Milton’s advice: “Always push for 100% value and request agreed value, which will suspend the coinsurance.”

AP Photo/Pat Sullivan

Mistake 2: Allowing the tenant to insure a building

If the tenant is the named insured and the building owner is added as an additional insured, Milton explains, the owner could be excluded for any loss if the tenant, its partners, members, officers or managers commits a dishonest act, such as arson for instance. The dishonest acts could leave the building owner with no coverage.

It’s much better, Milton says, for the building owner to carry the insurance and build it into the tenant’s rent.

AP Photo/Noah Berger

Mistake 3: Failing to recommend building glass coverage

Generally, a tenant is responsible for any building glass breakage, Milton points out, but the tenant’s commercial property policy covering business property doesn’t include building items, like glass. Even though the owner is insuring the building, it’s important for the agent to recommend a building glass endorsement to the tenant’s policy.

Mistake 4: Failing to cover improvements and betterments adequately

Milton explains that improvements and betterments, although made at the tenant’s expense, become part of the building. The improvements are included in the definition of “building” in the owner’s commercial property policy and also are included in the definition of “business personal property” in the tenant’s commercial property policy.

Who insures? Because the improvements usually are attached to the property and increase the value of the building, Milton recommends that the owner increase its insurance to cover any improvements.

AP Photo/Nam Y. Huh

Mistake 5: Failure to advise the insured about the occupancy and vacancy issues with builder’s risk policies.

“Occupancy in whole or in part voids the policy,” Milton says. But building owners don’t like vacant buildings. Carriers may give the insured permission to occupy parts of the building as construction is completed, moving in floor by floor, with an endorsement and an additional premium. But this permission is usually only good for 90 days, and may need to be renewed as construction is completed.

A related issue is the question of vacancy. “If the building is less than 31% occupied for customary operations, it’s considered vacant,” explains Milton. In the current economic times, tenants may move out leaving a building at less than 31% occupied, but still partially rented. The broker renews the policy without knowing whether the building is fully occupied or not; however, if the building is considered vacant for more than 60 days, the owner will lose coverage. In that case, the policy may not pay for any loss caused by vandalism or sprinkler leakage, for example, and other covered losses are reduced by 15%.

Jerry M. Milton, CIC, teaches and consults on industry issues. The legal profession recognizes him as an expert on insurance coverages. He is also the education consultant for Insurance Agents & Brokers (IABforME.com), working with CISR, CIC and continuing education programs.

This information originated from the Insurance Agents & Brokers Power Hour webinar, presented Nov. 24, 2014. Insurance Agents & Brokers is the partnership of independent agents' associations in Delaware, Maryland and Pennsylvania. Learn more at IABforME.com.