This issue of ProNetwork News is meant to serve as a basic reference guide to the property insurance coverages typically purchased by design firms. Last month we posted a companion piece, Insurance 101: The Things You Always Wanted to Know About Liability Coverage But Were Afraid to Ask.
We continue our overview of insurance products of interest to design professionals with this review of property coverages that may apply to the needs of your particular practice. As always, we encourage you to ask your broker what insurance is right for you.
BUSINESS PROPERTY INSURANCE
Whether you lease or own your office, you need to insure office equipment, furniture, fixtures, computer equipment, phone systems, fax/copiers, valuable papers and fine arts for fire, theft and water damage. Insuring these valuables for “replacement cost” on an “all-risk form” means that your business is most likely to be reimbursed properly for a covered loss. If you lease furniture and equipment, the lessor will require this coverage and will be designated as a “loss payee.” Landlords of rented property usually require their tenants to maintain property coverage for the rented space to cover improvements and betterments provided to the leaseholder.
Since most design firms are heavily dependent on computer systems, it is important to properly inventory equipment and software.. For example, the cost to reproduce plans and specifications kept on computer files is significant when considering the insured value of valuable papers and records. However, no limit of insurance is a substitute for reliable backup procedures.
Stand-alone IT coverage packages, including security breach, are evolving almost daily. They can cover both first party losses (yours) and third-party losses (those for which you may be liable to others). Ask your broker what products may best apply to your needs.
VALUABLE PAPERS INSURANCE
A/E firms have in their possession valuable papers and documents whose destruction would prove very costly. Maps, plans, specifications and books are some examples. All-risk protection is generally available excluding wear and tear, gradual deterioration and vermin. Certain valuable papers may be insured specifically, or “scheduled.” More commonly, a blanket limit is established to cover all valuable papers. Articles insured on a blanket basis are covered for their replacement cost. Scheduled items are covered on a valued basis even though it is not possible to replace them with like kind and quality.
BUSINESS INTERRUPTION AND BUSINESS EXPENSE INSURANCE
While Business Property Insurance covers the cost of lost property, in many instances the loss caused by the interruption of business can exceed the amount of physical damage. Business Interruption generally consists of two parts: Business Income and Extra Expense.
Business Income will pay the insured for lost earnings during a total or partial suspension of business caused by direct physical damage to the insured’s premises. The policy covers “actual loss sustained” by the insured because of the interruption of business during the period that it would take to rebuild or repair the damaged property. Extra Expense reimburses the insured for the extra costs that are necessary to continue business operations during the period of restoration.
Most small design firms can be insured inexpensively for their actual loss sustained up to 12 months with no limit on the amount of insurance. Larger firms may be subject to coinsurance clauses under which the insured agrees to carry a minimum amount of insurance unless an “Agreed Amount Endorsement” is added to the policy. Often misunderstood and neglected, this coverage should be carefully reviewed with your insurance advisor.
This has been an excerpt of the August 2013 issue of ProNetwork News. The newsletter goes on to deal with all types of property coverage, including Builders Risk Insurance, Equipment Floaters, Backup of Sewer and Drains, Earthquake and Flood Insurance! Download the full PDF version of Insurance 102: Property Coverages here.
This information is provided as a service of a/e ProNet, an international association of independent insurance brokers dedicated to serving the design profession since 1988. We are dedicated to representing the best interests of our design clients as a trusted and impartial source of information on professional liability insurance, risk management, loss prevention and continuing education. Please visit our website www.aepronet.org for additional information.
About the Authors:
Meade Collinsworth is President of Collinsworth, Alter, Dowling and French Group, Inc., a brokerage which serves design professionals, contractors and environmental consultants. Mr. Collinsworth specializes in commercial, management and professional liability insurance placement and risk management.
Dan F. Middleton, CPCU, ARM and Executive Director Emeritus of a/e ProNet, completed his career as Vice President, Construction, of the Ohio office of Willis-Corroon Corporation. He specialized in risk management and insurance for design firms and major construction companies.
Warren Redeker is Executive Vice President of Prosurance/Redeker Group, Ltd., New York, NY, an independent brokerage firm that focuses on insurance products and risk management services for design professionals.
F. David Shipley was founder and President of Shipley & Associates, Inc. Mr. Shipley had specialized in risk management and insurance placement for design professionals, land surveyors, landscape architects and environmental consultants prior to the sale of his business.
Earleen R. Thomas, of Cornerstone Specialty Insurance Services, has provided insurance and supportive risk management services to design professionals across the country and also has worked as a specialist broker for finance and accounting firms.
Michael Welbel is founder and President of M.G. Welbel and Associates, Inc. With a background in the resolution of professional liability claims, his business is focused on helping design firms avoid claims, and manage their risk and insurance needs.