2.2 California Commercial Property Insurance
Key Takeaways
- California commercial property insurance must comply with filed and approved rates under Proposition 103
- Commercial policies require specific disclosure of terrorism coverage options
- California requires surplus lines brokers to follow specific placement procedures
- Commercial properties in high-risk areas may need California FAIR Plan commercial coverage
- Business interruption and extra expense coverage have specific California requirements
California regulates commercial property insurance with specific requirements for rates, disclosures, and coverage availability.
Rate Regulation
Under Proposition 103, commercial property insurance rates must be:
- Filed with CDI before use
- Approved or not disapproved within 60 days
- Not excessive, inadequate, or unfairly discriminatory
- Based on actuarially justified loss experience
Commercial Rate Exceptions
Some commercial lines have different regulatory treatment:
| Line | Rate Regulation |
|---|---|
| Workers' Compensation | Filed and approved |
| Commercial Auto | Filed and approved |
| Large Commercial Property | May have more flexibility |
| Surplus Lines | Not rate-regulated |
Terrorism Insurance
TRIA (Terrorism Risk Insurance Act)
- Federal program providing terrorism insurance backstop
- California insurers must offer terrorism coverage
- Policyholder can accept or reject terrorism coverage
- Disclosure of coverage terms required
Required Disclosures
- Coverage limits for terrorism
- Premium for terrorism coverage
- Right to accept or reject
- Exclusions and limitations
Commercial FAIR Plan
The California FAIR Plan also serves commercial properties:
Commercial Coverage
- Basic fire and extended coverage
- Building and business personal property
- Higher limits available than residential
- Requires evidence of voluntary market declination
Surplus Lines Insurance
California allows surplus lines insurance for risks not available in the admitted market:
Surplus Lines Requirements
| Requirement | Details |
|---|---|
| Diligent Search | Must contact 3+ admitted insurers |
| Export List | Some risks pre-approved for export |
| Surplus Lines Broker | Must use licensed SL broker |
| Surplus Lines Tax | 3% of premium + stamping fee |
| Disclosure | Must disclose SL status to insured |
Export List Risks
California maintains a list of risks that can be placed directly with surplus lines insurers without a diligent search, including:
- Aviation liability
- Excess and umbrella liability
- Professional liability (some types)
- Product recall
- Employment practices liability
Business Interruption Insurance
California has specific requirements for business interruption coverage:
Key Provisions
- Must clearly define covered perils
- Waiting/deductible period disclosed
- Period of restoration defined
- Extended period of indemnity options
- Civil authority coverage requirements
COVID-19 Impact
California courts have addressed business interruption claims related to pandemic closures:
- Most policies require physical damage
- Virus exclusions generally enforced
- Civil authority coverage limited
- Legislation proposed but not enacted
Extra Expense Coverage
- Covers costs to continue operations during restoration
- Separate limit from business interruption
- California requires clear disclosure of coverage terms
How many admitted insurers must be contacted before placing a risk in the California surplus lines market?
What is the California surplus lines tax rate?