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Building design firms typically either own or rent office space to carry out their design work and meet with clients. Your firm may also have valuable property in the building such as furniture, computers, and special equipment: custom LED lamps, large format printers, and tools for creating your drafts and blueprints. If an unforeseen accident or natural disaster damages your property, it may lead to significant disruption to your company’s work—e.g.,. delays to building projects and dissatisfied clients—if you don’t recover from the damage promptly. For example, if your office computers are damaged by a natural disaster while you’re in the middle of an important project for a client’s new office tower, will you be able to finance new equipment quickly enough to avoid delays?
What is Commercial Property Insurance for building design professionals?
Commercial Property Insurance will help protect the value of the physical assets your building design business owns. You will pay a premium to insure the property you own, and your insurance company will pay you for the value of damaged or destroyed property if an incident occurs. When your building design business faces property damage, Commercial Property Insurance will help you recover.
Here are a few situations Property Insurance can cover:
- A fire in your architectural firm’s office completely destroys the interior.
- A hailstorm damages the roof of the office building your engineering firm owns.
- The fire sprinkler system leaks in your office and damages your computers.
- Vandals damage the special LED lights used in your architectural firm’s office.
What does Commercial Property Insurance for building design professionals cover?
Commercial Property Insurance covers buildings, contents, and the property of others in your care.
Note that Commercial Property Insurance doesn’t cover commercial vehicles, which are covered instead by commercial auto insurance.
Commercial Property Insurance covers commercial buildings or offices that your business owns. In cases where you are leasing or renting a building, your landlord may also require you to purchase Commercial Property Insurance to insure the building you’ve set up shop in. Property coverage also includes many of the surrounding physical assets of a building, such as landscaping, fences, and outdoor signs, as well as any tenant improvements.
Commercial Property Insurance also covers physical assets you own that the building contains—building contents. This means furniture, computers, tools, equipment, and inventory stored on premises or nearby.
- Someone breaks into your engineering firm’s office and makes away with ten LED lights that cost $250 each. Your Commercial Property Insurance policy reimburses you $2,500 for the value of the lights.
If your business leases equipment, many vendors require you to insure the leased equipment while it is in your possession. For building design firms, high-end fabrication equipment that is often leased, such as 3D printers, 3D scanners, and laser cutters, are prime candidates for coverage, given their high price tags. Commercial Property Insurance can cover this leased property.
Many building design businesses also store valuable documents or billing records in paper form on their premises. Property Insurance will typically cover the cost of restoring or replacing these types of documents if they are damaged or lost, to a certain extent. Most standard Property Insurance policies have very low sublimits for valuable papers and records coverage. For more coverage, you may need to purchase a separate valuable papers and records insurance policy.
- A fire in the office of your architectural firm destroys the hand-drawn blueprint that your chief architect has designed for a new museum downtown. You must pay your chief architect overtime to recreate the design.
Property of Others
Commercial Property Insurance can cover damages and losses to property in your care that belongs to others. Leased equipment that you have not been obligated to insure by contract also counts as property of others.
- Your engineering firm has leased another firm’s land surveying equipment. When a hurricane decimates your office building, the leased equipment is damaged beyond repair.
The limit of liability for property of others, which is usually very low, is separate from your contents coverage.
What risks are covered by Commercial Property Insurance for building design professionals?
When your building design business is purchasing Commercial Property Insurance, you’ll need to differentiate between “named perils” and “open perils” policies. For a named perils policy, only the risks specifically listed in the insurance contract are covered. Open perils covers all risks unless it’s specifically excluded. Since open perils coverage is more comprehensive, it usually requires higher premiums.
Common exclusions for both named and open perils Commercial Property Insurance policies are floods, earthquakes, and employee theft and dishonesty.
