When Your Commercial Building is Vacant

Phyllis Van Wyhe, CPCU, CIC, CSP

 

When a commercial building is vacant or unoccupied, there are generally

two problems. The property is exposed to an increased amount of risk;

for example, it becomes a target for vandals. In addition, discovery of a

loss may be delayed; a water pipe can burst and go undetected for days. As a result of the increased risk and delay in detection, insurance policies are not as broad when a property is considered vacant.

 

Defining Vacancy

In the mid 1990.s, commercial property policies started defining exactly when a building is

considered vacant. The definition is found in the Conditions section of the policy. With each

newedition of the policy, the definition has been revised. Today, you must reviewthe actual

policy covering a building in order to determine which definition of vacancy will apply. Some

policies state that a building is considered vacant unless at least 31%of the total square footage

is being used to conduct customary operations. This would mean that if only one floor of a four

story building is being used, the vacancy restrictions of the policy would apply.

 

The Threshold

For a short period of time, vacancy is not a problembecause the vacancy condition in a

commercial property policy contains a threshold. Usually after the building has been .vacant.

for either 30 or 60 days, the restrictions on coverage are activated.

 

Restrictions on Coverage

When a building has been vacant for longer than the policy threshold, there are two changes in

coverage:

 

Excluded Perils

There is no coverage for six causes of loss: theft, attempted theft,

vandalism, glass breakage, water damage, and sprinkler leakage.

 

Reduced Coverage

For other covered perils, payment of a loss is reduced by 15%. With a

$100,000 fire loss, the policy will only pay $85,000.

When your building is unoccupied or vacant, be certain to check the vacancy condition in your property policy. If you are not certain howthe provision will apply, get it cleared up before the loss and get it in writing. When your building is vacant check with your agent and ask himyour options. He/she should be able to negotiate coverage through an endorsement, vacancy permit, or special vacancy policy. Remember, most carriers do not hesitate to activate the vacancy provisions of a policy if the conditions at the time of claimwarrant it.

The Van Wyhe Group, 2009