By Linda Williams, CLU & ChFC

SPOSFI January 2008 Newsletter

Here is a list of issues to consider in reviewing your Commercial Property Insurance:

1. Schedule a personal meeting with your agent or broker to discuss your policy coverages. In my experience, the personal interview is incomparable as a vehicle for efficiently understanding options and making appropriate adjustments to your Insurance policy.

2. Reevaluate your building’s replacement cost. Building costs are constantly increasing. Sources in the building industry inform me that it costs approximately $400 per square foot to build standard quality construction in San Francisco. Higher quality finishings can increase that cost significantly. It’s a good idea to discuss current building cost with a contractor or an architect on a regular basis, and to make adjustments to your policy as needed.

3. Some policies offer “Extra Replacement Coverage” as a policy endorsement. It adds some percentage of additional coverage as a margin for error at an incidental additional premium. The percentage of “Extra Replacement Coverage” may vary from company to company. Check with your agent or broker to determine if you already have this endorsement on your policy. If not, and it is available, it is definitely prudent and cost effective to add this coverage.

4. Do you need coverage for such business property as tools and outdoor furniture? Business property coverage is available as an added coverage on either an “actual cash value” or “replacement coverage” basis as desired.

5. Owner-occupiers should also carry insurance to cover their personal property and personal liability. Tenants should be encouraged to purchase insurance covering their possessions, which are not covered by your insurance.

6. Determine whether your policy includes coverage for “Building Ordinance or Law.” Again, this coverage is usually available as an add-on endorsement at a relatively modest premium. This rider provides coverage for upgrade expenses that might be required by the building code following a covered loss. It also compensates the property owner if the city requires that an undamaged portion of the building be demolished and replaced, or if there are code restrictions (setbacks, for example) that prevent the rebuilding of the building as it originally existed, resulting in a loss of value for the building owner.

This is a very important rider to have on older buildings in San Francisco. Depending on the carrier, this endorsement may offer various options, or break down into several coverage components. Normally, no coverage would extend from the base building coverage to pay for code upgrade expenses, nor to replace any undamaged portion of the building unless the policy includes the Building Ordinance or Law endorsement.

7. Maximize your General Liability limits. The premium adjustment is usually incidental. Condo Associations should carry at least a $2,000,000 per occurrence limit, $4,000,000 aggregate. State legislation specifies that with such limits, only the Condo Association may be sued for liability losses; therefore the individual unit owners are not personally responsible for the loss. With limits under $2,000,000, a suit may be brought against individual unit owners in addition to the Association, even if they are not individually responsible for the loss occurrence.

8. Many commercial property policies include coverage for the loss of rental income following a covered loss, such as a fire, replacing rental income until repairs can be completed, usually for up to one year. Some policies may specify a dollar limit for this coverage rather than a time limit.