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Business Insurance Primer Whitepaper Part #2 – Commercial Property Insurance

Presented here is a brief overview of some of the major types of business insurance. It includes a simple discussion on Commercial Liability and Property Insurance, and does not constitute insurance advice. This is not intended to be a description of coverage, and does not include details of the coverage nor the terms, conditions, qualifications, limitations and exclusions applicable. Policies should be reviewed in their entirety and related to your specific operations. Many insurers permit changes (Changes to insurance policies are usually called “endorsements” or “riders”) in their limitations or exclusions to match your specific requirements. As insurance advice must be tailored to the specific circumstances of each situation, nothing provided herein should be used as a substitute for the advice of a competent insurance broker. IN NO EVENT WILL RHODES & WILLIAMS LIMITED BE LIABLE FOR ANY DAMAGES WHATSOEVER, INCLUDING SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, ARISING OUT OF OR IN CONNECTION WITH THE USE OR PERFORMANCE OF THE INFORMATION PRESENTED IN THIS DOCUMENT.

Commercial Property Insurance Overview

Buildings, furniture, fixtures, equipment and stock (inventory and work in progress) Insurance is usually provided on a “Broad Form” wording. The insuring agreement is usually: “the policy insures against all risks of direct physical loss or damage to the insured property” (unless excluded, as discussed below). The policy covers goods on your premises, housed inside your buildings, although coverage for goods located outside and within a certain radius of your premises is usually included but the perils insured against may be restricted to take into account weather or theft related exposures the insurer doesn’t want to include. The policy excludes specified property (most commonly: money, securities, licensed automobiles, illegally obtained property, etc.) from the “insured property”, followed by a list of exclusions to eliminate perils the insurer does not want to include in the “all risks” term (most commonly: earthquake, flood, sewer backup, temperature change, boiler and machinery breakdown and explosion, theft by employees, terrorist acts, and others). Insurance for some of the property and perils excluded is available separately. For example, insurance for earthquake, flood, or sewer backup damage is often purchased – with different deductibles from the basic “all risks” deductible.

Most property insurance policies are subject to a “coinsurance clause”. This means the insured will bear a portion of a loss if the limit of insurance purchased is less than the value of the property to be insured. For example, if the amount of insurance purchased is equal to ½ of the value of the insured property, the insured may recover only ½ of the claim amount. (To offset the effects of inflation on a policy covering for a twelve month term, most coinsurance clauses require a limit of 90% of the property value). A Stated Amount coinsurance clause (requires insurance to full value) is preferable to a coinsurance percentage.

Boiler & Machinery Insurance is available to offset the effect of the boiler and machinery breakdown and explosion exclusion mentioned above. Most of today’s boiler and machinery insurance have been expanded to provide coverage for breakdown of electrical and electronic equipment power surges, etc. as well as boiler and machinery breakdown and explosion. Computers and associated equipment are especially susceptible to damage from these causes.

Goods in Transit Insurance is usually provided as an extension to the primary insurance policy although a separate policy (or rider) is available if limits available on this policy are insufficient or if shipments outside Canada and the continental USA (excluding Alaska) are involved. Insurance is available for incoming and outgoing shipments when shipped at your risk or on a contingency basis if someone else is responsible but they don’t insure it and you lose money. The insurance settlement can be based on your cost, cost plus 10% (or more), or selling price. The transit limit should reflect the basis selected.

Goods Located Away from your Premises Insurance is available to cover goods at your home or on consignment at a customer’s property or elsewhere as required. Contractors involved in construction operations and others with portable equipment or tools require specialized insurance. Builder’s Risks or Installation Floater Policies insure against damage to your work while construction operations are underway. Contractor’s Equipment and Tool Floaters insure your mobile operations. Miscellaneous Floaters insure other mobile equipment: laptops, exhibition equipment, cell phones, presentation hardware, salesmen’s samples, etc.

Business Income Insurance (also called business interruption, gross earnings, profits, rental income, etc.) is available to insure lost earnings, including your profit, in the event of a fire or other damage from an insured peril at your place of business. This insurance can be extended to a supplier’s or a customer’s property if damage at their locations could result in a loss of your income.

Extra Expense Insurance pays for extra expenses resulting from damage to your premises from an insured peril. This insurance is useful if you can keep your business going either by moving temporarily to another location or by hiring others to complete all or a portion of the work you would normally do yourself but at an additional cost that may not be economically feasible under normal circumstances (and therefore not fully insured by business income insurance). This insurance is often purchased to supplement business income insurance. It is also purchased by companies that cannot afford to fail to deliver on a product or to lose market share unless extraordinary (and costly) work is undertaken.

Crime Insurance is usually divided into sections with different limits applicable to each. The theft by your employees section, often referred to as Employee Dishonesty Bond, includes theft of other property, such as your stock and equipment as well as money and securities. The Inside and Outside Section insures money and securities, both inside your premises and outside, against theft by others (not your employees), as well as destruction or damage of the money and securities. Other sections of Crime coverage available include insurance for losses from depositor’s forgery, counterfeit currency, electronic funds transfer, telephone fraud, etc. Broader insurance policies are available for clients with specialized requirements.

Technology insurance is playing catch-up to the myriad of exposures presented by operations involving the use of computers and the internet. A wide variety of insurance policies or extensions are available to cover losses from power surges, hackers, theft of intellectual property, privacy legislation, and others. Policies differ substantially in content and the scope of coverage offered. These have to be tailored to match your operations and appetite for risk. When an organization requires this type of coverage it is important that they deal with an insurance broker with expertise in this specialized coverage.

Your business success is very important. Make sure you deal with a broker you trust, and one who has the required expertise in your industry and the insurance industry to provide you with the protection and advice you need and deserve. Ask your broker:

  • Have you insured clients in my industry before?
  • Do you have any specialized expertise in my industry?
  • How many insurance companies do you represent?
  • Do you represent my needs or those of the companies that you represent?

A relationship with a professional business insurance broker should be like the relationship you have with your lawyer or accountant. Deal with one you trust and whom displays the knowledge and professionalism required. Although a competent broker may save you money on your insurance budget, make sure it is not done in such a way that you may not be covered for a loss you should be, because that could effect the survival of your business.

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