What happens to your insurance coverage when your building becomes vacant or unoccupied (idle)?
Most insureds are not aware of the restrictions in their property insurance when a building is unoccupied or vacant.
One of the more common coverage forms includes this provision:
When this policy is issued to the owner or general lessee of a building, building means the entire building. Such building is vacant unless at least 31% of its total square footage is:
- Rented to a lessee or sub-lessee and used by the lessee or sub-lessee to conduct its customary operations: and/or
- Used by the building owner to conduct customary operations
When a building has been vacant for more than 60 consecutive days before a loss or damage occurs, there is NO COVERAGE for vandalism, sprinkler leakage (unless you've protected the system against freezing), building glass breakage, water damage, theft, or attempted theft. For other types of covered claims, such as fire or wind, the amount payable would be reduced by 15%.
The logic is that buildings that are vacant for extended periods are vulnerable to vandalism and arson, partly as the result of only occasional maintenance and security oversight.
The solution to waive these restrictions:
Tell your insurance agent if 70% of your building is vacant or unoccupied, that is, it's not being used by the owner, lessee, or sub-lessee to conduct their customary operations. Your agent will work with the insurance company to provide the proper coverage.
There is an endorsement available - Vacancy Permit - which reinstates coverage for the types of losses mentioned above. The Vacancy Permit endorsement is designed for use when the hazards that are normally associated with vacancy do exist, but the insurer has elected to underwrite the exposure. A premium is charged for this endorsement.
Premium or coverage considerations (by the policyholder or the insurance company) may affect whether vandalism or sprinkler leakage claims would continue to be covered.
AGAIN, we stress that building owners keep their insurance agents informed of the occupancy conditions in their property so proper coverage can be continued under the policy.