Commercial Property Policy
Who is Covered
Legal Representatives - In the event of the death of an individual named
insured, his or her rights and duties under the policy are transferred to
his or her legal representative (executor, administrator, guardian) but
only when acting within the scope of such duties. Until such
representative is appointed, any one having proper custody of the
property will have those rights and duties, with respect to that property.
Covered For How Much
The insurance policy is basically a contract of indemnity; its intent is to
make the insured whole, to restore the insured, as closely as is possible,
to the economic position the insured was in before the loss.
Under the policy, the company has the option of compensating the
insured in one of several ways:
1. Actual cash value (sound value) at the time of the loss.
Actual cash value is usually understood as replacement cost less
depreciation. This measure of loss is generally simple to apply in the
case of goods held for sale. Thus, merchandise held for sale, or goods
in process of manufacture, will be paid for at the insured's cost to
replace or restore such property to the condition it was in at the time of
the loss. This will include the cost of labor and other expenses which
have been incorporated in the goods. In the case of personal property or
real property, the measure of loss is the same, even though it may be
somewhat more complicated to arrive at a figure for its actual cash value.
The actual cash value of property at the time of loss may be more or less
than the amount originally paid for the property. Thus, an insured may
have purchased a sofa in 1998 for $1,000. In 2008, when the sofa is
destroyed by fire, the price of a new sofa of the same type is $1,500.
The actual cash value of the property is not $1,000 (the price originally
paid) or $1,000 (the cost to replace with a new sofa). The company is
liable only for an amount sufficient to replace a sofa of this kind in the
condition it stood at the time of the loss-a $1,500 sofa 10 years old.
While the cost to repair or replace with other of like kind and quality is
central to the settlement of most losses, other factors may modify this
element. Thus, in an increasing number of recent cases, it has been held
that market value may substantially reduce the collectible loss, as in the
fires or other insured damage to real property in severely depressed
neighborhoods.
2. The cost to repair or replace the property with material of like kind and
quality within a reasonable time after the loss. In the event that the
repaired item of property is worth less than the original property which
was damaged or destroyed, the company will pay for the reduction in the
value of the repaired or replaced property. The company may pay the
actual cash value of the property or the cost to repair or replace. While
these amounts are generally the same, the company may pay either sum
in cases where there is a difference.
3. The company may elect to repair or rebuild or replace the property
destroyed or damaged instead of paying for the loss in dollars.
4. The company may take all of the property at the agreed or appraised
value.
The company has the choice of indemnifying the insured for the loss in
anyone of the four ways discussed above. In no event, however, is the
company liable for more than the interest of the insured in the damaged
or destroyed property.
Broad Evidence Rule - In most losses, the measures enumerated above
will prove adequate as means to produce an equitable settlement. For
the most part, the various factors will yield an essentially similar result.
However, there are loss situations where still other factors need to be
taken into account in measuring the extent of the loss; and the settlement
will differ from one which would be arrived at if the several elements of
actual cash value cited above were used in establishing the loss. Thus, if
a building in a severely depressed neighborhood were damaged, the
actual cash value might prove to be considerably less than the cost to
repair or replace.
Over the years, in numerous cases, other elements were reflected in the
settlement process. Among these are:
Notice of Method of Settlement - Within 30 days of receipt by the
company of a sworn statement of loss from its insured, the company
must notify the insured of its intention relative to the loss, i.e., on which
basis it intends to settle the loss.
No Abandonment Clause - Although the company may elect to take all of
the damaged property after a loss and pay the full value, the insured
does not have the option of turning the salvage over to the company and
insisting upon payment in full. The option to take all of the property is
available only to the company.
EXAMPLE: The insured carries insurance on stock of $100,000, which is
damaged in a fire. The salvage value of the stock after the loss is $35,000.
The company can pay the insured $65,000, or it can take all of the
damaged property and pay $100,000. On the other hand, the insured
cannot turn over the salvage property to the company and demand
payment of $100,000.
Appraisal - If the insured and the company fail to agree as to the amount
of the loss or the actual cash value, the question may be resolved
through special appraisal procedures provided for in the policy-commonly
known as binding arbitration.
