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3. CP-12-11

Form CP 12 11: Vacancy Permit

The CP 12 11 Vacancy Permit is an endorsement to the standard Commercial Property policy (like the CP 00 10 Building and Personal Property Coverage Form) that modifies the policy's vacancy condition. Standard commercial property policies often limit or exclude coverage for buildings that have been vacant for a specified period, typically 60 consecutive days. This permit allows the policyholder to maintain coverage, sometimes with certain restrictions, beyond that standard period. Essentially, it acknowledges the increased risk associated with a vacant property and provides a way to continue insuring it under agreed-upon terms.

Classes of Business It Applies To

This endorsement is relevant across a wide range of commercial enterprises that might experience periods of vacancy. It's not limited to specific industries but rather to situations where a building might be temporarily unoccupied. Real-world examples include:

• Businesses undergoing renovation or relocation: A retail store moving to a new location might leave its old premises vacant for several months. A manufacturing plant shutting down for a major retooling could also require a vacancy permit.
• Seasonal businesses: Resorts, amusement parks, or certain agricultural operations may be vacant during their off-season.
• Properties for sale or lease: A commercial building owner actively trying to sell or lease a property might need this permit if the property remains empty for an extended period.
• Bank-owned properties (REO): Financial institutions that have foreclosed on commercial properties often find themselves holding vacant buildings.
• Shell buildings or newly constructed properties awaiting tenants: Developers who have completed a building but not yet secured tenants would need to address the vacancy condition.

Special Considerations

There are several important factors to consider when using the CP 12 11:

• Defined Period: The permit is typically granted for a specific period, which should be clearly stated in the endorsement or declarations.
• Coverage Modifications: The permit might stipulate that certain perils, like vandalism or sprinkler leakage, are excluded or have reduced coverage during the vacancy, unless specifically bought back for an additional premium. The standard vacancy condition in the CP 00 10, for example, excludes losses from vandalism, sprinkler leakage (unless protected from freezing), building glass breakage, water damage, theft, or attempted theft if the building is vacant for more than 60 days, and reduces payment for other covered losses by 15%. The Vacancy Permit can modify these terms.
• Premium Adjustment: Insurers usually charge an additional premium for a Vacancy Permit due to the increased risk of loss associated with vacant properties (e.g., undetected fires, vandalism, water damage).
• Insured's Obligations: The insured may be required to take certain risk mitigation measures, such as maintaining security systems, winterizing plumbing, or conducting regular inspections.
• Definition of "Vacant": It's crucial to understand the policy's definition of "vacant." For a building owner, the ISO CP 00 10 defines a building as vacant unless at least 31% of its total square footage is rented and used by a lessee or sub-lessee to conduct customary operations, or used by the building owner to conduct customary operations. For a tenant, the unit is vacant when it doesn't contain enough business personal property to conduct customary operations. The CP 04 60 Vacancy Changes endorsement can modify this percentage.
• Permit vs. Unoccupancy: It's important to distinguish between "vacant" and "unoccupied." "Unoccupied" generally means the premises are temporarily empty but still contain personal property and are intended for return to use, while "vacant" implies a more complete emptiness or lack of customary operations. The CP 12 11 specifically addresses vacancy.

Real-world example: A restaurant owner closes for a 3-month extensive renovation. After 60 days, their standard property coverage for certain perils would cease or be reduced. By obtaining a CP 12 11, they can maintain coverage, likely with an additional premium and potentially with an agreement to exclude vandalism unless specific security measures are in place.

Key Information for Agents and Underwriters

Agents and underwriters should pay close attention to the following when dealing with the CP 12 11:

• Risk Assessment: The underwriter must carefully assess the increased hazards of vacancy. Factors include the reason for vacancy, duration, location of the property (e.g., high-crime area), security measures in place (alarms, patrols, fencing), condition of the property, and plans for re-occupancy.
• Pricing: The premium for the permit should reflect the increased risk. Underwriters will consider the factors above in determining the appropriate surcharge.
• Coverage Gaps: Agents should clearly explain to the insured any coverage limitations or exclusions that apply under the permit (e.g., specific perils like vandalism might be excluded or sub-limited). It's crucial to ensure the insured understands what is and isn't covered.
• Underwriting Guidelines: Insurers will have specific underwriting guidelines for vacancy permits, which may include maximum permissible vacancy periods, required protective safeguards (like those addressed in CP 04 11 Protective Safeguards or CP 12 11 Burglary and Robbery Protective Safeguards for theft), and unacceptable risk characteristics.
• Documentation: The permit period, any specific conditions, and perils being modified should be clearly documented in the endorsement and communicated to the insured.
• Alternatives: In some situations, if a property is undergoing significant construction or renovation, a Builders Risk policy (like CP 00 20) might be more appropriate than a standard property policy with a vacancy permit. However, buildings under renovation are generally not considered vacant under the standard CP 00 10 vacancy condition.

Practical Insight: An underwriter reviewing an application for a CP 12 11 for a large, isolated warehouse that will be vacant for six months during a slow sales period would likely require evidence of functioning central station alarms, regular documented inspections by the insured, and possibly a higher deductible for perils like theft or vandalism, in addition to a significant premium surcharge.