Commercial property insurance in New York can be the insuring of any of the following:
- Commercial buildings such as office buildings, strip malls, warehouses, and industrial buildings;
- Multi-residential buildings such as condo and coop complexes, and apartment buildings,
- The business contents or business personal property found in those buildings, such as furniture, fixtures, inventory, materials in process, raw materials, and more;
- Lastly the business income or business interruption coverage on the business.
These are the three core coverages in commercial property insurance.
There are two coverage forms to distinguish what perils are insured against. The first, which is in limited use is called “Basic”.
Basic Property Insurance Coverage
limits your coverage to the perils of fire, lightning, explosion, smoke, windstorm, hail, riot, civil commotion, aircraft, vehicles, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action. Basic coverage is also known as named perils coverage since the perils are specifically identified or known.
The second coverage form is known as
“All-Risks” Property Insurance Coverage.
And instead of identifying the perils, the policy form says that coverage extends to all risks of physical loss and damage, subject to a set of exclusions. Typically, those exclusions will include: earthquake, war, wear and tear, infestation, pollution, nuclear hazard, market loss, etc.
It is most common to insure commercial property under the all-risk property form.
Another important element to understand for commercial property is the valuation clause in the policy.
The two most common valuation clauses are:
Actual Cash Value
This is not used that often, because it will settle a claim and depreciate the value of the property insured. As an example; a 10-year-old desk you purchased for $1,000 is destroyed in a fire. Your settlement on that piece of furniture may only be $250 with depreciation applied.
The second form of valuation is
Under replacement cost your claims are settled “new for old”. So that 10-year-old desk which now costs $1,200; you would be paid the $1,200 with no depreciate applied.
This brings us to one of the most important parts of understanding commercial property insurance in New York, which is often the least focused on part of the equation.
That is properly valuing the property you’re insuring.
Too often, business owners will be overly conservative or unrealistic about the value of their buildings, contents, and worse business interruption needs.
It’s an oversimplified example, but using that desk claim example from above, it does no good to insure for replacement cost if you were to insure that desk for $500. Obviously, you don’t schedule or identify every item you insure, so I’m using that as an example. But if you think about all your business contents and don’t consider what it would cost to replace them today, you are really shortchanging yourself if a claim occurs.
The same is true for building insurance limits.
Too often I’ve had property owners try and underinsure their buildings with the thought that the entire building won’t burn down, or that they could rebuild it for a lot less than the suggested replacement cost calculations I come up with.
If you underinsure you could be caught in a co-insurance jam and end up paying your share of a claim because you co-insured the building with the insurance company. You could also be left with a shortfall if there are insufficient limits to cover the true cost of the claim.
Lastly, one of the most important areas of having sufficient limits is in your business income or business interruption coverage. This is the lifeline of coverage should your company have a serious loss, and underinsurance here could mean the difference between life or death of a company.
How do you make sure you have the right limits of business income insurance?
If your policy is written on an “actual loss sustained” basis, you’ll have 12 months of coverage for your actual damages so you’ll probably be okay. But for larger firms 12 months may not be enough.
If you have a specific limit of coverage on your policy then you should complete a business income worksheet every year to make sure you’re purchasing sufficient limits of protection.
The bottom line is that commercial property insurance in New York can be confusing and complex. The larger your company, the more complex it gets. You need an expert to guide you to the right purchase. The Coyle Group has deep domain expertise in commercial insurance, including commercial property insurance.
Give us a call so we can discuss how we can best help you.