Either party may demand that the differences be submitted to appraisal.
Demand must be made in writing. Each party must notify the other of the
appraiser he selects.
The appraisers must agree on a disinterested umpire. If they cannot
agree, either the insured or the company may ask a judge of a court of
record to appoint an umpire. If the appraisers fail to agree on the value of
an item of property or the extent of the loss or damage to the item, they
submit their differences to the umpire. An agreement by any two of the
three parties is binding as to the amount.
Each party pays the appraiser it has chosen, and both parties share the
expenses of the appraisal and the umpire.
NOTE: By submitting to the appraisal machinery, the company does not
relinquish its rights, including its right to deny the claim.
Recovered Property - The policy requires that if either the insured or the
company recovers any property on which a loss has been paid to the
insured, the party making recovery must notify the other promptly. The
insured then has the option of keeping the property, if the insured has
recovered it, or of receiving the property from the company, if the latter
has made the recovery. If the insured elects either to retain or to receive
return of the property from the company, as the case may be, the
insured must return to the company the amount received for the property
upon settlement of the loss. The company will pay, up to the policy limits,
the expenses involved in the recovering or repairing of the property. Note
that the insured has the option of taking or keeping the recovered
property; the company must accept the insured's decision in the matter.
Deductibles - The Commercial Property policy is written with a $500
deductible applicable to each loss (not to each item). For an additional
premium, it is possible to decrease the deductible to $250; a reduced
premium is offered for increasing the deductible above the basic $500.
Higher deductibles, up to $25,000, are available.
NOTE: If a deductible is included in a policy which contains a coinsurance
clause (discussed in the section immediately below), it is applied after
application of the coinsurance provision.
Who is Covered
Legal Representatives - In the event of the death of an individual named
insured, his or her rights and duties under the policy are transferred to
his or her legal representative (executor, administrator, guardian) but
only when acting within the scope of such duties. Until such
representative is appointed, any one having proper custody of the
property will have those rights and duties, with respect to that property.
Covered For How Much
The insurance policy is basically a contract of indemnity; its intent is to
make the insured whole, to restore the insured, as closely as is possible,
to the economic position the insured was in before the loss.
Under the policy, the company has the option of compensating the
insured in one of several ways:
1. Actual cash value (sound value) at the time of the loss.
Actual cash value is usually understood as replacement cost less
depreciation. This measure of loss is generally simple to apply in the
case of goods held for sale. Thus, merchandise held for sale, or goods
in process of manufacture, will be paid for at the insured's cost to
replace or restore such property to the condition it was in at the time of
the loss. This will include the cost of labor and other expenses which
have been incorporated in the goods. In the case of personal property or
real property, the measure of loss is the same, even though it may be
somewhat more complicated to arrive at a figure for its actual cash value.
The actual cash value of property at the time of loss may be more or less
than the amount originally paid for the property. Thus, an insured may
have purchased a sofa in 1998 for $1,000. In 2008, when the sofa is
destroyed by fire, the price of a new sofa of the same type is $1,500.
The actual cash value of the property is not $1,000 (the price originally
paid) or $1,000 (the cost to replace with a new sofa). The company is
liable only for an amount sufficient to replace a sofa of this kind in the
condition it stood at the time of the loss-a $1,500 sofa 10 years old.
While the cost to repair or replace with other of like kind and quality is
central to the settlement of most losses, other factors may modify this
element. Thus, in an increasing number of recent cases, it has been held
that market value may substantially reduce the collectible loss, as in the
fires or other insured damage to real property in severely depressed
neighborhoods.
2. The cost to repair or replace the property with material of like kind and
quality within a reasonable time after the loss. In the event that the
repaired item of property is worth less than the original property which
was damaged or destroyed, the company will pay for the reduction in the
value of the repaired or replaced property. The company may pay the
actual cash value of the property or the cost to repair or replace. While
these amounts are generally the same, the company may pay either sum
in cases where there is a difference.
3. The company may elect to repair or rebuild or replace the property
destroyed or damaged instead of paying for the loss in dollars.
4. The company may take all of the property at the agreed or appraised
value.
