Brokers strive to do a great job for their clients, butsometimes overlook certain coverages. This could lead to a “failureto recommend” claim, and increased liability for the agent orbroker in case of a loss.

During a webinar for the independent agents' associationsrepresenting Delaware, Maryland and Pennsylvania, educationconsultant Jerry Milton, CIC, detailed five property coverages thatbrokers may overlook for property-owning clients.

Mistake 1: Failing to adequately cover improvements andbetterments, for tenants

Milton explains that improvements and betterments, although madeat the tenant's expense, become part of the building. Theimprovements are included in the definition of “building” in theowner's Commercial Property policy and also are included in thedefinition of “business personal property” in the tenant'spolicy.

Who insures? Because the improvements usually are attached tothe property and increase the value of the building, Miltonrecommends that the owner increase its insurance to cover any suchimprovements.

Mistake 2: Failing to advise the insured about the occupancyand vacancy issues with builder's risk policies.

“Occupancy in whole or in part voids the policy,” Miltonsays—but building owners don't like vacant buildings. Carriers maygive the insured permission to occupy parts of the building asconstruction is completed, moving in floor by floor, with anendorsement and an additional premium. But this approval is usuallyonly good for 90 days, and may need to be renewed as constructionis completed.

A related issue is the question of vacancy. If the building isless than 31% occupied for customary operations, it's consideredvacant, Milton explains. In the current economic times, tenants maymove out leaving a building less than 31% occupied, but stillpartially rented. The broker renews the policy without knowingwhether the building is fully occupied or not. However, if thebuilding is considered vacant for more than 60 days, the owner willlose coverage. In that case, the policy may not pay for any losscaused by vandalism or sprinkler leakage, for example, and othercovered losses are reduced by 15%.

Mistake 3: Failing to insure to 100% value and request agreedvalue

A building worth $1 million could be subject to coinsurance of80%, for example, leading to a limit of $800,000. What happens atthe time of loss if the building has an actual value of $1.2million because of improvements and additions? The building owneris out $200,000.

Milton's advice: “Always push for 100% value and request agreedvalue, which will suspend the coinsurance.”

Mistake 4: Allowing a tenant to insure a building

If the tenant is the named insured and the building owner isadded as an additional insured, Milton says, the owner could beexcluded for any loss if the tenant, its partners, members,officers or managers commits a dishonest act, such as arson. Suchacts could leave the building owner with no coverage.

It's much better, Milton says, for the building owner to carrythe insurance and build it into the tenant's rent.

Mistake 5: Failing to recommend building-glasscoverage.

Generally, a tenant is responsible for any building glassbreakage, Milton points out, but the tenant's Commercial Propertypolicy covering business property doesn't include building items,like glass. Even though the owner insures the building, it'simportant for the agent to recommend a building glass endorsementto the tenant's policy.