Why the Vacancy Provision Matters in your Property Policy

Not all insurance forms are created equal.  Some have standard ISO wording, while others have proprietary forms.  Are they different?  In short, yes, they can be, and here’s how.

Let’s start with what the Vacancy Provision does to your Property policy. ISO’s vacancy provision takes effect after 60-days of defined vacancy. If the building is vacant, the policy completely excludes any loss(es) caused by:

• Vandalism
• Sprinkler leakage, unless you have protected the system against freezing
• Building glass breakage
• Water damage
• Theft
• Attempted theft

All other losses caused by a covered cause of loss are paid, but the claim payment is reduced by 15%. 

In today’s shelter-in-place environment, many businesses have been deemed “non-essential” and are required to work from home.  Since their business is not occupied, is it vacant? Would a vacancy provision apply?  The answer resides in the function of how the individual policy applies.  

For example, if the policy applies ISO or similar language, the vacancy provision is based on and is triggered by the presence or lack of sufficient business personal property to conduct customary operations.  Most businesses have left their business personal property at their locations, and have not left their space bare, so the vacancy provision would most likely not apply.  

However, take this real-life scenario on one insurance company’s proprietary form and how the vacancy provision takes effect.

Vacant means that:

1. 70% or more of the rentable square footage of a building at an insured location is not being actively used by you or a tenant for its intended purpose; or
2. 70% or more of the total square footage of a building at an insured location utilized by you to conduct your business is no longer used to conduct your customary operations; or
3. A building at an insured location used by you to conduct your business does not contain enough business personal property to conduct your customary operations;

 whether or not you intend to use or rent such building.

This is an activity-based trigger, whereby, once the activity ceases, you are on the clock for 60-days.  We are not sure how long the shelter-in order will last.  This makes it exceptionally important that you have a professional review of your policies to ensure you are adequately covered and avoid any of the exclusions we referenced. If you have any further questions, please contact your Horton team member via their direct dial number, their email address, or to be directed to your team member call us at 800-383-8283.

Source: COVID-19 and Commercial Property Vacancy Concerns