
This subsection extends certain coverages already provided within the policy. Examples include newly acquired or constructed property, the property of others, personal property off the premises, valuable paper and records, and outdoor property. Coverage extensions and deductibles can vary significantly among individual policies.
CAUSES OF LOSS
Most commercial property policies are now “all-risk” in nature. An all-risk policy covers all perils, or causes of loss, that are not specifically excluded within the policy.
An alternative to an all-risk policy is a “named perils” policy, which excludes all perils not specifically identified within the policy. Some of the possible causes of loss can be added through an endorsement or a separate policy form.
This portion details causes of loss that the policy will not pay. Some exclusions might have exceptions that provide limited coverage. Examples can include:
- Certain computer-related losses
- Earth movement
- Errors or omissions
- Employment practices liability
- Fungi and viruses
- Government action
- Nuclear hazard
- Water (floods and mudslides)
- War and military action
C. Limits of Insurance
This portion outlines the maximum amount the insurance company will pay for a specific covered cause of property loss. Separate limits might apply to individual areas of coverage within the policy. Specific limits are listed in the policy declarations.
This portion outlines the deductible terms for each form of property loss. The insurance company will not pay for loss or damage in any one occurrence until the amount of loss or damage exceeds the deductible shown in the policy declarations. The company at that point will pay the amount of loss or damage in excess of the deductible up to the applicable limit of insurance.
E. Property Loss Conditions
This portion explains how your losses are calculated and paid as well as how settlement disagreements between the insured and the insurance company are to be resolved.
F. Property General Conditions
This portion addresses conditions such as control of property, mortgage holder rights, the policy period, coverage territory and non-renewal of the policy.
G. Optional Coverages
This portion includes coverages such as outdoor signs, money and securities, employee dishonesty and equipment breakdown.
H. Property Definitions
This portion outlines the defined terms within the policy.
I recommend reviewing your policy now. Compare your real and business personal property replacement values against your current limits. If applicable, also check your lease agreement to ensure that you have appropriate coverage for any contractual exposure.