The company has the choice of indemnifying the insured for the loss in
anyone of the four ways discussed above. In no event, however, is the
company liable for more than the interest of the insured in the damaged
or destroyed property.
Broad Evidence Rule - In most losses, the measures enumerated above
will prove adequate as means to produce an equitable settlement. For
the most part, the various factors will yield an essentially similar result.
However, there are loss situations where still other factors need to be
taken into account in measuring the extent of the loss; and the settlement
will differ from one which would be arrived at if the several elements of
actual cash value cited above were used in establishing the loss. Thus, if
a building in a severely depressed neighborhood were damaged, the
actual cash value might prove to be considerably less than the cost to
repair or replace.
Over the years, in numerous cases, other elements were reflected in the
settlement process. Among these are:
- market value based on capitalization of income;
- prior sales price of the property, if a bona fide, arm's-length
contract existed at the time of the sale; - or there was in existence prior to the loss, a contract to sell the
property; - the property valuation assessed for real estate tax purposes,
present use of the property and its profitability; - present aspects of the neighborhood renewal plans;
- plans for new roadways, etc.
Notice of Method of Settlement - Within 30 days of receipt by the
company of a sworn statement of loss from its insured, the company
must notify the insured of its intention relative to the loss, i.e., on which
basis it intends to settle the loss.
No Abandonment Clause - Although the company may elect to take all of
the damaged property after a loss and pay the full value, the insured
does not have the option of turning the salvage over to the company and
insisting upon payment in full. The option to take all of the property is
available only to the company.
EXAMPLE: The insured carries insurance on stock of $100,000, which is
damaged in a fire. The salvage value of the stock after the loss is $35,000.
The company can pay the insured $65,000, or it can take all of the
damaged property and pay $100,000. On the other hand, the insured
cannot turn over the salvage property to the company and demand
payment of $100,000.
Appraisal - If the insured and the company fail to agree as to the amount
of the loss or the actual cash value, the question may be resolved
through special appraisal procedures provided for in the policy-commonly
known as binding arbitration.
Either party may demand that the differences be submitted to appraisal.
Demand must be made in writing. Each party must notify the other of the
appraiser he selects.
The appraisers must agree on a disinterested umpire. If they cannot
agree, either the insured or the company may ask a judge of a court of
record to appoint an umpire. If the appraisers fail to agree on the value of
an item of property or the extent of the loss or damage to the item, they
submit their differences to the umpire. An agreement by any two of the
three parties is binding as to the amount.
Each party pays the appraiser it has chosen, and both parties share the
expenses of the appraisal and the umpire.
NOTE: By submitting to the appraisal machinery, the company does not
relinquish its rights, including its right to deny the claim.
Recovered Property - The policy requires that if either the insured or the
company recovers any property on which a loss has been paid to the
insured, the party making recovery must notify the other promptly. The
insured then has the option of keeping the property, if the insured has
recovered it, or of receiving the property from the company, if the latter
has made the recovery. If the insured elects either to retain or to receive
return of the property from the company, as the case may be, the
insured must return to the company the amount received for the property
upon settlement of the loss. The company will pay, up to the policy limits,
the expenses involved in the recovering or repairing of the property. Note
that the insured has the option of taking or keeping the recovered
property; the company must accept the insured's decision in the matter.
Deductibles - The Commercial Property policy is written with a $500
deductible applicable to each loss (not to each item). For an additional
premium, it is possible to decrease the deductible to $250; a reduced
premium is offered for increasing the deductible above the basic $500.
Higher deductibles, up to $25,000, are available.
NOTE: If a deductible is included in a policy which contains a coinsurance
clause (discussed in the section immediately below), it is applied after
application of the coinsurance provision.
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MY Insurance Agency
The materials on this page is meant to be
informative in nature. Due to the ever
changing and varying state laws, and the fact
some insurers offer coverage in slightly
different forms from the Insurance Services
Office (ISO) standard forms, we cannot
guarantee the accuracy of the materials on
this page.
informative in nature. Due to the ever
changing and varying state laws, and the fact
some insurers offer coverage in slightly
different forms from the Insurance Services
Office (ISO) standard forms, we cannot
guarantee the accuracy of the materials on
this page.