2.3 Tennessee Commercial Property Insurance

Rate Regulation: File-and-Use

Tennessee regulates commercial property rates through a competitive file-and-use system administered by the Tennessee Department of Commerce and Insurance (TDCI).

The three statutory standards - not excessive, not inadequate, not unfairly discriminatory - are the rate-regulation triad tested across every state. "Inadequate" protects insurer solvency; "excessive" and "unfairly discriminatory" protect consumers.

Core Commercial Property Coverages

The ISO Commercial Property program is built on the Building and Personal Property Coverage Form (BPP, CP 00 10) plus a Causes of Loss form (Basic, Broad, or Special).

Building Coverage

• The described structure, completed additions, and permanently installed fixtures, machinery, and equipment
• Materials and supplies within 100 feet used to maintain the building

Business Personal Property (BPP)

• Furniture, equipment, and stock (inventory)
• Tenant's improvements and betterments the insured installed but cannot legally remove
• Personal property of others in the insured's care, custody, or control

Business Income and Extra Expense

• Business income (BI): net income (profit or loss) the business would have earned plus continuing normal operating expenses, including payroll, during the period of restoration.
• Extra expense: added costs to keep operating or speed restoration (renting temporary space, expediting repairs).
• Civil authority: income loss when a government order blocks access to the premises, usually for up to 4 consecutive weeks beginning after a 72-hour waiting period.

Coinsurance worked example: A Memphis warehouse with a $1,000,000 replacement value is written with an 80% coinsurance clause, requiring at least $800,000 of insurance. The owner carries only $600,000. After a $200,000 fire loss, the insurer pays (carried / required) x loss = ($600,000 / $800,000) x $200,000 = $150,000, less any deductible. The $50,000 shortfall is the coinsurance penalty for under-insuring.

Business Owners Policy (BOP)

The BOP bundles property and liability for eligible small-to-medium risks at a packaged price.

Typical eligible classes include retail stores, offices, small apartment buildings, restaurants (by program), and wholesalers within size and occupancy limits. Manufacturing and large habitational risks are usually ineligible and need a Commercial Package Policy (CPP) instead.

Exam Tip: The single most-tested BOP fact is that it never includes workers' compensation. A test question listing "building, BPP, general liability, workers' comp" is asking you to spot workers' comp as the item that does NOT belong.

Tennessee Surplus Lines Insurance

When a risk cannot be placed in the admitted (licensed) market, a Tennessee surplus lines (excess lines) producer may place it with an eligible non-admitted insurer. Surplus lines carriers are not backed by the Tennessee guaranty fund, so the law imposes strict procedures.

Tennessee Export List

The export list names classes pre-approved for surplus lines placement so the producer need not repeat a diligent search each time. Common entries include:

• Excess and umbrella liability
• Environmental / pollution liability
• Directors and officers (D&O) liability
• Employment practices liability (EPLI)
• Professional liability for certain classes
• Aviation and railroad equipment

Producer Duties (in order)

1. Attempt the admitted market and document declinations (unless on the export list).
2. Place coverage with an eligible non-admitted insurer.
3. Disclose the non-admitted status to the insured in writing.
4. Collect and remit the 5% surplus lines tax plus the stamping fee.
5. File the required affidavit / report with TDCI.

Exam Tip: The producer - not the insured and not the insurer - is responsible for collecting and remitting the 5% Tennessee surplus lines tax. A distractor often says the insured pays it directly or that TDCI bills it.

Commercial Inland Marine

Inland marine covers mobile property and property over the "floating" risks land transit created. Tennessee commercial inland marine commonly written includes:

Inland marine forms are typically open perils and may use agreed value rather than coinsurance, which is why high-value or mobile property migrates from the standard property form to an inland marine floater.

Exam Tip: "Property in transit," "contractor's tools," or "property under construction" point to inland marine, not the building or BPP coverage form.