05/17/24

Are You Fully Protected? Review Additional Commercial Property Coverages

Commercial property insurance provides much-needed financial protection if an organization’s property is directly damaged or destroyed by a covered peril (e.g., fire, theft, vandalism, wind and lightning). Specifically, this coverage can help reimburse property repair or replacement expenses in the event of a covered loss. When securing commercial property insurance, organizations may utilize the building and personal property coverage form, also known as the BPP. This form, which was established by the Insurance Services Office Inc., is one of the most commonly used coverage forms for insuring commercial property.

The primary insurance agreement provided within the BPP states that the insurance carrier will cover losses stemming from direct physical damage to the policyholder’s commercial property (e.g., buildings, structures, machinery, equipment, inventory, furniture and office supplies) as long as the damage resulted from a covered peril, took place at an insured location and impacted covered property. Further, this form includes some additional coverages and extensions.

With this in mind, it’s crucial for organizations using the BPP to review and consider its various additional coverages and extensions, therefore ensuring their commercial property insurance addresses their unique exposures. This article provides an overview of such coverage options.

Additional Coverages
The additional coverages included in the BPP offer financial protection for other expenses that an organization may incur from commercial property losses.

Here’s an outline of these six additional coverages:

Debris removal—When covered perils cause damage or destruction to an organization’s property, these events often leave behind significant debris that must be cleared before any repairs or other recovery processes can take place. Fortunately, this additional coverage can help pay the cost of removing such debris. For example, if a tree fell through the roof of an organization’s building amid a windstorm, this coverage may reimburse the expense of hiring a qualified professional to remove the tree from the premises, thus allowing roof repairs to begin.
Preservation of property—In some cases, an organization could discover that its property has the potential to be threatened by a covered peril. As a result, the organization may decide to temporarily relocate some of its movable property, such as essential stock and equipment, to another location to avoid compounded losses. This additional coverage can offer financial protection for direct physical damage to the relocated property (both when it’s being moved and while it’s in storage) for up to 30 days.
Fire department service charge—Sometimes, a fire department may require a service charge for controlling or extinguishing a fire at an organization’s premises, leaving the organization with extra expenses amid fire-related property losses. This additional coverage can help pay for the service charge in these instances.
Pollutant cleanup and removal—Some property damage may result in polluted land or water at an organization’s premises. When such losses occur, this additional coverage can help reimburse the expense of hiring a qualified professional to extract the pollutants from the affected land or water as long as the release, discharge, dispersal, seepage, migration or escape of the pollutants stemmed from a covered peril and took place during the organization’s commercial property policy period.
Increased cost of construction—When repairing or replacing property impacted by a covered peril, an organization must comply with applicable building codes, which refer to standards established by state and local officials regarding the safe construction of buildings and other structures. If such compliance increases the cost of property repairs and replacements, this additional coverage can help pay for the extra construction expenses.
Electronic data—When covered perils damage an organization’s machinery, namely those within its IT infrastructure (e.g., computers), they can destroy or corrupt any electronic data stored on such machinery and exacerbate associated losses. In these cases, this additional coverage can help reimburse the cost of restoring or replacing the affected data. Organizations should keep in mind that this coverage is subject to a low annual aggregate limit and is not a replacement for specialized coverage or cyber insurance.

It’s worth noting that the additional coverages included in the BPP come with specific limitations and may not be able to fully reimburse certain property losses. In particular, some coverages are limited to a set dollar amount per loss, and others are restricted to a set percentage or portion of the coverage limit listed on the declarations page of an organization’s commercial property policy. As such, organizations should be aware of these limitations to better understand their overall coverage capabilities.

Coverage Extensions
The coverage extensions available in the BPP increase the scope of commercial property that’s already covered under the form. Here’s a breakdown of these seven extensions:

Newly acquired or constructed property—This coverage extension provides financial protection for an organization’s newly acquired or constructed property for a maximum of 30 days. After 30 days have passed, the organization must report this property to its insurance carrier and have its premium adjusted to continue receiving coverage.
Personal effects and the property of others—With this coverage extension, an organization can expand its financial protection for building contents and other business-related items, also known as business personal property, to include personal effects and the property of others. Personal effects pertain to personal property owned by the policyholder, their management or their employees, whereas the property of others refers to property that belongs to another party but is currently in the policyholder’s care, custody or control.
Valuable papers and records—This coverage extension provides financial protection for an organization’s valuable papers and records. However, this extension does not apply to electronic data.
Property located off-premises—While the BPP primarily applies to commercial property that’s operated or stored at an insured location, this coverage extension offers financial protection for property (other than inventory or stock) housed off-premises, namely at locations that aren’t owned or leased by the policyholder. Nonetheless, this extension does not apply to property located in a vehicle or in the care of a salesperson unless this individual is using the property at a fair, tradeshow or exhibition.
Outdoor property—This coverage extension provides financial protection for an organization’s outdoor property, such as fences, satellite dishes, radio or television antennas, trees and other plants. Yet, the covered perils for this extension are limited to fires, lightning, aircraft incidents, explosions, riots and instances of civil commotion.
Non-owned detached trailers—With this coverage extension, an organization can secure financial protection for a trailer that it doesn’t own but utilizes in the course of its business operations. To qualify for coverage, the trailer must be currently in the policyholder’s care, custody or control, and the policyholder must have a contractual responsibility to pay for damage to such property. It should be noted that this coverage does not apply while the non-owned trailer is attached to a motor vehicle or motorized conveyance or during hitching or unhitching operations.
Business personal property temporarily in portable storage units—This coverage extension offers financial protection for business personal property being housed in portable storage units for up to 90 days, as long as these storage units are located within 100 feet of a building or structure described in the organization’s commercial property policy.

Similar to additional coverages, the coverage extensions included in the BPP come with limitations that may reduce total payouts amid commercial property claims. Specifically, most of these extensions are limited to a set dollar amount per loss or type of property. Furthermore, the BPP’s coverage extensions only apply if the declarations page of an organization’s commercial property policy lists a coinsurance clause of at least 80% or displays a value reporting symbol.

Conclusion
The BPP is a useful form that can assist many organizations in securing adequate commercial property insurance. By reviewing this form’s protection and considering its additional coverages and extensions, organizations can tailor their commercial property policies to their particular needs.