We insure a large commercial operation. Our question deals with property coverage. There are two buildings connected by a walkway, and at one time both buildings were occupied. Some time ago the buildings were condemned and the newer building was rehabbed for continued occupancy. Fire doors were installed and locked to prevent entry into the condemned building. The condemned building housed a boiler and electrical panels that serviced the occupied building, and some property was in storage there.

The original bid specs stated that coverage should be provided on a blanket value basis with replacement cost on building and contents. Coverage should apply on an agreed value basis with the insured filing a statement of values as required. The specs stated that the one building was substantially vacant. The statement of values provided by the insured stated a replacement value for the occupied building and a $0 value for the condemned building

At renewal, the bid specs' request for coverage stated "…to provide all risk coverage for all of the property described on the statement of values. Coverage should be on a blanket basis with replacement cost coverage for building, personal property and property in the open to apply at all locations unless otherwise noted [nothing was noted]. Coverage is on an agreed value basis." The bid specs submitted and the statement of values still showed a replacement value for the occupied building and $0 value for the condemned building

The condemned building was destroyed by fire and the occupied building was heavily damaged by water and smoke. The insured's consultant is stating that the two buildings are actually one (due to the walkway) and that replacement cost on the occupied building applies to both buildings. It appears from the bid specs that the square footage shown for the two buildings equals the square footage for the occupied building only. Also, the statement of values submitted from 1992 to the current 1997 statement shows the value on the occupied building has increased, while the value on the condemned building remains at $0

The insurance consultant is now claiming the condemned building actually had a value of more than $4 million and that it is covered under the terms of the blanket coverage. The insurance company is denying coverage on that building

What is the coverage situation as to the condemned building?

Illinois Subscriber

Under the building and personal property coverage form, a walkway between two buildings does not join them into one piece of property. In order for coverage, blanket or otherwise, to apply to a loss, the damaged property must have value. If the insured itself has set the value of a piece of property at $0, then that property was not taken into consideration in developing policy premium and limits.

The insured's argument in this situation is that the building actually had value, as evidenced by its use for storage and a repository of the boiler equipment. The insurer's argument (which we think is the more valid) is that there is evidence to support that the building's value is nothing and that it was intentionally left uncovered by the insured. This evidence includes the insured's statement of values and the square footage statement that included the occupied, but not the unoccupied, building.

It seems inequitable that a building recently valued by the insured at $0 should now have a value of more than $4 million following its destruction. We do not think coverage applies to the condemned building and believe the insurer is correct in its denial.

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