Property Coverage Mistakes

Brokers strive to do a great job for their clients, but sometimes they overlook certain coverages. This could lead to a “failure to recommend” claim, and increased liability for the agent or broker in case of a loss.

During a webinar for independent agents’ associations, education consultant Jerry Milton, CIC, detailed five property coverages that brokers may overlook for property-owning clients:

Mistake 1: Failing to adequately cover improvements and betterments, for tenants.

Milton explains that improvements and betterments, although made at the tenant’s expense, become part of the building. The improvements are included in the definition of “building” in the owner’s Commercial Property policy and also are included in the definition of “business personal property” in the tenant’s policy.

Who insures? Because the improvements usually are attached to the property and increase the value of the building, Milton recommends that the owner increase its insurance to cover any such improvements.

Mistake 2: Failing to advise the insured about the occupancy and vacancy issues with builder’s risk policies.

“Occupancy in whole or in part voids the policy,” Milton says—but building owners don’t like vacant buildings. Carriers may give the insured permission to occupy parts of the building as construction is completed, moving in floor by floor, with an endorsement and an additional premium. But this approval is usually only good for 90 days, and may need to be renewed as construction is completed.

A related issue is the question of vacancy. If the building is less than 31 percent occupied for customary operations, it’s considered vacant, Milton explains. In the current economic times, tenants may move out leaving a building less than 31 percent occupied, but still partially rented. The broker renews the policy without knowing whether the building is fully occupied or not. However, if the building is considered vacant for more than 60 days, the owner will lose coverage. In that case, the policy may not pay for any loss caused by vandalism or sprinkler leakage, for example, and other covered losses are reduced by 15 percent.

Mistake 3: Failing to insure to 100 percent value and request agreed value.

A building worth $1 million could be subject to coinsurance of 80 percent, for example, leading to a limit of $800,000. What happens at the time of loss if the building has an actual value of $1.2 million because of improvements and additions? The building owner is out $200,000.

Milton’s advice, “Always push for 100 percent value and request agreed value, which will suspend the coinsurance.”

Mistake 4: Allowing a tenant to insure a building.

If the tenant is the named insured and the building owner is added as an additional insured, Milton says, the owner could be excluded for any loss if the tenant, its partners, members, officers or managers commits a dishonest act, such as arson. Such acts could leave the building owner with no coverage.

It’s much better, Milton says, for the building owner to carry the insurance and build it into the tenant’s rent.

Mistake 5: Failing to recommend building-glass coverage.

Generally, a tenant is responsible for any building glass breakage, Milton points out, but the tenant’s Commercial Property policy covering business property doesn’t include building items, like glass. Even though the owner insures the building, it’s important for the agent to recommend a building glass endorsement to the tenant’s policy.

This article originally appeared in National Underwriter Property & Casualty.

Mark Dolaghan is a commercial account executive at Professional Insurance Associates, Inc., which offers personal insurance, commercial insurance, bonds and other financial services. For more information or a quick free quote, you can call (201) 438-7500 or visit

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