Commercial Property Insurance Claims

Understanding Commercial Property Coverage

Commercial property insurance protects your business assets - buildings you own or lease, equipment, inventory, furniture, and fixtures. Unlike homeowners policies, commercial property coverage is highly customizable, which means you need to understand exactly what your policy covers.

Common Coverage Forms

Commercial property coverage comes in different forms that determine what perils are covered:

Basic Form (Named Perils)

Covers only specifically listed perils such as fire, lightning, explosion, smoke, windstorm, hail, vandalism, and riot. If the cause of loss is not listed, it is not covered. This is the most limited and least expensive option.

Broad Form

Covers basic perils plus additional named perils like falling objects, weight of ice/snow, water damage from plumbing, and collapse from certain causes. Still requires the peril to be specifically listed.

Special Form (All-Risk)

Covers all causes of loss except those specifically excluded. This provides the broadest coverage but exclusions still matter. Common exclusions include flood, earthquake, wear and tear, and intentional acts. I generally recommend special form coverage for most businesses.

Valuation Methods Matter

How your property is valued determines your payout. Commercial policies use several valuation methods:

• Replacement Cost: Pays to replace damaged property with new property of similar kind and quality, without deduction for depreciation. This is what you want.
• Actual Cash Value (ACV): Replacement cost minus depreciation. A 10-year-old roof might only pay out 30-40% of replacement cost.
• Agreed Value: You and the insurer agree on the property value upfront. Eliminates coinsurance disputes.
• Functional Replacement: Pays to replace with functionally equivalent property, even if not identical.

The Coinsurance Trap

Most commercial property policies include a coinsurance clause requiring you to insure your property to a certain percentage of its value (typically 80%, 90%, or 100%). If you are underinsured, you become a "co-insurer" and must absorb a portion of any loss.

How Coinsurance Penalties Work

Example: Your building is worth $1,000,000 and you have an 80% coinsurance clause. You should carry at least $800,000 in coverage. If you only carry $600,000 and suffer a $200,000 loss:

Penalty calculation: ($600,000 / $800,000) x $200,000 = $150,000 payout
You would receive only $150,000 instead of $200,000, minus your deductible.

Filing a Commercial Property Claim

Commercial claims require more documentation and follow stricter procedures than personal claims:

Immediate Steps After a Loss

1. Protect remaining property: Take reasonable steps to prevent further damage. Board up broken windows, tarp damaged roofs, secure the premises.
2. Document everything: Take extensive photos and videos before any cleanup. Document conditions from multiple angles.
3. Notify your insurer promptly: Most policies require immediate notice. Report the claim by phone and follow up in writing.
4. Preserve evidence: Do not discard damaged property until the adjuster inspects it. Keep damaged equipment and inventory.
5. Start your loss documentation: Begin compiling invoices, receipts, inventory records, and financial statements.

Proof of Loss Requirements

Commercial policies typically require a sworn proof of loss within 60-90 days. This formal document must include detailed information about:

• The time and cause of loss
• Interest of the insured and others in the property
• Other insurance covering the property
• Changes in title or occupancy
• Detailed inventory of damaged property with values
• Amount of loss claimed

Business Interruption Claims

Business interruption coverage compensates for lost income while your business cannot operate due to covered property damage. These claims are often more valuable than the property damage itself but are also more complex and frequently disputed.

What Business Interruption Covers

• Lost net income: Profits you would have earned during the restoration period
• Continuing expenses: Fixed costs that continue during the shutdown (rent, loan payments, salaries)
• Extra expenses: Costs to minimize the shutdown period or operate from a temporary location

The Restoration Period

Coverage applies during the "restoration period" - from the date of loss until your property is restored with reasonable speed. Insurers often dispute how long restoration should take. Document everything about your restoration timeline and any delays outside your control.

Common Commercial Claim Disputes

Business owners frequently encounter these disputes with commercial insurers:

• Scope of damage: Disputes over whether damage is from a covered cause or a combination of covered and excluded causes.
• Valuation: Disagreements about property values, especially for specialized equipment or custom improvements.
• Coinsurance penalties: Insurers applying penalties when policyholders did not understand they were underinsured.
• Business income calculations: Disputes over projected income, what expenses continue, and restoration period length.
• Ordinance or law issues: Code upgrades required during repairs that were not covered by the basic policy.

When to Involve Professionals

Commercial claims often justify professional assistance:

• Public adjusters: Licensed professionals who prepare and negotiate claims on your behalf, typically for 5-10% of the settlement. Helpful for complex property claims.
• Forensic accountants: Essential for business interruption claims to document lost income and continuing expenses.
• Coverage attorneys: When coverage is denied or significantly underpaid, legal representation may be necessary. Many insurance attorneys work on contingency for bad faith claims.

Dispute Resolution Options

If you cannot resolve a claim dispute directly with your insurer:

• Appraisal: Most commercial policies include an appraisal clause for valuation disputes. Each side picks an appraiser, and they select an umpire to resolve disagreements. See our Appraisal Process Guide.
• Mediation: Voluntary negotiation with a neutral mediator. Less adversarial than litigation and often required before arbitration.
• Arbitration: Some policies require binding arbitration instead of litigation. Check your policy's dispute resolution clause.
• Litigation: Filing a lawsuit for breach of contract and potentially bad faith if the insurer's conduct warrants it.

Related Guides

• Business Interruption Claims - Deep dive into BI coverage
• The Appraisal Process - Resolving valuation disputes
• Insurance Dispute Resolution - All your options explained
• Bad Faith Insurance - When insurers act unreasonably
• Fighting Lowball Offers - Strategies for underpaid claims