Monday, December 1, 2014

Reports of looting and violent protests in major cities followed the grand jury’s decision not to bring criminal charges against Officer Darren Wilson for the August shooting of 18-year old Michael Brown in Ferguson, Missouri. While business owners may be concerned about the safety of their property in high-risk areas, many may not have thought about whether damages arising out of acts of vandalism are covered by insurance. In fact, what’s not covered might come as a big surprise.

Although property insurance policies are often issued on standardized forms, some policies vary in terms of the precise language used and most property policies are “menu-driven,” meaning coverage for certain types of property must be specifically purchased. Even then, lower sub-limits of insurance might apply. Here are a few examples of property that is often not covered unless purchased by separate endorsement:

  • Outdoor trees and shrubs
  • Accounts and bills
  • Valuable papers and records
  • Fine arts
  • Electronic data processing equipment (including your computers)
  • Outdoor signs
  • Awnings
  • Outdoor radio antennas
  • Fences
  • Retaining walls
  • Fragile glass (unless a part of the structure)

The limits of insurance that apply when coverage for this type of property is purchased as an add-on is often low, which may not be sufficient to pay for all the damage that occurs from looting and rioting. Additionally, many business owners do not have coverage for business interruption, in the absence of which the business owner may not be insured for any loss of revenue during the time of restoration or rebuilding. Further, most property policies provide coverage for replacement cost of real property (but only if the insured rebuilds the property within a stated period of time), and coverage for personal property is often limited to actual cash value (which takes depreciation into account) unless coverage is specifically purchased for replacement cost value.

Finally, most commercial property policies exclude coverage for damage to buildings that have been vacant for more than sixty days, and require the insured to mitigate damages by protecting the property from further harm or additional damage due to inclement weather. Policies issued by surplus-lines insurers may have additional restrictions on coverage linked to security and protective measures, such as fencing exclusions, sprinkler exclusions, or exclusions that apply to property damage if the owner of the building does not have a security system installed.

The most important thing for business owners to do, whether facing risk of loss due to looting, rioting, or any other imminent threat, is to read the policy. Knowing what is covered or not ahead of time gives business owners the ability to remove or protect property that is either not covered, conditionally covered (i.e., covered only where proper security measures are in place), or subject to a lower sub-limit of liability. This will also help business owners understand their duties in the event of a loss, which again, may impose an obligation to protect the property from further harm. As always, management of your risks best begins before a loss, not after.