Commercial property insurance protects a business's buildings, contents and income. Unlike a homeowners policy it is modular: the insurer assembles declarations, conditions, a coverage form and a causes-of-loss form, and can combine that coverage part with others into a commercial package policy. Exams follow the ISO 2012 commercial property program: the Building and Personal Property Coverage Form (CP 00 10 10 12), the causes-of-loss forms (CP 10 10, 10 20, 10 30), the Business Income form (CP 00 30 10 12), the Commercial Property Conditions (CP 00 90) and the Common Policy Conditions (IL 00 17). State amendatory endorsements change some conditions, especially cancellation notice periods.

How the policy is assembled

A commercial property coverage part has: the common policy declarations, common policy conditions (IL 00 17), commercial property declarations, commercial property conditions (CP 00 90), one or more coverage forms (what property), one or more causes-of-loss forms (which perils), and endorsements. Joining two or more coverage parts (property, general liability, crime, inland marine, auto...) under common declarations and conditions creates a commercial package policy (CPP). Interline endorsements modify more than one coverage part.

IL 00 17 has six conditions: cancellation (insurer gives the first named insured at least 10 days' notice for nonpayment and 30 days for other reasons; the first named insured may cancel any time; insurer cancellation refunds pro rata, insured cancellation may be less), changes (the first named insured may make changes with the insurer's consent; changes are made only by endorsement), examination of books and records (during the policy and 3 years after), inspections and surveys (relate to insurability and premium; no warranty that the premises are safe), premiums (the first named insured pays and receives refunds) and transfer of rights and duties (only with written consent, except to the legal representative of a deceased individual named insured).

CP 00 90 adds: concealment, misrepresentation or fraud; control of property (a breach at one location does not void coverage at others); insurance under two or more coverages; legal action against us (within 2 years); liberalization; no benefit to bailee; other insurance (pro rata with insurance on the same basis, otherwise excess); policy period and coverage territory; and transfer of rights of recovery (subrogation).

Building and Personal Property Coverage Form (CP 00 10)

Covered property (each with its own limit in the declarations):

• Building: the building, completed additions, fixtures, permanently installed machinery and equipment, outdoor fixtures, personal property used to maintain or service the building, and materials for additions, alterations or repairs.
• Your Business Personal Property: furniture and fixtures, machinery and equipment, stock, other personal property used in the business, labor and materials on others' property, and the insured's use interest as a tenant in improvements and betterments. Covered in or on the building, or in the open or in a vehicle within 100 feet of the described premises.
• Personal Property of Others in the insured's care, custody or control.

Property not covered includes money and securities (crime insurance handles these), accounts and bills, land, water, growing crops and lawns, autos held for sale, and others. Liability is never covered; it belongs in a liability coverage part.

Additional coverages:

• Debris removal: within the limit, up to 25% of the paid direct loss plus the deductible, plus up to $25,000 more per location when the limit is used up.
• Preservation of property: any direct loss while property is moved to protect it, for up to 30 days.
• Fire department service charge: up to $1,000 per premises, no deductible.
• Pollutant clean-up and removal: up to $10,000 per premises per 12-month period, when a covered cause of loss is reported within 180 days.
• Increased cost of construction: the lesser of $10,000 or 5% of the building limit, only if the building is repaired or replaced.
• Electronic data: $2,500 per policy year.

Coverage extensions (only if the declarations show 80% or higher coinsurance or a value reporting symbol):

• Newly acquired or constructed property: up to $250,000 per building and $100,000 for business personal property at a new location, for up to 30 days.
• Personal effects and property of others: $2,500 per premises, not for theft.
• Valuable papers and records: $2,500 per premises.
• Property off-premises: $10,000.
• Outdoor property (fences, antennas, unattached signs, trees, shrubs, plants): $1,000 per occurrence, $250 per tree, shrub or plant, for fire, lightning, explosion, riot or civil commotion, and aircraft only.
• Non-owned detached trailers and business personal property temporarily in portable storage units are also extended.

Causes-of-loss forms

• Sinkhole collapse means sudden collapse into voids made by water acting on limestone or dolomite; it does not pay to fill sinkholes or cover collapse into man-made cavities such as mines.
• Exclusions in all forms include ordinance or law, earth movement, governmental action, nuclear hazard, utility services, war, water (flood, backup, underground water), and fungus. Earthquake can be added with the Earthquake and Volcanic Eruption endorsement (CP 10 40). The special form also excludes wear and tear, rust, smog, settling, inherent vice, mechanical breakdown, steam boiler explosion, dishonest acts of the insured or employees, voluntary parting with property by trick, and continuous or repeated seepage or leakage of water over 14 days or more.
• Special form theft limits per occurrence: $2,500 each for furs, jewelry and precious metals, and patterns, dies, molds and forms; $250 for stamps, tickets and lottery tickets.
• Collapse in the broad and special forms is an additional coverage for abrupt collapse from listed causes such as hidden decay, hidden insect damage or the weight of people or property.
• Limited fungus, wet rot, dry rot and bacteria coverage: $15,000 per 12-month period.
• Because mechanical breakdown and steam boiler explosion are excluded, businesses buy equipment breakdown coverage (EB 00 20, or the BOP's built-in coverage).

