What is Valuable Papers and Records coverage? Why do I need it?

In this day and age, more and more documents are being stored electronically or even in the cloud, but paper records are still relevant to many organizations. Whether it is a medical clinic that keeps patient records on paper and locked in a filing cabinet to ensure patient privacy or a real estate company that keeps the original drawing of a building plan for their future office, many companies will have valuable papers and records that need extra insurance coverage.

If your business relies heavily on documents that are susceptible to being damaged or destroyed—for example, client files or medical records—losing them to a fire or other peril could easily threaten the survival of your company. Valuable Papers and Records Coverage will reimburse you for the monetary value of important documents or the cost of repairing and replacing them. A standard commercial property insurance policy will have some coverage for these valuable documents, but the standard policy will likely not be sufficient to cover the value of certain papers and records or the significant cost it would take to replace them. This is where Valuable Papers and Records Coverage can help you rebuild your business after a loss.

Example:

A fire causes extensive damage to the building where your law firm is located, burning through all of your offices and completely destroying your client files and court records. To retrieve the court records from the court system and to recreate the client files, your law firm needs to hire a number of temporary workers for several months, in addition to paying overtime for current support staff.

Example:

A hailstorm shatters the skylights in your building, leaving your offices exposed to the wind, rain, and hail of a passing storm. The weather destroys the original drawing of the building plan for the company’s new office. To replace the document, you need to hire the architect who designed it to redraw the plan.

When you are considering whether you need Valuable Paper and Records Coverage and how much of it you might need, you’ll need to think about these questions to calculate the true cost of replacing valuable papers:

• Would you need to hire temporary employees to help replace the papers?
• How many hours of work would it take to replace the papers?
• Would you need to obtain original versions?
• Would you need to recreate original work, like home inspections, surveys or maps?
• Do you have one-of-a-kind or rare historical documents that cannot be replaced?
• What is the limit on coverage for valuable papers on your standard commercial property insurance policy, and what is the difference compared to the true cost?

Are you surprised by the actual value of paper documents or the actual cost of replacing them? Many small and medium-sized businesses will need more coverage for Valuable Papers and Records than they initially think.

What counts as valuable papers and records?

The International Risk Management Institute defines valuable papers and records as “almost all forms of printed documents or records except money or securities; data processing programs, data, and media.” Valuable papers and records must be written, printed, or inscribed. Typically, Valuable Papers and Records policies will define the types of documents that are covered, either broadly or specifically. They may include the following types of documents you may have stored in your office or at a secure location nearby:

• Books
• Maps
• Films
• Drawings
• Blueprints
• Deeds
• Mortgages
• Manuscripts
• Abstracts
• Card Index System
• Accounting Ledgers
• Licenses
• Medical Records
• Employee Records
• Client Files
• Client Lists
• Court Papers
• Charters
• Patents
• Building Leases
• Contracts
• Permits

What are the important conditions and exclusions for coverage?

Protection and security of important documents

One of the key conditions that insurance companies require for coverage of valuable papers and records is that the papers in question must be physically protected and secured. If this condition is not met, the business owner will not be able to make a claim against the policy. Insurance companies will have defined standards for the physical protection and security of valuable records offsite or the maintenance of records onsite.

Example:

You keep the deed to your business property in a safe at your office. When a hurricane damages your building, everything from your office is lost. You can make a claim against your insurance policy for the cost of replacing the deed that was in the safe.

In addition, businesses that mitigate the risk of losing these documents by making digital copies or by keeping backup copies in storage offsite can often qualify for discounts for their Valuable Papers and Records Coverage.

Example:

You have paper versions of your client files, but you also had your staff scan the files and create digital copies that you’ve stored on your company’s server. Your insurance company gives you a discount on your premium for Valuable Papers and Records Coverage because of the precautions you have taken.

Named perils vs. all-risk

While there are some Valuable Papers and Records coverages that will accept claims resulting from all types of risks, many policies will only cover the cost of replacing important documents that are destroyed by a number of named perils. They may include fire, hurricane, windstorm, hail, collapse, and burglary.

Example:

Your store’s historical books and manuscripts are destroyed by a rare flood that submerges the building. Unfortunately, floods are not one of the perils named on your Valuable Papers and Records policy form. You would not be able to make a claim against the policy for the monetary value of the books and manuscripts you lost in the disaster.

Limits

Because the Valuable Papers and Records coverage is an addendum to the commercial property insurance policy, the maximum paid out for the policyholder in the event of a loss would be the limit for the Valuable Papers and Records coverage, not the limit of the commercial property insurance policy. Many policyholders are surprised to learn that there is a “sublimit.”

Example:

Your medical office is catastrophically damaged in a fire, and all of your patient records are destroyed. Your policy limit for the Valuable Papers and Records coverage you’ve purchased is $25,000, but your commercial property insurance policy limit is $500,000. The maximum you would be able to receive for the loss of your medical records would be $25,000 and not $500,000.

Furthermore, the coverage will only pay out the actual monetary value of the lost documents or the actual cost of reproducing them and never the total policy limit.

Example:

Your sublimit for Valuable Papers and Records coverage is $50,000, but the actual cost of replacing the important documents you’ve lost in a fire is $25,000. You will only receive the actual cost and not the total policy limit, even if your entire office is destroyed in a fire.

No coverage for electronic records

Most Valuable Papers and Records policies specifically state that electronic records will not be covered under the policy. Businesses typically store a great deal of important information electronically, but most commercial property insurance policies do not provide any coverage for the loss of electronic data. Instead, business owners need to purchase a separate insurance, called Electronic Data Processing (EDP) coverage, to protect against the financial risk of losing their electronic records.

Reduce the risk of losing valuable papers and records

Given the importance of certain printed documents to the central functions of your business and the significant cost that it may take to repair and reproduce them, it’s critical to safeguard these papers and records from natural disasters or even everyday perils that could affect your business.

Here are some tips on how to mitigate the risk of your valuable papers and records getting destroyed in a fire, flood, or other unexpected disaster. Taking some of these steps may also help you receive a better premium from your insurance company for Valuable Papers and Records Coverage.

• Keep your important documents in a safe or vault and return them to the safe immediately after using them.
• Duplicates of important documents should be kept in a separate location, remote enough not to be affected by the same loss.
• Scan your documents either by yourself or by hiring a subcontractor, while also keeping original copies in some cases. Be sure to take note of the confidential nature of many documents, such as records with your client’s personal information, and take measures to protect their confidentiality as you are having a team carry out a scanning operation.
• Opt for a dry chemical extinguishing system instead of a water sprinkler system that can damage valuable papers and records.
• Give special attention to rare books or manuscripts that are not replaceable and can deteriorate under harsh conditions. Keep them protected from bright lights and high or low humidity environments.

Final Word

Businesses need to purchase Valuable Papers and Records coverage in order to protect important printed papers and documents from a variety of common and uncommon perils. These documents may be the lifeblood of your organization in some cases and, if damaged, could significantly interrupt your business operations. Since many documents would also incur a significant labor cost to repair or replace, Valuable Papers and Records coverage can help to shoulder this financial burden.