2.2 Alabama Commercial Property Insurance

Rate Regulation: File and Use

Alabama regulates commercial property rates under a competitive "file and use" model rather than prior approval. The producer must understand what this means in practice.

Contrast this with prior approval (insurer must wait for ALDOI sign-off before using a rate) and use and file (rate is used first, then filed). A frequent trap: "file and use" means filed before use but without waiting for approval.

Commercial Property Coverage Forms

Alabama commercial risks are written on standard ISO Commercial Property forms, anchored by the Building and Personal Property Coverage Form (CP 00 10).

The Causes of Loss form chosen (Basic, Broad, or Special) controls which perils apply, mirroring the named-perils vs. open-perils logic of homeowners forms. Special form is open perils for commercial property.

Coinsurance on Commercial Property

Most Alabama commercial property is written with a coinsurance clause (commonly 80%, 90%, or 100%) requiring the insured to carry a limit equal to that percentage of the property's value. Underinsurance triggers a penalty at claim time using the formula (carried limit ÷ required limit) × loss − deductible. Worked example: a building worth $1,000,000 with an 80% coinsurance clause requires a $800,000 limit. If the insured carries only $600,000 and suffers a $100,000 loss, recovery is ($600,000 ÷ $800,000) × $100,000 = $75,000 (less the deductible). This penalty is a frequent exam calculation.

Surplus Lines Insurance

When a commercial risk cannot be placed with an Alabama-admitted (licensed) insurer, a surplus lines broker may place it with an eligible non-admitted insurer. Surplus lines carriers are not backed by the Alabama Insurance Guaranty Association, so the insured bears insolvency risk.

Surplus Lines Compliance Checklist

Worked example: a broker places a $50,000 surplus lines policy effective March 2026. The 6% tax is $3,000, plus a 0.175% transaction fee of $87.50, both reported through SLIP. The broker — not the insured — remits these amounts. Note that the tax applies to the entire premium, including endorsements and policy fees.

Terrorism Insurance Under TRIA

The Terrorism Risk Insurance Act (TRIA) is a federal program that acts as a backstop for insured losses from certified acts of terrorism. It does not provide the coverage itself; it shares catastrophic losses with insurers above a deductible.

• Insurers must offer terrorism coverage on commercial property policies.
• The policyholder may accept or reject the coverage — typically in writing.
• Required disclosures include the terrorism premium, coverage limits, and the right to reject.
• Trap: confusing TRIA with the NFIP (flood) or a FAIR Plan (residual property). Only TRIA addresses terrorism.
• A loss counts only if the Treasury Secretary certifies the event as an act of terrorism above the program's aggregate loss threshold; ordinary vandalism or domestic property crime is not a TRIA event.

Business Income and Extra Expense

Business income (often called business interruption) and extra expense are the most-tested time-element coverages.

• Business Income pays lost net income plus continuing normal operating expenses (including payroll, if not endorsed out) during the period of restoration.
• A 72-hour waiting period commonly applies before business income begins.
• The period of restoration runs from the date of direct physical loss until the property should be repaired with reasonable speed — not necessarily when the business reopens.
• Civil authority coverage extends business income when a government order bars access to the premises due to nearby covered damage (typically capped, e.g., four consecutive weeks).
• Extra Expense is a separate limit covering added costs — temporary location, expedited shipping, rented equipment — to keep the business running.
• Builders risk insures structures under construction on a completed-value or reporting basis; theft and transit coverage often require endorsement.