Commercial Property and Liability Insurance Law

Commercial property insurance provides insurance protection for:

  • Commercial Property
  • Inland Marine
  • Boiler and Machinery
  • Crime

Commercial property consists of coverage for buildings, business personal property, and the personal property of others. Insurance coverage for buildings includes permanently installed fixtures, machinery, and equipment within the building. Business personal property includes furniture, fixtures, machinery, and equipment that has not been installed. Coverage for personal property of others provides protection for property in the policyholder’s care, custody, and control.

Inland marine primarily provides coverage for the policyholder’s business property while in transit, including damage to property of others in the policyholder’s care, custody, or control during transport. Notably, inland marine coverage does not cover boating transportation but does apply to a variety of transportation exposures.

Boiler and machinery coverage covers business property and other losses, including any legal fees, resulting from the malfunction of boilers and machinery.

Crime insurance protects business assets including merchandise for sale, real property, money and securities.  It provides coverage (depending on what is purchased) for losses caused by robbery, burglary, larceny, forgery, and embezzlement.

A covered “cause of loss” means that the damage or destruction of the subject property at issue resulted from one of the causes listed in the policy. Commercial property insurance policies typically identify either “open perils” or “specified perils.” Specified perils are listed in the policy such as fire, explosion, windstorm, etc. In contrast, in a policy identifying open perils, all causes of loss are in a sense a “covered cause” unless the policy specifically excludes a particular cause.

Most commercial property policies employ the valuation method is Actual Cash Value (ACV) and is typically considered to be Fair Market Value in California. An agreed value method of property valuation waives any coinsurance penalty and pays 100% of the stated amount (agreed upon amount) for any covered loss. A replacement cost method of valuation covers the amount it takes to replace your property with new property of like kind and quality up to the limits of insurance.

Commercial general liability coverage typically provides insurance protection for three types of risks:

  • Coverage A – Bodily Injury and Property Damage Liability
  • Coverage B – Personal and Advertising Injury
  • Coverage C – Medical Payments

Coverage A provides liability coverage for bodily injury and property damage sustained by a third party during the policy period caused by an “occurrence,” i.e., an accident, that is attributable to the policyholder or other qualifying insured. Coverage A generally provides coverage for premises liability, products liability, and completed operations. Coverage A’s insuring agreement is broad but is subject to many specific exclusions (e.g., intentionally caused injuries, workers compensations liability, pollution damage).

Coverage B provides liability coverage for “personal and advertising injury,” a phrase that is specifically defined to include various torts including:

  • Libel and Slander
  • Malicious Prosecution
  • False Imprisonment
  • Invasion of Privacy
  • Trespass
  • Wrongful Eviction

Coverage A and Coverage B provide two important benefits: defense and indemnity benefits. The defense benefit consists of the insurance company’s duty to furnish the policyholder with a competent attorney to defend a lawsuit that seeks damages, in whole or part, that are potentially within the scope of coverage. The indemnity benefits consists of the insurance company’s duty to pay any judgment entered against the policyholder for damages within the scope of coverage under either Coverage A or Coverage B.

Coverage C provides reimbursement coverage to a third party, without regard to the policyholder’s liability, for medical or funeral expenses incurred by a third persons as a result of bodily injury or death resulting from an accident.

A part of the loss, i.e., a specific dollar amount, that the policyholder is contractually obligated to pay up-front before the insurance company pays a claim.

A dollar amount that the policyholder must pay before the insurance policy will respond to a loss. A self-insured retention (SIR) is not the same as a deductible. Under an SIR, the policyholder “retains” a specific dollar amount of the risk. It is helpful to think of an SIR as a primary policy in which the policyholder has agreed to pay certain claims or claim related expenses for its insurance company’s policy must respond.

Cancellation and nonrenewals of insurance policies are regulated by statute. Most insurance policies also contain provisions relating to cancellation and nonrenewal; however, any procedures set forth in the policy that make it easier for an insurance company to cancel or nonrenew are generally unenforceable to the extent they deviate from statutorily proscribed procedures.

Commercial property and liability insurance is intended to protect certain risks associated with operating a business including the risks of damage to buildings, furnishings, and personal business property. It is also intended to provide business, small and large, with protection from liability to third parties.