A building that looks occupied to the average person may be considered vacant to an insurance carrier—and the vacancy can trigger a clause in standard policies that limits coverage for unwary building owners and lessees.
Giving some insurance basics for vacant buildings during a recent PC360.com webinar, Christopher Zoidis, vice president of the Special Risk Division of wholesaler/MGA Burns & Wilcox, notes that insurers specifically define vacant property in standard ISO (Insurance Service Office) forms with clauses referring to "less than 31 percent of the square footage" being occupied.
For tenants, a building that does not contain "enough business personal property to conduct customary operations" is also "vacant" according to the wording of vacancy clauses in standard policies, Zoidis adds.
If a building is vacant under this definition for a period of more than 60 days, then standard ISO forms eliminate coverage for some key specific perils, he says. According to a recent whitepaper published by Zurich North America, the perils excluded by the vacancy clause are vandalism, building glass breakage, water damage, theft or attempted theft, and sprinkler leakage. And a penalty kicks in reducing losses paid for covered perils—like fire and wind—by 15 percent, says Zoidis.
Not all carriers put vacancy clauses in their policies, the whitepaper says, noting that Zurich is prepared to underwrite vacant properties without any reduction in coverage.
Zoidis notes that vacancy permits, reinstating coverage for the excluded perils, have become widely available—from both standard and excess-and-surplus lines carriers—over the last few years. Some residential-property owners can even get replacement-cost coverage, he says, noting that the actual-cash-value basis of coverage had been the prevailing standard for vacant property prior to 2010.
Special forms and vacancy permits vary by carrier, and some have security requirements (a central station burglar alarm, for example) before they will add theft, Zoidis says.
SECURITY GUIDELINES
During the webinar, Zurich's Jeff Shearman, senior risk engineering consultant, reviews a host of security best practices for idle and vacant properties.
When preparing to idle a facility, "do a vulnerability analysis" to identify areas that natural elements can affect, such as roof hatches and windows, as well as areas that human elements can affect, he says, referring to human actions ranging from setting fires to squatting.
Shearman distinguishes between idle and vacant properties, giving slightly different definitions for risk-engineering purposes. Idle properties are those with contents and systems left in place so that the facility can be used for the same purpose in very short order, Shearman says. In vacant facilities, he says, the heating, ventilation and air-conditioning, and alarm systems are shut off, contents are removed, and the building is secured in a more permanent manner.
Because an idle facility is merely "stopped in time"—where it was when the last person walked out the door and shut the lights, he notes that valuable resources remain on site and become attractive targets for thieves. They are going to be watching, Shearman notes, recommending that owners perform "regular, though not predictable tours" daily or weekly.
"Don't go every Tuesday at 2 o'clock," Shearman says. And the tour shouldn't be a "WD-40," he adds, coining his own phrase for a drive-by at 40 miles per hour.
In a vacant facility, such tours can be done more irregularly and less frequently, he says.
For an idle facility, it's very important that protection (fire- and security-alarm systems) remain in place, he adds. "In a vacant facility, insurers still like to see such systems as much as possible. But if there's just bare concrete and block walls, then…it's more palatable to idle or take down [protection] systems."
Shearman notes that when owners choose to shut fire-protection systems in vacant buildings, they should remove combustibles.
In either case—whether a building is idle or vacant—resources such as copper pipe and wiring may remain on site, making it a good idea to maintain a security-alarm system. In that case, Shearman advises owners to check whether the security system is "tied into the fire-alarm dialer." In some instances, owners believing they were taking only the fire-alarm system out did not realize that the burglar alarms were on the same modem and they actually unknowingly took those offline too.
Shearman also reviews tips to prevent water damage, freezing pipes and vandalism. Among the guidelines he provided that apply to both idle and vacant buildings were to:
• Consider fencing the facility perimeter.
"They can make decorative fences that don't make it look like a prison, but provide some added level of security," he says, adding that there are security systems available that will activate if a fence is cut.
• Secure mail slots and drop points, such as night deposits for banking facilities.
"Those are places people can pour flammable liquids into to set buildings on fire," he says.
• If you have a shed or portable building on site, consider getting them off the property.
Shearman suggests that such buildings can be turned into methadone labs or storage facilities for contraband.
For more information:
• A whitepaper detailing additional maintenance and security guidelines, outlining potential hazards and providing the ISO standard policy definition of vacancy is available on Zurich's website at www.zurichna.com/internet/zna/SiteCollectionDocuments/en/onlineservices/brokerhelpzone/whitepapers/RECold2AvacantpropertyWhitepaper.pdf
• Articles with advice from Burns & Wilcox professionals are available at www.propertycasualty360.com/topic/vacant-property.
• Links to the vacant property and other recent webinars presented by PropertyCasualty360.com are available at www.propertycasualty360.com/webseminars/
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