2.4 Kentucky Commercial Property Insurance

Commercial Property Coverage Forms

Building and Personal Property Coverage Form (BPP)

The BPP form provides the foundation for commercial property coverage in Kentucky:

Building Coverage Details

Building coverage includes:

• Building structure
• Completed additions
• Permanently installed fixtures
• Machinery and equipment for building services
• Outdoor fixtures
• Materials and supplies for construction

Business Personal Property

Business personal property coverage includes:

• Furniture and fixtures
• Machinery and equipment
• Stock and inventory
• Office equipment and computers
• Leasehold improvements (tenant)
• Property used in business operations

Causes of Loss Forms

Kentucky businesses can choose from three coverage forms:

Basic Form (Named Perils)

Covers only these listed perils:

• Fire
• Lightning
• Explosion
• Windstorm or hail
• Smoke
• Aircraft or vehicles
• Riot or civil commotion
• Vandalism
• Sprinkler leakage
• Sinkhole collapse
• Volcanic action

Broad Form

Adds these perils to Basic Form:

• Falling objects
• Weight of snow, ice, or sleet
• Water damage (from appliances)

Special Form (Recommended)

Open perils coverage - covers all risks except those specifically excluded.

Standard exclusions:

• Flood
• Earthquake
• Wear and tear
• Employee dishonesty
• Governmental action
• Nuclear hazard
• War

Business Income Coverage

Purpose

Compensates businesses for lost income when operations are suspended due to covered property damage.

Coverage Components

Business Income Example

Scenario: Kentucky restaurant sustains tornado damage

Civil Authority Coverage

Pays when government order prohibits access to property:

• Must be due to covered peril at nearby property
• Typical waiting period: 72 hours
• Coverage period: 30 days typical

Coinsurance in Commercial Property

How Coinsurance Works

Coinsurance requires maintaining coverage equal to a specified percentage of property value.

Coinsurance Formula:

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

Coinsurance Example

Calculation: $\text{Payment} = \frac{\$600,000}{\$800,000} \times \$200,000 = \$150,000$

The insured only recovers $150,000 instead of $200,000 due to underinsurance.

Avoiding Coinsurance Penalties

Kentucky-Specific Commercial Considerations

Weather-Related Risks

Business Continuity Planning

Kentucky businesses should:

• Maintain comprehensive business income coverage
• Have contingency plans for operations
• Consider extra expense coverage
• Document inventory and equipment
• Plan for extended restoration periods

Flood Considerations for Commercial Properties

Exam Tip: Coinsurance is a common exam topic. Remember the formula and know that carrying less than the required amount results in the insured becoming a co-insurer (sharing in losses). The agreed value option suspends coinsurance requirements.

Kentucky Commercial Filing and Surplus Lines

Commercial property in Kentucky uses the national ISO Commercial Property program (BPP form, causes-of-loss forms, business income), so coinsurance, the agreed-value option, and the vacancy provision all apply as in the national chapters. Kentucky-specific overlay comes from rate and form filing rules administered by the Department of Insurance and from the surplus lines system for risks admitted carriers will not write.

When a Kentucky risk cannot be placed with an admitted insurer, a licensed surplus lines broker may place it with an eligible non-admitted carrier after a diligent search, subject to a surplus lines tax and the caveat that surplus lines policies are not protected by the Kentucky Insurance Guaranty Association. The exam tests that surplus lines is a last resort for hard-to-place commercial property and that guaranty-fund protection does not extend to non-admitted carriers.

Kentucky Guaranty Association and Local Government Premium Tax

Kentucky participates in a Property and Casualty Insurance Guaranty Association that pays covered claims when an admitted insurer becomes insolvent, subject to statutory per-claim caps. This is why placement with an admitted carrier matters: the guaranty fund backstops admitted-carrier insolvency but not surplus-lines paper.

A distinctly Kentucky feature is the local government premium tax — many cities and counties impose a tax on insurance premiums collected within their boundaries, which producers must collect and remit correctly. The exam may reference these local premium taxes as a Kentucky-specific compliance obligation that distinguishes the state's commercial market from a purely national framework.