Top 5 Property Sublimits You Should Be Thinking About
Commercial Property Insurance is among the most complex insurance that any organization will purchase within their commercial insurance program. Not only does the coverage require self reporting of replacement cost of assets owned by the entity, it also contains many specific coverage sublimits within the policy. These sublimits are meant to grant coverage for specific exposures that are traditionally excluded within the policy and therefore added back on a limited coverage basis limited to the sublimit. These coverages traditionally come with a “base” amount of coverage that is automatically included within the policy with the option to increase the coverage limit subject to additional underwriting and additional premium charges. It should be noted that each carrier treats these sublimits differently both in terms of how they define the coverage as well as how much limit they are willing to deploy. While not an exhaustive list, below are some key sublimits that should be considered based on the needs of your organization as well as examples of how the coverage is triggered:
Ordinance & Law
Provides additional coverage over and above the stated building limit of coverage to rebuild a building and bring it up to local building codes, ordinances, or laws if it is damaged or destroyed by a covered cause of loss. It is divided into three main components:
Coverage A: Provides coverage for the undamaged portion of a building in the event of a loss. For example, if a fire damages half of a building, and subsequently, half of the roof, and an entire roof is going to be replaced upon restoration, coverage A will provide coverage for the over half of the room subject to available limit.
Coverage B: Provides coverage for Building Demolition. Like Coverage A, when there is a partial loss to a building but a building inspector or fire department requires the demolition of the remaining undamaged parts of the building, coverage B will provide coverage for this increased cost.
Coverage C: As the name of the coverage suggests, Coverage C provides for increased costs of repair that are present when rebuilding a building and bringing it up to modern day codes. This coverage is especially critical when insuring older buildings where they may be grandfathered in for things like a lack of sprinkler system, ADA concerns, or other code violations.
Best case scenario is to negotiate to have all three coverages sections included within the building or blanket limits.
Personal Property in Transit
Broad coverage for assets owned by the insured while it is in transit. Coverage is extended to both transit by owned vehicles or that performed by a third party on behalf of the insured. Coverage does not extend to transit of non owned property that is not owned by the insured. For those that ship large quantities or high value shipments, even with a third party, should review the largest potential loss and ensure that they are not paying a third party logistic provider for “insurance” provided in their shipping cost which is often a profit center for logistics providers.
Coverage is typically automatically included with a minimum of $50,000 limit, however, this coverage can be easily negotiated up to $250,000 for little to no premium.
Contingent Business Income
Contingent business interruption/income insurance mimics the type of business income that an organization purchases for net income replacement for a loss at a covered facility, but extends that to a third party for which the organization has a reliance on. In today’s complex supply chains it is not uncommon for specific suppliers or specific customers to represent critical aspects of a successful business. A specific supplier that operates a single location that provide a key part to your business could suffer a fire thereby limiting their ability to provides a specific part. As a result it could have an interruption impact on your operations and subsequently reduce the potential for income. Likewise, if your orgnaization has a key customer that represents a large portion of sales that sufferers a loss at their facility and therefore cannot receive your product and reduces the ability to make sales. In all of these scenario’s, and provided that the loss at the third party was a traditional covered loss, contingent business income can provide net income restoration to your company as well as extra expense coverage.
Coverage is typically provided at a low sublimit, around $100,000. Ability to negotiate limits up to $1,000,000 are generally available. Limits above $1,000,000 will typically require underwriting, including an inspection of the third party facility and increased premium.
Utility Services Interruption
Utility Services Interruption coverage is divided into two types, direct damage and time element. The premise of this enhancement is to extend coverage for direct damage to a covered location and business income and extra expense to a covered location when there is a covered cause of loss that takes place at a utility provider. Each policy defines utility providers differently, but generally these will include providers of water, power, and communications. Direct Damage coverage is a less common claim unless you operate in a space where goods are perishable or require a certain maintainment of an environment, where a loss of power or other utility might result in the direct damage to inventory or raw materials being held. Time Element coverage, or Business Income, however can impact many businesses when they rely on consistent power sources to operate machinery or equipment in order to produce goods or services.
Coverage can be designed with separate limits for direct damage or time element or lump them together, be sure to check these within your specific policy. Also, many policies will exclude “overhead lines” coverage which extends coverage for not just damage to a facility but to an overhead line that results in a loss to your orgnaizaiton. This often needs to be negotiated at the front end of a policy renewal to be included.
