Key Takeaways
- Commercial property policies protect Wisconsin businesses from physical damage to buildings and contents
- Business income coverage pays for lost profits and continuing expenses during business interruption
- Coinsurance clauses require businesses to maintain adequate coverage limits or face penalties
- Wisconsin businesses face weather-related risks including severe storms, hail, and winter damage
- Equipment breakdown coverage is essential for businesses dependent on machinery and equipment
Wisconsin Commercial Property Insurance
Overview of Commercial Property Coverage
Wisconsin businesses need comprehensive property insurance to protect against physical losses to their buildings, equipment, inventory, and business income.
Building and Personal Property Coverage Form (BPP)
Covered Property Classes
| Class | Description |
|---|---|
| Building | Owned structures, permanently installed fixtures, machinery, outdoor fixtures |
| Business Personal Property | Furniture, machinery, stock, equipment owned by the insured |
| Personal Property of Others | Customer property in the insured's care, custody, or control |
Building Coverage Includes
- Completed additions
- Permanently installed fixtures
- Outdoor fixtures
- Building glass
- Heating and air conditioning equipment
- Fire extinguishing equipment
- Personal property used for maintenance
Business Personal Property Includes
- Furniture and fixtures
- Machinery and equipment
- Stock (inventory)
- Tenant's improvements and betterments
- Leased personal property
Valuation Methods
Replacement Cost
- Cost to replace with like kind and quality
- No deduction for depreciation
- Preferred for most Wisconsin businesses
Actual Cash Value
- Replacement cost minus depreciation
- Lower premiums but less coverage
- May leave coverage gaps
Agreed Value
- Pre-determined value agreed by insurer and insured
- No coinsurance penalty
- Requires appraisal documentation
Functional Replacement Cost
- Cost to replace with property that performs same function
- Used for obsolete equipment
- Less expensive than exact replacement
Covered Causes of Loss
Basic Form
- Fire, lightning, explosion
- Smoke, windstorm, hail
- Riot, civil commotion
- Aircraft, vehicles
- Vandalism
- Sprinkler leakage
Broad Form
- Basic form perils plus:
- Falling objects
- Weight of ice, snow, sleet
- Water damage
- Collapse from specified causes
Special Form (Recommended)
- All risks of direct physical loss
- Except those specifically excluded
- Most comprehensive coverage
Exam Tip: The Special Form (open perils) provides the broadest coverage for Wisconsin commercial properties. It covers all risks unless specifically excluded.
Which commercial property coverage form provides the broadest protection for Wisconsin businesses?
Business Income Coverage
Business income insurance is critical for Wisconsin businesses to maintain financial stability during periods of business interruption.
Coverage Components
| Component | Description |
|---|---|
| Net Income | Lost profits during suspension |
| Continuing Expenses | Ongoing fixed costs (rent, utilities, salaries) |
| Extended Business Income | Coverage after operations resume |
| Extra Expense | Additional costs to continue operations |
Coverage Period
- Begins 72 hours after loss (standard waiting period)
- Continues until operations are restored
- Limited to "period of restoration"
- Extended period coverage available
Key Exclusions
- Losses not caused by covered perils
- Losses during policy suspension
- Losses recoverable from other sources
Coinsurance in Commercial Property
Purpose
Coinsurance ensures that commercial policyholders carry adequate insurance relative to their property value.
Common Coinsurance Percentages
- 80% (most common)
- 90%
- 100%
Coinsurance Formula
Insurance Required = Property Value × Coinsurance Percentage
Coinsurance Example
| Factor | Amount |
|---|---|
| Building Value | $1,000,000 |
| Coinsurance % | 80% |
| Insurance Required | $800,000 |
| Insurance Carried | $600,000 |
| Loss Amount | $200,000 |
| Deductible | $1,000 |
Calculation:
- Did insured meet requirement? $600,000 < $800,000 = NO
- Ratio: $600,000 ÷ $800,000 = 75%
- Payment: ($200,000 × 75%) - $1,000 = $149,000
- Coinsurance penalty: $50,000
Avoiding Coinsurance Penalties
- Carry at least the required percentage
- Use Agreed Value endorsement
- Conduct regular property appraisals
- Review coverage annually
Exam Tip: Coinsurance penalizes under-insurance. Wisconsin businesses must carry at least 80% (or the stated percentage) of their property value to avoid becoming a co-insurer.
A Wisconsin business has a building worth $500,000 with an 80% coinsurance requirement. What is the minimum coverage they must carry to avoid a coinsurance penalty?
Equipment Breakdown Coverage
Equipment breakdown coverage (formerly boiler and machinery insurance) is essential for Wisconsin businesses that rely on equipment and machinery.
Covered Equipment
- Heating and cooling systems (HVAC)
- Electrical systems
- Boilers and pressure vessels
- Production machinery
- Computer equipment
- Refrigeration systems
- Mechanical equipment
Types of Breakdown Covered
- Mechanical breakdown
- Electrical arcing
- Explosion of covered equipment
- Operator error
- Power surge damage
Coverage Extensions
- Business income from equipment breakdown
- Extra expense
- Spoilage coverage
- Service interruption
- Computer equipment
Wisconsin-Specific Commercial Property Considerations
Weather Risks
- Severe thunderstorms with hail
- Winter storms and ice damage
- Heavy snowfall roof collapse risk
- Flooding in certain areas
Risk Management Recommendations
- Snow removal protocols
- Backup power systems
- Regular equipment maintenance
- Adequate business income coverage
Special Coverages for Wisconsin
- Debris removal
- Ordinance or law coverage
- Outdoor signs
- Valuable papers and records
- Accounts receivable
Exam Tip: Equipment breakdown coverage is NOT included in standard commercial property policies. It must be purchased as separate coverage or as an endorsement.
What does business income coverage pay for?
Which of the following is TRUE about equipment breakdown coverage?