Loss conditions and additional conditions

• Valuation: actual cash value unless the Replacement Cost optional coverage applies. Exceptions: building repairs of $2,500 or less paid at replacement cost if coinsurance is met; stock sold but not delivered at selling price less discounts and unincurred expenses; glass at the cost of safety glazing if required by law; tenant improvements at ACV if repaired promptly, a proportion of original cost if not, nothing if others pay.
• Duties: notice, police report for crimes, protect property, inventory, sworn proof of loss within 60 days of the insurer's request.
• Loss payment: within 30 days after receiving the sworn proof of loss, once the amount is agreed or an appraisal award is made (the homeowners form uses 60 days).
• Appraisal, abandonment (not allowed), recovered property.
• Vacancy: for an owner, a building is vacant unless at least 31% of its square footage is rented and used or used by the owner for customary operations (for a tenant, when it lacks enough business personal property to operate). Buildings under construction or renovation are not vacant. After more than 60 consecutive days: no coverage for vandalism, sprinkler leakage (unless protected against freezing), building glass breakage, water damage, theft and attempted theft; other covered losses (fire, for example) are reduced by 15%.
• Coinsurance: (limit ÷ (value at time of loss × coinsurance %)) × loss, minus the deductible, never more than the limit. A $1,000,000 building with 80% coinsurance insured for $600,000 suffers a $200,000 loss: $600,000 ÷ $800,000 = 0.75, so $150,000 before the deductible.
• Mortgageholders: paid as interests appear; protected despite the insured's acts if they pay premium due, file proof of loss within 60 days of notice and report changes in risk; 10 days' notice of cancellation for nonpayment, 30 days for other reasons, 10 days for nonrenewal.

Optional coverages

• Agreed Value: suspends coinsurance for the period shown.
• Inflation Guard: raises the limit by an annual percentage, prorated for the time elapsed.
• Replacement Cost: no deduction for depreciation; paid only after actual repair or replacement; the insured may take ACV first and claim the difference within 180 days. Not available for property of others, contents of a residence, works of art and antiques, or stock unless "including stock" is shown.
• Extension of Replacement Cost to Personal Property of Others.

Business Income (and Extra Expense) Coverage Form (CP 00 30)

• Business income = net income plus continuing normal operating expenses, including payroll, that would have been earned during the period of restoration.
• Extra expense = added costs to avoid or minimize the suspension of operations, such as moving to a temporary location.
• The period of restoration for business income begins 72 hours after the direct physical loss; for extra expense it begins immediately. It ends when the property should be repaired with reasonable speed or business resumes at a new location.
• Civil authority: when authorities bar access because of damage to property within 1 mile; begins 72 hours after the order, lasts up to 4 consecutive weeks (extra expense ends the same way).
• Extended business income: keeps paying for up to 60 consecutive days after operations resume while income recovers; the Extended Period of Indemnity option lengthens it.
• Coinsurance compares the limit to net income and operating expenses for the 12 months after inception or the last anniversary, times the coinsurance percentage.
• Options that replace coinsurance: Maximum Period of Indemnity (pays only for the first 120 days), Monthly Limit of Indemnity (a fraction of the limit, such as one third or one fourth, per 30 days), and Business Income Agreed Value.
• Dependent properties coverage pays when a covered loss at a key supplier or customer interrupts the insured's business.

Other commercial property forms and endorsements

• Builders Risk (CP 00 20): a building under construction, materials within 100 feet, and temporary structures such as scaffolding if not otherwise insured. Underinsurance is measured against the value on the date of completion (Need for Adequate Insurance): a $300,000 limit on a building worth $400,000 when complete pays 0.75 × a $40,000 loss − $1,000 deductible = $29,000. Coverage ends at the earliest of expiration, acceptance by a purchaser, 60 days after the building is occupied or put to use, and 90 days after construction is complete, among other events.
• Condominium Association (CP 00 17) and Condominium Commercial Unit-Owners (CP 00 18).
• Legal Liability (CP 00 40): pays and defends only when the insured is legally liable for damage to others' property in its care, unlike the BPP's personal property of others coverage.
• Ordinance or Law (CP 04 05): Coverage A loss to the undamaged portion, Coverage B demolition cost, Coverage C increased cost of construction; nothing for upgrades the insured was already required to make before the loss.
• Functional Building Valuation (CP 04 38): repairs with less costly, functionally equivalent materials; coinsurance does not apply.
• Spoilage (CP 04 40): perishable stock spoiled by power outage, refrigeration breakdown or contamination; suspended at a location if the insured drops a required refrigeration maintenance agreement without telling the insurer.
• Peak Season Limit (CP 12 30): adds a scheduled amount to the personal property limit only during listed periods.
• Value Reporting Form (CP 13 10): premium and coverage follow periodic reports of fluctuating values, with penalties for under-reporting.
• Leasehold interest protects the value of a favorable lease canceled because of a covered loss. Brands and labels pays to remove labels from salvaged stock.
• Farm coverage forms insure farm dwellings, farm personal property, barns and outbuildings, livestock and mobile agricultural machinery.

Common traps

• The coverage form says what is covered; the causes-of-loss form says which perils.
• Business income waits 72 hours; extra expense does not.
• Coverage extensions need 80% coinsurance or more.
• Vacancy: six perils dropped, everything else cut 15%, after more than 60 days.
• Builders risk underinsurance uses the completed value, not the value at the time of loss.
• Money and securities are not BPP property; tenant improvements are the tenant's business personal property.