Oklahoma Dwelling and Commercial Property Insurance

Dwelling Policies

Dwelling policies provide property insurance for rental properties, seasonal homes, and properties not eligible for homeowners coverage.

DP-1 Basic Form

Most Limited Coverage:

Use Cases:

• Properties in poor condition
• Vacant properties
• Properties requiring only basic fire coverage

DP-2 Broad Form

Expanded Named Perils Coverage:

Covered Perils:

• All DP-1 perils PLUS:
• Windstorm and hail
• Weight of ice/snow
• Falling objects
• Damage from vehicles or aircraft
• Theft and vandalism

Additional Features:

• Optional personal property coverage (50% of dwelling)
• Optional loss of use coverage (Fair Rental Value)
• Can add liability and medical payments
• Replacement cost available with endorsement

DP-3 Special Form

Most Comprehensive Dwelling Coverage:

Coverage Structure:

• Dwelling: Open perils (all risks except specifically excluded)
• Personal Property: Broad form named perils
• Loss of Use: Fair Rental Value included
• Payment: Replacement cost on dwelling standard

Ideal For:

• Well-maintained rental properties
• Seasonal homes
• Properties between tenants

Exam Tip: DP-3 provides open perils on the dwelling (like HO-3), but personal property is covered on a broad form named perils basis. This is the most comprehensive dwelling policy.

Fair Rental Value Coverage

Purpose

Fair Rental Value compensates property owners for lost rental income when property becomes uninhabitable due to covered loss.

Coverage Provided:

• Lost rent during repair period
• Continues until property is repaired or tenant lease expires (whichever is shorter)
• Minus any expenses saved during vacancy

Example:

Property rents for $1,500/month. Fire makes it uninhabitable for 3 months:

• Gross rental value: $1,500 × 3 = $4,500
• Expenses saved (utilities paid by owner): $300
• Fair rental value payment: $4,500 - $300 = $4,200

Commercial Property Insurance in Oklahoma

Oklahoma businesses face significant property risks from severe weather, requiring comprehensive commercial property coverage.

Building and Personal Property Coverage Form (BPP)

Standard ISO Commercial Property Form

Three Coverage Options:

1. Building Coverage

   • Permanent structure
   • Permanently installed fixtures
   • Outdoor fixtures (signs, fences)
   • Building additions

2. Business Personal Property

   • Furniture, equipment, and supplies
   • Inventory and stock
   • Leasehold improvements (if tenant owns)
   • Personal property of others in your care

3. Personal Property of Others

   • Customer property being worked on
   • Goods held for others
   • Property in your care, custody, or control

Covered Causes of Loss

Commercial property policies offer three options:

Special Form Exclusions:

• Wear and tear
• Rust and corrosion
• Mechanical breakdown
• Faulty workmanship
• Flood and earthquake (separate coverage needed)

Business Income Insurance

Purpose

Business Income Insurance (formerly Business Interruption) covers lost income when business operations are suspended due to covered property loss.

Coverage Provided

What's Covered:

• Net income that would have been earned
• Continuing operating expenses
• Temporary location expenses
• Extra expenses to minimize loss

Coverage Period:

• Begins 72 hours after loss (for most perils)
• Continues until property is repaired/replaced
• Maximum period of restoration typically 12 months

Calculating Business Income

$\text{Business Income} = \text{Net Income} + \text{Continuing Expenses}$

Components:

• Net Income: Profit before taxes
• Continuing Expenses: Payroll, rent, utilities, loan payments

Example:

Restaurant damaged by tornado, closed 2 months:

• Monthly net income: $10,000
• Continuing expenses: $15,000/month
• Total monthly business income: $25,000
• 2-month claim: $50,000

Exam Tip: Business Income covers both lost profits AND continuing expenses like payroll and rent. Coverage begins after a waiting period (typically 72 hours) and continues during the restoration period.

Extra Expense Coverage

Purpose: Pays for additional costs to continue operations during repairs

Examples of Extra Expenses:

• Rent for temporary location
• Equipment rental
• Overtime labor costs
• Premium shipping costs
• Temporary signage and advertising

Coverage Options:

• Included with Business Income coverage
• Available as standalone coverage
• Separate limits may apply

Oklahoma Commercial Property Requirements

Valuation Methods

Replacement Cost:

• Pays to replace property with like kind and quality
• No depreciation deducted
• Must actually repair/replace to collect full amount
• Oklahoma law requires insurers to offer this option

Actual Cash Value:

• Replacement cost minus depreciation
• Lower premiums
• May not fully cover rebuild costs

Agreed Value:

• Suspends coinsurance requirement
• Insurer agrees to specific value
• No coinsurance penalty if loss occurs
• Requires annual appraisals

Coinsurance Requirements

Commercial property policies commonly require 80%, 90%, or 100% coinsurance:

$\text{Insurance Carried} \geq \text{Coinsurance \%} \times \text{Property Value}$

If underinsured, penalty applies:

$\text{Payment} = \frac{\text{Insurance Carried}}{\text{Required Insurance}} \times \text{Loss}$

Example of 80% Coinsurance:

Building value: $500,000 Required coverage: $400,000 (80%) Actual coverage: $300,000 (underinsured!) Loss amount: $100,000

Calculation:

• $300,000 ÷ $400,000 = 0.75
• Payment: $100,000 × 0.75 = $75,000
• Business loses $25,000 due to underinsurance

Exam Tip: Coinsurance penalties can be severe in Oklahoma. Agreed Value coverage eliminates this risk by establishing an agreed property value upfront.