The most commonly covered named perils include:
- Fire or lightning
- Theft or vandalism
- Damage from vehicles or airplanes (excluding those owned by the business)
- Water damage, sprinkler leakage, or burst pipes (but water damage from flood is excluded)
- Windstorm or hail
- Smoke from accidental fire
- Riots or civil commotion
- Sinkhole collapse or building collapse
Since every insurance contract covers different perils, it’s wise to read your insurance contract closely and have a conversation with your insurance company about the policy.
Common exclusions from named perils policies include:
- Nuclear reaction or war
- Wear and tear
- Power failure or computer failure
- Robbery and burglary
- Changes in humidity and temperature
- Inventory shortages if there is no physical evidence to show what happened to the property
- Losses from intentional acts
Open perils coverage will cover property damage from any reason unless it’s specifically excluded in the insurance contract. Open perils policies have the same exclusions listed in the named perils section above and also commonly exclude the following:
- Animal or insect infestations
- Fungus and mold
- Losses due to governmental actions
- Rust or corrosion
- Sewer backups
- Mechanical breakdowns
- Your engineering firm has a large supply of tools, including drills, wrenches, and power saws, locked away in a storage vault in the basement of your office building. When you discover that the tools are rusted, you file a claim to recover their value, but your Commercial Property Insurance will not cover it because rust and corrosion is an exclusion.
Replacement Cost vs. Actual Cash Value
You can insure your property with coverage that will pay the replacement cost (RC) or actual cash value (ACV). What’s the difference between these two terms?
If you are insured for the replacement cost, the insurance company will pay to repair or replace your property with a new item that’s of similar kind and quality to the lost/damaged item without taking depreciation into account.
Actual cash value will only cover the value of the property at the time it was lost/damaged, which takes depreciation into account.
- Your engineering firm owns an industrial laser that cost $50,000 to buy new. You insure the laser for $50,000, and two years later, a fire burns down your office, destroying the laser. The market value of the two-year-old laser is $35,000, while a new model still costs $50,000. If you have RC coverage, the insurance company would pay you $50,000. If you have ACV coverage, the insurance company would only pay you $35,000.
The premiums on RC coverage are higher than the premiums on ACV coverage, due to the higher potential payouts.
Commercial Property Insurance Pricing
Insurance companies price their products based on the risks involved in insuring your business property.
Here are some factors that could affect your pricing for Commercial Property Insurance:
- Do you have a history of prior property losses?
- Do your neighbors engage in risky activities? A nearby industrial dry cleaner using flammable solvents or chemicals may increase your premium.
- What is the type of business you own? For example, in the same location, a restaurant would have higher risk and higher premiums than an interior design company due to increased risks of fire.
- What are the characteristics of your neighborhood? Is there high criminal activity? Is it exposed to frequent natural disasters or accidents? Are there high fire risks nearby such as an oil refinery?
Coinsurance and Underinsurance
With Commercial Property Insurance, many insurance policies require the policyholder to insure a minimum percentage of the property value in order to get the full value of a claim paid. This minimum percentage is called coinsurance and is often set at 80%. Coinsurance exists because most property losses are not total losses, and businesses may be tempted to report lower values for their property to save money on premiums. If the amount insured is below the coinsurance percentage, the insurance company can reduce the claim payment when a loss occurs.
- A major architectural firm owns an office building with a value of $1,000,000 that is insured for $600,000. The insurance policy has a coinsurance percentage of 80%, so the building is underinsured. If the property suffers a partial loss of $500,000, the insurance company will adjust the claim down, even though the loss is less than the amount insured. The claim paid will be the insured percentage ($600,000 / $1,000,000 = 60%) times the amount of the loss (60% x $500,000 = $300,000).
Due to the coinsurance clause, the firm will only receive $300,000 on this $500,000 loss since they did not maintain enough insurance on the building.
To run your business operations, your building design firm has valuable commercial property that needs to be insured. A variety of natural disasters, malicious acts, and accidents can threaten the building or office where you conduct most of your business or where the equipment you use to create your work is stored. Commercial Property Insurance will insure the building, contents, and the property of others in your custody from many threats. It’s an essential commercial insurance policy to carry for any building design business.