Buying Property Insurance for your Business (Part V)

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 fifth 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 V



By Daniel Hale

Cambridge Property and Casualty

Lesson 20: When Developing Building Insurance Values, Always Add The Estimated Cost Of Debris Removal.

In a major building loss, debris removal can be a substantial expense in the several hundred thousand dollar range. If you have a building that has a $1,000,000 replacement cost you will want to be certain that you factor in the debris removal expense and insure up to $1,250,000. Debris removal is not in addition to the policy limit but is included within the limit and must be factored into your values.

Lesson 21: Be Aware Of Your Rights To Appraisal Under The Insurance Policy.

In the event you have a fire insurance loss and cannot agree on a settlement value (either for building, personal property, or business interruption) you have the right to engage in the appraisal process with the insurance company, which means that you will have an expert, the insurance company will have an expert, they both will select a third expert, and they will arbitrate the loss. The result is binding on you and on the insurance company. This is required before you can sue your insurance company for breach of contract. For this reason, you need to start off the loss adjustment process by building a legal file and assembling experts that can represent you in the appraisal process.

Lesson 22: Report The Loss Immediately And Take Action To Protect Your Property.

This is required by the insurance policies. You must make temporary repairs and to prevent further loss. There are major fire insurance company repair contracts that will respond immediately to assist you. Have the home number of your insurance agent and let your agent select a fire insurance company contractor that they do business with that can respond immediately to assist you. Be certain that the agent reports the loss immediately to the insurance company and attempt to meet with the adjuster that day to embark upon an initial strategy with that adjuster to expedite the resumption of your operations and the repair process.

Lesson 23: Your Expenses In Settling The Loss May Not Be Covered.

The expenses that you incur in documenting, negotiating and submitting your claim is usually not covered by your insurance policy unless the insurance company has requested that you perform certain inventories and appraisals, and even then, all policies do not cover that cost.

Lesson 24: You Can Rebuild Elsewhere.

You do not have to replace your building on the site of the original building unless the building is seriously damaged and the municipality requires the insurer to withhold 25% payment unless you do rebuild. You can replace in another location; however, you must replace in order to obtain replacement cost and the insurance company will not pay more than what it would cost to replace the building on the original site.

Lesson 25: Major Fires Can Cause Major Environmental Damage.

Your policy may not provide coverage for asbestos cleanup and may limit coverage to $10,000 for cleanup for environmental damage as a result of a fire to the land that you occupy. Because of the water necessary to extinguish a fire and the pollutants that may be inside a building or that may be developed because of the fire itself, your possibility of environmental damage is substantial.

You should consider securing a pollution legal liability policy that covers on-site cleanup triggered by the insured to cover this exposure. In addition, the environmental damage that affects your site may affect adjacent sites, leaving you open to litigation from neighboring landowners for damage to their property or even injury to their employees. This may not be covered by standard liability policies.

Pollution liability policies covering on-site cleanup and liability for bodily injury or property damage to other people or property are available at low cost. Contact us for a copy of our special report on pollution legal liability.

Photo Credit: Thanks to Patrick Stahl,