2.3 Commercial Property, Inland Marine & Specialty Coverage

Commercial Property & Inland Marine

Adjusting commercial property losses involves different policy structures than personal lines. The bedrock of commercial insurance is the Commercial Package Policy (CPP).

The Commercial Package Policy (CPP)

The CPP is a modular policy designed to meet the diverse needs of businesses. To qualify as a CPP, the policy must include Common Policy Declarations, Common Policy Conditions, and at least two of the following coverage parts:

1. Commercial Property
2. Commercial General Liability (CGL)
3. Commercial Auto
4. Commercial Crime
5. Commercial Inland Marine
6. Boiler and Machinery (Equipment Breakdown)
7. Farm

(Note: Workers' Compensation, Ocean Marine, and Aviation cannot be included in a CPP).

Building and Personal Property Coverage Form (BPP)

The most commonly used commercial property form is the BPP. It defines what property is covered and what is excluded. The BPP covers three main categories:

1. Building: Covers the building itself, completed additions, permanently installed fixtures, machinery, and equipment. Also includes personal property used to maintain or service the building (e.g., fire extinguishers, floor buffers).
2. Your Business Personal Property: Covers property owned by the insured and used in the business (e.g., furniture, fixtures, computers, inventory) located in or on the described building, or in the open/in a vehicle within 100 feet of the premises.
3. Personal Property of Others: Covers property entrusted to the insured by others (e.g., a customer's TV at an electronics repair shop) while it is in the insured's care, custody, or control, within 100 feet of the premises.

Causes of Loss Forms

In commercial property, the perils are defined in a separate document called the Causes of Loss Form attached to the BPP. There are three primary forms:

• Basic: Named peril (Fire, Lightning, Explosion, Windstorm/Hail, Smoke, Aircraft/Vehicles, Riot, V&MM, Sprinkler Leakage, Sinkhole Collapse, Volcanic Action).
• Broad: Includes all Basic perils plus Falling Objects, Weight of Snow/Ice/Sleet, and Water Damage (accidental discharge).
• Special: Provides Open Peril coverage, subject to specific exclusions.

Business Income (Time Element) Coverage

When a covered peril damages a commercial building, the physical repair cost is often secondary to the financial impact of the business being forced to shut down. This is where Time Element coverage comes in.

Business Income Coverage (often called Business Interruption insurance) pays for:

1. Net Income (net profit or loss before income taxes) that would have been earned or incurred.
2. Continuing Normal Operating Expenses (e.g., rent, salaries of key employees, debt service) that continue even though the business is suspended.

The policy pays during the Period of Restoration, which begins 72 hours after the time of direct physical loss and ends when the property should be repaired, rebuilt, or replaced with reasonable speed.

Extra Expense Coverage reimburses the insured for necessary expenses incurred during the period of restoration that they would not have incurred if there had been no loss. Its purpose is to help the business avoid or minimize the suspension of operations (e.g., renting a temporary location, paying overtime for rapid repairs).

Inland Marine Insurance

Inland Marine insurance originally evolved from Ocean Marine insurance to cover goods transported over land. Today, it covers a wide variety of mobile property.

The Nationwide Marine Definition

To be eligible for marine insurance, a risk must fall into one of six categories defined by the Nationwide Marine Definition:

1. Imports (Ocean Marine)
2. Exports (Ocean Marine)
3. Domestic Shipments (Inland Marine) - Goods in transit via truck, train, air.
4. Instrumentalities of Transportation or Communication (Inland Marine) - Property essential to transit, such as bridges, tunnels, pipelines, radio/TV towers.
5. Personal Property Floater Risks (Inland Marine) - Personal jewelry, furs, art.
6. Commercial Property Floater Risks (Inland Marine) - Contractor's equipment, physician's instruments, bailee's customers.

Common Commercial Inland Marine Forms

• Contractor's Equipment Floater: One of the most common inland marine policies. It covers heavy machinery, equipment, and tools used by contractors (e.g., bulldozers, cranes, scaffolding) both on job sites and in transit. Standard commercial property policies exclude mobile equipment; a floater is required.
• Bailee's Customer Policy: A bailee is a person or business that takes temporary possession of another's property (e.g., dry cleaners, repair shops, storage facilities). This policy covers the customer's property while in the bailee's custody, regardless of whether the bailee was negligent.
• Motor Truck Cargo Policy: Protects the carrier for liability for damage to freight they are transporting. It also exists in an "Owner's Form" for businesses transporting their own goods on their own trucks.
• Builder's Risk: Covers buildings under construction, materials, and supplies. The coverage limit typically increases as the building's value increases during construction.