Buying Property Insurance for your Business (Part III)

One of the most important decisions that a sport- or recreation-business owner and/or manager must make is the purchase of business property insurance. This is the third of a five-part series on critical considerations that one faces in the purchase of appropriate and adequate property insurance. The series is authored by Daniel Hale,  a real expert in the field of insurance. Hale is located in Michigan so some of the considerations relate specifically to Michigan law. It is important that the reader find out if the reader’s state law is different.

Part III



By Daniel Hale

Cambridge Property and Casualty

Lesson 10: Many Losses Can Be Avoided.

All the problems you will suffer in negotiating a loss settlement with your insurance company can be avoided if you would avoid the loss to begin with. It is surprising how many clients do not have smoke detectors or alarm systems. These are simple and relatively inexpensive devices which, if connected to a central station, can provide a deterrent and also provide warning which may minimize the loss or avoid the loss. You do not want to suffer the time loss necessary to reach a successful settlement with your insurance company if it can be avoided, and it can be avoided in many cases by simple loss prevention techniques.

Do not wait for your insurance company underwriter to require that you have a smoke detection system or burglar alarm system connected to a central station. Do it, because it may save your business. Even if you do reach a successful recovery with your insurance company, the business you have taken many years to build up may no longer have the vitality that it once had.

Lesson 11: Always Blanket Limits.

If you have two locations and let’s say that each location has a building value of $1,000,000, you may have a choice of writing these two locations separately with a limit of $1,000,000 each or writing them together with a blanket limit of $2,000,000 which would apply to each location. There is no significant difference in premium cost in doing so; however, if you have your agent worrying about the wrong thing, the agent will be searching for the cheapest insurance policy available and the cheapest policies, known as business owner policies, will typically not permit blanketing. Blanketing could save the day in the event that you inadvertently have underestimated the value of your building because a $1,000,000 building that is insured for $1,000,000 may cost $1,500,000 to replace. Under the blanketing concept you would have $2,000,000 in coverage.

Lesson 12: It Is Your Burden To Prove The Loss In Any Claim.

You must prove what you had in the building by way of personal property and what the replacement is of those items. If you have scheduled assets as part of your balance sheet and fail to have off-premises backup of those records, you may not be able to prove your loss. Always have off-premises backup and always be able to prove your loss. This requires discipline in maintaining not only asset records but in preserving those records in the event of a loss.

Lesson 13: New Municipal Ordinances Will Be A Problem.

We had a loss involving a 13,000 square foot building that was eight years old and that was insured for $1,000,000. It turns out that the replacement cost of the building was approximately $1,000,000; however, the municipality involved required improvements in the building totaling $156,464. These were items that were not part of the original building. The insurance company typically owes you the replacement cost of the building as it existed just before the fire. They do not owe you any improvements required by city ordinances. You must purchase ordinance or law coverage with a sufficient limit in order to accomplish this.

In this particular instance, the city required a full fire sprinkler system, wider interior doors, a larger parking lot, better building foundations, new curbing and new landscaping. Two story buildings most likely would also require elevators. Always negotiate a sufficient limit for ordinance or law and do not underestimate your need for this coverage. Remember – most insurance carriers do not automatically provide it.

You also should note that under Michigan statute, an insurer is entitled to withhold 25% of an insurance settlement for a serious loss where required by a city, village or township.

Lesson 14: Ask About The Reputation Of The Insurance Company For Claims Paying.

Some insurance companies treat policyholders and claimants as heathens, scoundrels, and criminals. These insurance companies will deny coverage for claims knowing that most policyholders will not fight. Other insurance companies, on the other hand, will find a way to pay under their insurance policy if a claim is in a gray area and will expedite payments as quickly as possible. Most insurance brokers know the insurance companies that treat their insureds as heathens, scoundrels, and criminals and know the other companies that will deal with claims more favorably. The trick is getting the insured’s broker to tell you about an insurance company’s reputation.

If you have your agent worry about the wrong thing, such as price, that agent, in order to save your account, may place you with one of the insurance companies that have a bad reputation in this area. Discuss this openly with your agent and be certain to worry about the right thing, and that is the ability and reputation of your insurance company to keep you in business in the event that you suffer a disaster.

Lesson 15: Spend The Time On Your Insurance Program Before The Loss.

Do not buy insurance the way you buy janitorial supplies. Buying insurance the right way takes time, understanding the policy provisions takes time, making your policy bullet-proof takes time, selecting the proper agent takes time. Spend quality time on your insurance program and do it every year.

Photo Credit: Thanks to Patrick Stahl,