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Commercial property insurance

This article was last updated by the author in October 2016.

A brief introduction to commercial property insurance.

Contents

Overview

A property damage (also known as material damage and asset protection) policy indemnifies the insured in the event of damage to the physical or material assets of the business.

The main items insured are buildings, machinery and plant, stock and other contents. Separate sums insured apply to each of these items. For very large risks, insurers often cover the insurances of all property of each type at all locations, provided that the total value at any one location does not exceed a pre-agreed limit of liability.

A range of policies are available including:

  • fire and special perils
  • commercial all risks
  • theft
  • glass
  • money
  • goods in transit.

Each of these can be issued as a separate stand-alone policy, but can also be incorporated into a package or commercial combined policy.

Typical cover provided

Fire and special perils

It is relatively rare to find this type of cover as a separate policy, in view of the wider covers that are readily available

The standard fire policy covers damage to property caused by:

  • fire, excluding explosion resulting from fire; earthquake or subterranean (below ground) fire; its own spontaneous fermentation (ignition) or heating or its undergoing any heating process or any process involving the application of heat
  • lightning, and
  • explosion, restricted to explosion of boilers or gas used for domestic purposes only.

Commercial All Risks

A commercial all risks policy is an alternative and wider basis of cover to that provided by a fire and special perils policy. Cover is provided for accidental loss or destruction of or damage to the property insured. All types of loss or destruction of or damage to the property insured are covered, provided the cause is not specifically excluded from the policy.

Theft

A theft policy is primarily designed to covert the contents of the business premises. Damage to the buildings occurring during theft or attempted theft is also covered. Specific items and sums insured often apply to different types of stock depending upon its attractiveness to thieves.

The term 'theft' is defined in the Theft Act 1968, which states that a person is guilty of theft if they dishonestly appropriate property belonging to another with the intention of permanently depriving the other of it. This legal definition is, however, wider than that for which insurers are prepared to offer cover. Instead a theft policy will typically provide cover for theft involving entry to or exit from the premises by forcible and violent means. Cover also includes hold-up (theft accompanied by assault or violence, or the threat of it) irrespective of whether forcible entry takes place.

Cover also includes:

  • breakage of glass
  • replacement of locks following the theft of keys
  • temporary removal of items (other than stock) for cleaning or repair, but remaining in Great Britain and Northern Ireland

Cover is often arranged on a first loss basis.

Glass

Cover is provided for all forms of fixed glass (such as sheet, silvered, wired and ornamental lettered glass) in windows, doors, fanlights, showcases, mirrored glass and glazed partitions.

Cover is on an 'all risks' basis and includes the cost of boarding up damaged glass until it can be replaced. Damage to window frames is also covered.

Money

Money is defined in the policy and typically includes cash, bank and currency notes, cheques, postal and money orders, gift vouchers, postage stamps, national insurance cards and luncheon vouchers.

Cover is on an 'all risks' basis and includes damage to safes or strong rooms caused theft or attempted theft.

There are a number of different headings of cover, each of which has a separate policy limit:

  • in transit or being carried by the insured or their employees
  • on the insured's premises during business hours
  • in a bank night safe
  • in a locked safe or strongroom out of business hours
  • on the insured's premises, not in a safe, out of business hours
  • in the private residence of any principal or employee of the insured
  • in the custody of collectors or travellers while in transit
  • in the custody of a professional carrier or security company

Goods in Transit

Cover is provided for accidental damage to the insured's goods whilst in transit, either by own vehicles or by hauliers' vehicles, rail or post. A limit per vehicle or per consignment applies. There may also be a limit any one occurrence.

Optional extensions

Fire and special perils

A number of additional perils, known as special perils or specified contingencies, can be selected by the insured to be added to the basic cover. These are:

  • Explosion
  • Aircraft
  • Riot and civil commotion
  • Malicious damage
  • Earthquake
  • Subterranean fire
  • Spontaneous fermentation or heating
  • Storm
  • Flood
  • Escape of water
  • Impact
  • Sprinkler leakage
  • Subsidence, ground heave and landslip

Each peril is subject to individual limitations and exclusions.

Commercial All Risks

There are no optional extensions, as cover is automatically provided on an all risks basis.

Theft

A number of optional extensions to the cover provided under a theft policy are available:

  • Collusion. This involves plotting and agreement between thief and employee(s) on how to gain entrance and/or go quickly to the 'target' of the theft
  • Extended or full theft. This removes the requirement for there to be force and violence getting into or out of the premises
  • Robbery and aggravated burglary. Robbery involves the use of force, or the fear of force, against the person. Aggravated burglary involves the possession or use of firearms (or imitations) or explosives.

