Mon Jul 21 2008
John Maksimik, CIC, CRM, LUTCF, CISR
Insurance Marketplace for Vacant Buildings
Our economy is slowing, sales are lower than some tenants can sustain and after some time, the tenant retailer or office professional moves out.

Owners are asking, “What are the consequences to my building insurance?”

You have to pull your policy out of the drawer, dust it off and look for your Vacancy Clauses. If you are lucky, you may not have a vacancy clause. Some carriers, over the recent years decided to remove or be silent on the vacancy issue. These insurance carriers typically inspect their buildings about every other year. Some insurance carriers require that a questionnaire be sent to the building owner asking for the current rent roll including the tenant’s name, square footage, gross rents and common area maintenance charges. Should one of these questionnaires be returned to the carrier with zero rents or less than 31 percent occupancy with some carriers, then a Non-Renewal letter is sent out 90 days prior to the renewal date. The building owner that receives such a letter will most likely call on an independent insurance agent for help. There are now several large- and medium-sized insurance carriers that have programs for vacant buildings. Many people assume that Lloyds Underwriters are the only market. Although a great market, there are many other companies from which to obtain bids. Some of the recognized names include Chubb Custom, Capitol Specialty, RSUI/ Landmark American, Northfield, Maxum Indemnity, QVE Specialty, Mt Vernon, AIG, ACE/ Westchester. There are many other companies in addition to the short list provided.

What perils of coverage to ask for in your policy for vacant property: Ask for the moon and see what your insurance agent can do for you!

You need to ask for Replacement Cost Option in place of Actual Cash Value. This will remove the depreciation clause on partial and total claims. You might get an ok. If you do, there will be an added charge for this option.

Ask for Vandalism to be included. Many carriers will trade off a higher deductible, such as $5,000 or $10,000 per occurrence and allow the Vandalism Peril to stay in the policy.

The Vacancy Clause

Some insurance policies have a Vacancy Clause that states: “When this policy is issued to the owner of a building, building means the entire building. Such building is vacant when
70 percent or more of the total square footage: (a) is not rented; or (b) Is not used to conduct customary operations. Buildings under construction or renovation are not considered vacant.”

Vacancy Provisions

The actual provisions of vacancy clauses will vary with carrier, but there are some provisions that are commonly included. One example of a common vacancy provision is that it provides that if the building where loss or damage occurs has been vacant for 60 consecutive days before that loss or damage, it essentially means that the insurance company will not pay for any loss or damage caused by any of the following, even if they are covered Causes of Loss including Vandalism, Sprinkler Leakage, unless you have protected the system against freezing, Building Glass Coverage, Water Damage, Theft or Attempted Theft. Another example is that you may suffer a 15 percent penalty on a claim settlement for all other Covered, Causes of Loss, on property while Vacant.

Protect Your Investment

There are other, common sense considerations for your vacant property that you may want to implement:

Call your heating and air-conditioning maintenance company. In the cold weather seasons you need to be concerned about pipes freezing. An HVAC or plumbing contractor will give you ideas on protecting your investment. Broken water pipes can cause thousands of dollars in damage before you discover the problem. Warmer months present its own set of problems for vacant buildings: Offices that have wooden doors can have warping issues from the extreme heat and dry air. You may have to set a schedule to oil the woodwork in the building and set an air-conditioning temperature low enough to protect the wood.

Birds and animals can start nesting when no activity is present. An exterminator or your HVAC contractor may help on this issue. Most commercial air handling systems require a minimum amount of fresh air to enter a building even when vacant. This airflow is important to avoid odors.

You may want to have a simple motion detector premises burglary system set up. Vacant buildings are targets for vandals and building material thieves. Adding a smoke detector to the burglary alarm system is also smart. Copper and other metals are increasingly being reported for theft claims. Since most vacant building policies have a substantial deductible, an alarm system is cheap loss prevention.

Exterior lighting is also a wise deterrent to petty crime. Light the outside of your vacant building to deter the vandals. Inspect your property often and keep the outside looking clean.



Remember to keep General Liability in force for the building and parking lot. You may have to purchase two policies to replace the one Business Owners Policy that you now do not qualify for. You need the abovementioned Property Policy and a General Liability Policy. Persons can get hurt on your land or building, whether or not it is occupied or in use, so remember to continue a Liability Policy.

Call an independent agent that has many years of experience. Look for credentials such as Certified Insurance Councilor, Certified Risk Manager, and Certified Insurance Service Representative. Ask if your agent has recently insured vacant buildings. Obtain at least three bids. Remember, you do have options for your property insurance.

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John Maksimik, CIC,CRM,LUTCF,CISR is a commercial broker for Orgill/Singer & Associates’ Reno location. The new office is located at 5595 Kietzke Lane, Suite 115, and can be reached at 775.398.2525 or via the Web site at www.orgillsinger.com.



Northern Nevada Business Weekly