Water Tower as Covered Property under Commercial Property Form

 

Our insured had an extensive fire at his hotel. On top of the hotel was a non-functional water tower valued at about $40,000 to replace.

The insurance company feels they shouldn't have to include the cost of the water tower because it was not functional and therefore had no value. We feel that the insurer should pay the $40,000 cost to replace it because: (1) there could be a future potential function for the tower; (2) the tower is a part of the building and does have a value even though at this time it is nonfunctional (and could even be considered decorative); and (3) we feel that when you insure a structure, you insure the complete structure whether a portion of it is functional or not.

How should the tower be adjusted?

Illinois Subscriber

Nowhere in the commercial property policy (CP 00 10 04 02) is there reference to functional or nonfunctional property; reference is to covered and noncovered property. Covered property includes the building and its permanently installed structures. The water tower qualifies as covered property.

If a coinsurance requirement is shown in the policy declarations, and if the insured has met the coinsurance requirement for insuring to value, the building—including the water tower—is covered to the full limit of the policy. If the insured has not met the coinsurance requirement, the penalty will apply, lowering the amount available to cover the loss and capping recovery.

Avoiding coverage for the tower due to its present nonfunctional state would be analogous to denying coverage to an unused second story of a building. It would not be correct to reduce the value of a building due to the non-use of a portion of that building. It is just as incorrect to reduce coverage for the loss due to the functionality or nonfunctionality of a building structure.

The tower should be included in the insurance recovery.

 

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