Glass

The following optional extensions to a glass policy are available:

  • damage to shop front contents as a result of broken glazing
  • damage to washbasins and sanitary fittings in hairdressing salons

Money

Typical extensions to a money policy are:

  • Personal accident assault. This extension provides monetary compensation to an employee who is the subject of robbery or attempted robbery whilst carrying money belonging to the insured. It also often includes cover for damage to items of clothing and personal effects
  • Credit cards. Cover is provided for the fraudulent use of a company credit card by an unauthorised person.

Goods in Transit

Cover under a goods in transit policy can be extended to include goods whilst at short term exhibitions.

Key exclusions

Fire and special perils

In addition to the exclusions which apply to the individual special perils, a number of standard market exclusions also apply to a fire and special perils policy:

  • riot or civil commotion (this exclusion may be removed on payment of an additional premium)
  • war risks
  • radioactive contamination/explosive nuclear assemblies
  • Northern Ireland excluded perils
  • terrorism (this exclusion may be removed on payment of an additional premium)
  • pollution or contamination
  • property insured under a marine policy
  • property more specifically insured
  • consequential losses

Commercial All Risks

There are a large number of exclusions, as there are many risks that insurers are unwilling to cover or are more appropriately insured under a separate, more specialist policy. They fall under one of four headings:

  • Absolute exclusions, including war, nuclear assemblies, terrorism, Northern Ireland risks, pollution or contamination, marine risks, specific insurance, consequential loss and certain 'trade' risks (such as faulty workmanship)
  • Exclusions which relate to an aspect of cover which can sometimes be included in the policy, but only with careful underwriting; such as corrosion, rust, change in temperature, wind or rain damage to moveable property in the open and malicious damage cover in respect of empty buildings
  • Exclusions which relate to an aspect of cover which can be written into the policy, including money, jewellery, glass, computers, goods in transit, theft, subsidence, ground heave and landslip
  • Exclusions which relate to property or risks which are more appropriate to another class of business and therefore cannot be covered; including motor vehicles, watercraft, aircraft, livestock and buildings in the course of erection

Theft

The main policy exclusions are:

  • standard market exclusions of war, radioactive contamination, etc
  • collusion, unless bought back
  • fire and explosion
  • cash and bank notes
  • livestock

Glass

The main exclusions to a glass policy are:

  • damage by fire, lightning and explosion
  • damage by scratching or chipping

Money

The main exclusions to a money policy are:

  • standard market exclusions of war, radioactive contamination, etc
  • loss due to an error or omission in accounting, counting or book-keeping
  • loss due to the dishonesty of an employee, not discovered within seven days
  • loss, destruction or damage arising outside Great Britain, Northern Ireland, the Isle of Man or the Channel Islands
  • loss resulting from the safe or strongroom being opened by a key or by using the combination to a safe where this has been left on the insured's premises while closed for business.

Goods in Transit

The main exclusions to a goods in transit policy are:

  • loss due to defective or inadequate packaging
  • shortage in weight
  • loss due to deterioration or variation in temperature
  • dangerous goods, money and target goods (unless agreed with insurers)
  • confiscation or requisition by any government or public authority
  • theft from unattended vehicles, unless agreed security is in place

Rating factors

The principal methods of rating for commercial property insurances are:

  • Fire and special perils. The premium is calculated by applying a rate to the various sums insured. The rate applied will reflect a variety of factors including the trade, the special perils insured, construction of the premises and heating, housekeeping and the presence of fire protection equipment.
  • Commercial all risks. The premium is calculated by applying a rate to the various sums insured. The rate applied will reflect a variety of factors including the trade , any exclusions bought back, construction of the premises and heating, and the size of any voluntary excess
  • Theft insurance. The premium is calculated by applying a rate to the various sums insured. The rate applied will reflect a variety of factors including the trade, postcode, construction of the premises and security.
  • Glass insurance. The premium can be calculated in a number of ways, including applying a rate to the buildings or contents sum insured, or to the specific measurements of the different types of glass.
  • Money insurance. The premium is calculated by applying a rate to the total amounts of money being carried in any one year. Policies are issued on an adjustable basis, requiring a declaration of actual carryings at the end of each period of insurance.
  • Goods in transit insurance. The premium may be calculated by applying a rate to the total value of goods in transit each year or to the maximum value of a load per vehicle, or as a flat premium per vehicle. Rates will reflect the conditions of carriage, the method of transport, and the types of goods carried.

Product providers

Most composite insurers, as well as a number of specialist insurers and Lloyd's syndicates, offer property damage cover.

Cover is often arranged through an insurance intermediary, although small businesses can purchase cover by telephone or on line as part of a commercial package policy. 

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