2.2 Pennsylvania Commercial Property Insurance

Rate and Form Regulation in Pennsylvania

Commercial property insurance in Pennsylvania is regulated under the Casualty and Surety Rate Regulatory Act and the property rate act, administered by the Pennsylvania Insurance Department. As with every line, rates may not be excessive, inadequate, or unfairly discriminatory. Pennsylvania uses a file-and-use (also called "competitive rating") approach for most commercial lines: the insurer files the rate or form and may use it, with the Department retaining authority to disapprove.

Large or sophisticated commercial accounts receive more pricing flexibility — Pennsylvania permits consent-to-rate / large-risk treatment so an insured with the bargaining power to negotiate can buy coverage outside standard filed rates.

Cancellation and Nonrenewal — Act 86

While homeowners cancellation follows the 30-day rule of Chapter 59, commercial property and casualty policies follow Act 86 of 1986 (40 P.S. 3401 et seq.), implemented at 31 Pa. Code Chapter 113, Subchapter G. The notice periods are longer than personal lines and are a favorite state-exam contrast:

The notice must state a specific reason that identifies the condition, factor, or loss experience involved — vague phrases such as "losses" or "underwriting reasons" are expressly not sufficient. A policy in force fewer than 60 days is still being underwritten and may be cancelled more freely, but the insurer must still give proper notice. Exam trap: do not apply the 30-day homeowners number to a commercial risk — Act 86 commercial notice is 60 days (15 for nonpayment).

Core Commercial Property Coverages

The Pennsylvania exam tests the standard ISO commercial property architecture, which a producer assembles from a declarations page, one or more coverage forms, causes-of-loss forms, and the commercial property conditions and common policy conditions.

• Building and Personal Property Coverage Form (BPP) — the backbone. It insures three things: the building (structure, fixtures, permanently installed equipment, completed additions), business personal property (inventory, furniture, machinery, owned property used in the business), and personal property of others in the insured's care, custody, or control.
• Causes-of-loss forms — coverage is set by which form attaches: Basic (named perils including fire, lightning, explosion, windstorm, vandalism), Broad (basic plus falling objects, weight of ice/snow, water damage), or Special (open-perils / all-risk, the broadest).
• Business Income (and Extra Expense) Coverage Form — replaces lost net income and continuing expenses during the period of restoration, after a waiting period (typically 72 hours), when a covered peril suspends operations. Extra expense pays the added cost of staying open.
• Coinsurance — commercial property almost always carries a coinsurance clause (commonly 80%, 90%, or 100%). Underinsuring triggers a penalty on a partial loss, computed as (amount carried / amount required) x loss, less the deductible.

Surplus Lines Insurance

When a commercial risk is too large, hazardous, or unusual for the admitted (licensed) market, a Pennsylvania-licensed surplus lines producer may place it with an eligible nonadmitted insurer. Three rules dominate the exam:

1. Diligent search. The producer must first attempt placement in the admitted market and document declinations showing the coverage is unavailable from licensed insurers. The export list narrows this for certain risks recognized as generally unavailable.
2. Eligible insurer. The nonadmitted carrier must be on Pennsylvania's list of eligible surplus lines insurers (or qualify as an eligible alien insurer on the NAIC quarterly list).
3. Surplus lines tax. Pennsylvania imposes a 3% tax on gross premiums (less return premiums), collected and remitted by the surplus lines producer via the gross-premiums tax report.

Because nonadmitted insurers are not backed by the Pennsylvania Property and Casualty Insurance Guaranty Association, the producer must disclose the surplus lines (nonadmitted) status to the insured — a guaranty-fund safety net does not apply if the carrier becomes insolvent.

Terrorism Insurance Under TRIA

The federal Terrorism Risk Insurance Act (TRIA) creates a federal backstop for certified acts of terrorism and requires insurers to make terrorism coverage available on eligible commercial property and casualty policies on terms not differing materially from other coverage. The insurer must:

• Offer terrorism coverage and disclose its separate premium.
• Disclose the existence of the federal share (backstop) of compensation.
• Allow the insured to accept or reject the coverage in writing.

Specialty Commercial Property Forms

• Builders Risk — covers a structure under construction, including materials, supplies, and (by endorsement) soft costs; written on a completed-value or reporting basis.
• Installation Floater — an inland-marine form covering equipment, fixtures, or systems while in transit and during installation at the job site, until the work is accepted.

Exam tip: Builders risk covers the building being erected; an installation floater covers the contractor's property/equipment being installed into someone else's project.