Dr. T's Nature Company ran out of room at its two leased buildings. Its landlord offered it the temporary use of a nearby warehouse and even agreed to not charge for the temporary use. Unfortunately, a fire occurred while Dr. T's property was at that warehouse. When Dr. T's turned in a claim for $100,000, its carrier denied coverage because the property was stored off premises. Dr. T's argued that it was at a newly acquired property. When they couldn't agree, the case went to court.

Click here to see how the court ruled.

The CP 00 10-Building and Personal Property Coverage Form limits coverage for building and business personal property to the premises that is listed on the declarations and for which a limit of insurance is provided. Under the Extensions of Coverage, however, this is changed. One extension provides up $100,000 coverage for business personal property at a newly acquired property but only for up to 90 days. Another extension provides up $10,000 in coverage for property when off premises. This extension applies until the expiration date of the policy. Neither extension specifically states whether or not the coverage applies to temporary storage situations.

Click here to read the PF&M analysis of the initial description of the coverage provided by CP 00 10 and the two different coverage extensions the pertain to this court case.

The CP 00 10-Building and Personal Property Coverage Form is very specific as to what items are building and what items are business personal property. Items that are considered building are often charged a much lower rate than items that are considered business personal property. Assigning the values appropriately can often result in a lowering of the premium because of a client placing more in business personal property than it should.

Click here to review a property inventory that is part of the Producer's Commercial Lines Risk Evaluation System.

Because the property insurance premium is based on property values, clients may tend to undervalue those values to lower premiums. However, when a loss occurs those same clients want the full value to be covered and are disappointed to discover that not only is the loss not fully paid because limits were too low but also that a coinsurance penalty may be imposed.

A letter or email to a client or prospect offering to review values, especially if using the property inventory described above, could encourage the client to select limits that are line with loss payment expectations.

Click here for wording you could use in a letter or email to open up this important discussion.