Vacant property exposes owner to potential losses

In light of recent news stories including the Heer's building sprinkler leakage loss in which the building owner had to fight his insurance company all the way to the Missouri Supreme Court it may be a good idea for building owners to analyze their insurance policies before a loss occurs.

In referring to the commercial property Insurance Service Office ISO form (CP-00-10-06-95) used in the standard insurance policy, the definition of "vacancy" depends on whether you are the building owner or the tenant.

If you are the tenant, then the building becomes vacant "when it does not contain enough business personal property to conduct customary operations."

If you are the building owner, then the building becomes vacant "when 70 percent or more of its square footage is not rented, or is not used to conduct customary operations."

An important exception to the above is this: "Buildings under construction or renovation are not considered vacant." There is no definition of "renovation" in the form, so the adjuster or judge would have to decide if having building maintenance employees perform a walk-through once a week would qualify as renovation.

Once the standard 60-day vacancy period expires, and if the policy hasn't been canceled by the underwriter or expired during the 60 days, then some insurance companies offer a vacancy permit for 45 days, which would extend coverage for vandalism.

Otherwise, certain types of losses are excluded completely after the 60 days, including vandalism, sprinkler leakage, glass, water damage and theft.

In addition, other covered causes of loss, such as a fire or windstorm, are covered, but the settlement can be reduced by 15 percent.

While the above discussion refers to ISO's standard property form (CP-00-10-06-95), other forms exist. I have seen some where the definition of "vacancy" is much more lenient.

"Every claim is different. I always ask a lot of questions and refer to the policy terms and conditions," said Jim Hayes, a local claims adjuster with 30 years of claims experience.

When in doubt, it is best for the building owner to read his policy, or discuss coverages with his agent/broker before a loss occurs.

(Larry J. Jansen, CIC, is a producer with PJC Insurance in Springfield.)