What Does Commercial Property Insurance Not Cover?

London House Insurance

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Introduction

Commercial property insurance is an essential safeguard for business owners, protecting them from potential losses due to damage or destruction of their physical assets. However, it is equally important to understand what this type of insurance does not cover to ensure that businesses are adequately prepared for all potential risks.

Definition of Commercial Property Insurance

What is Commercial Property Insurance?

Commercial property insurance provides coverage for the physical assets of a business, including the building, equipment, inventory, and furniture, against risks such as fire, theft, and natural disasters.

Importance of Understanding Exclusions

Knowing what is not covered by commercial property insurance is essential for businesses to manage risk effectively and to consider supplementary insurance options if necessary.

Types of Commercial Property Insurance

Basic Form Policy

This type of policy covers only specific risks explicitly mentioned, such as fire and theft.

Broad Form Policy

Offers more extensive coverage than the basic form, including additional risks like water damage.

Special Form Policy

This is the most comprehensive policy, covering all risks except those specifically excluded.

Common Exclusions in Commercial Property Insurance

Wear and Tear

Insurance policies typically do not cover damage resulting from normal wear and tear or gradual deterioration of property.

Floods and Earthquakes

Standard commercial property insurance policies usually exclude damage caused by natural disasters like floods and earthquakes. Separate policies are required for such events.

War and Terrorism

Damage due to war or terrorist activities is generally excluded from commercial property insurance.

Acts of God

Unpredictable natural events that cannot be prevented or controlled, such as lightning strikes or volcanic eruptions, are often not covered.

Employee Theft

Theft committed by employees is usually not covered under standard commercial property insurance policies.

Cyber Attacks

Losses due to cyber attacks and data breaches are not typically included in commercial property insurance.

Mould and Fungi

Damage from mould, fungi, or bacteria is often excluded unless it results from a covered peril.

Governmental Action

Losses caused by the actions of the government, such as the seizure of property, are not covered.

Pollution

Damage caused by pollution or contamination is typically excluded unless it results from a covered peril.

Ordinance or Law

Upgrades required by changes in local building codes or laws are generally not covered.

Detailed Explanations of Exclusions

Wear and Tear

Definition and Examples

Wear and tear refer to the inevitable deterioration of property over time due to regular use. Examples include fading paint, worn-out carpeting, and rusting metal.

Why It’s Not Covered

Insurance is designed to cover unexpected and sudden losses, not the predictable ageing of property.

Floods and Earthquakes

Definition and Examples

Floods involve water inundation, while earthquakes involve the shaking of the ground. Both can cause extensive property damage.

Separate Policies Required

Businesses located in high-risk areas should consider purchasing separate flood and earthquake insurance policies.

War and Terrorism

Definition and Examples

War involves conflict between nations, while terrorism involves acts intended to cause fear and damage. Examples include bombings and armed conflicts.

Specialised Coverage

Businesses concerned about these risks can purchase war and terrorism insurance.

Acts of God

Definition and Examples

Acts of God are extreme natural events like hurricanes, tornadoes, and tsunamis.

Policy Limitations

These events are excluded due to their unpredictability and the potential for extensive damage.

Employee Theft

Definition and Examples

Employee theft involves the stealing of money, inventory, or other property by employees.

Separate Coverage Options

Fidelity bonds or employee dishonesty insurance can provide coverage for these losses.

Cyber Attacks

Definition and Examples

Cyber attacks include hacking, phishing, and ransomware attacks that can lead to data breaches and financial losses.

Need for Cyber Insurance

Businesses should consider cyber liability insurance to protect against these risks.

Mould and Fungi

Definition and Examples

Mould and fungi can grow in damp conditions, causing health issues and structural damage.

Coverage Limitations

Unless the mould is a result of a covered peril, it is typically excluded from coverage.

Governmental Action

Definition and Examples

Government actions include property seizure, zoning changes, and demolition orders.

Lack of Coverage

Insurance does not cover these risks because they are beyond the insurer’s control.

Pollution

Definition and Examples

Pollution involves the introduction of harmful substances into the environment, causing contamination and health hazards.

Environmental Insurance

Businesses can purchase environmental insurance for protection against pollution-related losses.

Ordinance or Law

Definition and Examples

Ordinance or law refers to regulations requiring property upgrades to meet new codes after damage.

Need for Additional Coverage

Ordinance or law insurance can cover the increased cost of rebuilding to current codes.

Examples of Supplementary Insurance

Flood Insurance

Provides coverage for damage due to flooding.

Earthquake Insurance

Covers damage caused by earthquakes.

Terrorism Insurance

Offers protection against losses due to terrorist acts.

Cyber Liability Insurance

Covers losses from cyber attacks and data breaches.

Environmental Insurance

Provides coverage for pollution and contamination-related losses.

Ordinance or Law Insurance

Covers the cost of complying with new building codes after a covered loss.

Importance of Reviewing Policy Details

Understanding Policy Limits

Businesses should thoroughly review their insurance policies to understand coverage limits and exclusions.

Consulting with Insurance Agents

Professional advice can help businesses identify gaps in coverage and consider additional insurance options.

Conclusion

Understanding what commercial property insurance does not cover is crucial for comprehensive risk management. By recognising these exclusions, businesses can take proactive steps to protect themselves against uncovered risks through supplementary insurance policies and informed decision-making.

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