Property insurance protects a policyholder’s property in the case of a loss due to damage, theft, or destruction. There are two types of property insurance, residential insurance and commercial property insurance.
Homeowner’s Property Insurance
A homeowner’s policy contains two sections. Section I provides property coverages; while Section II provides liability coverages. Under Californialaw, property insurance policies must send policyholder a copy of the policy, an offer of coverage for earthquakes, an explanation of cancellation or non-renewal of the policy, and the insurance carrier’s phone number for claim inquires.
Property insurance policies are considered either “open peril” or “named peril” policies. An open peril policy covers all risks that have not been expressly excluded in the terms of the policy. A named peril policy covers losses for only the specific risks that have been identified by the policy. As an example, the types of perils that are usually excluded in a named peril policy are earthquakes and floods.
In order for a property loss to be covered by a homeowner’s policy, the cause of the loss must be specified within the terms of the policy. Most property insurance policies include a list of exclusions or causes of loss that are not covered. An exclusion in a policy means that the insurance carrier will not pay for a loss caused by certain types of events.
In the event of a loss, a policyholder should promptly notify the insurance carrier of loss. Most standard property insurance policies require the policyholder to submit a written notice of the loss within 60 days. Next, the policyholder may be required to provide supporting documentation of the loss, which could include items such as the time and date of the loss, the value of each item, all encumbrances on the property, and any change in the title to the property since the policy was issued. The insurance carrier must reply to the claim within a reasonable amount of time. If an insurance carrier investigates a claim, they must do so in good faith and fair dealing and their investigation must be reasonable. As discussed on our Policyholder Rights Blog, an insurance carrier has a right to request an Examination Under Oath during their investigation of the claim.
Under the California Code of Regulations, an insurance company must maintain a file which documents the history of the claim. Additionally, unless there are specific reasons for delay such as suspected fraud, all claims should be resolved within 40 days. If a policyholder’s claim is denied, the insurance carrier must send the policyholder a written explanation of why the claim was rejected. Additionally, the insurance carrier must provide the factual and legal basis for the denial.
A policyholder has different options if their claim is denied. He/she can ask for an appraisal of their claim from an independent agency, file a law suit, or initiate mediation through the California Department of Insurance.
Commercial Property Insurance
If you are a small business owner, commercial property insurance can protect you and your business from property damage, business interruption, theft and general liability from bodily injury suffered on the property. Commercial insurance is divided into two main categories: property insurance and casualty insurance. Property insurance provides coverage for property that is stolen, damaged, or destroyed by a covered peril. The term “property insurance” includes many lines of available insurance such as commercial property, inland marine, boiler and machinery, and crime are the most common commercial property coverage lines.
Buildings you own or lease as a part of your business, your business personal property, and the personal property of others make up the basic coverage sections of commercial property insurance. Commercial property insurance can be sold separately as an individual line policy (referred to as a monoline policy), or it can be sold as part of a Commercial Package Policy (CPP), which combines two or more commercial coverage parts such as commercial property, general liability, and commercial auto.
Building coverage includes buildings or structures and any completed additions, which are listed on the declarations page of a commercial policy. Permanently installed fixtures, machinery, and equipment are also insured as a part of building coverage. The limit of insurance is the estimated amount needed to rebuild your building and to replace permanently installed fixtures, machinery, and equipment in the event of a total loss. You are required under the insurance policy to fully insure the value of your buildings. If a building is not insured to value, you can be subject to a monetary penalty at the time of a loss. This penalty is commonly referred to as “coinsurance.” It is important to read and understand the coinsurance clause of your commercial property policy and to discuss any questions with your broker-agent.
Business Personal Property
Business personal property consists of furniture; fixtures, machinery, and equipment not permanently installed; inventory; or any other personal property owned by and used in your business.
Personal Property of Others
Personal property of others refers to property that is in your business’s care, custody, and control. The type of business you operate will determine if you need to protect the personal property of others. Many policies contain an extension of coverage for personal effects of others and recovery under this provision is generally paid out to the business.
Common Issues We See
Frequently, property damage occurs over the course of several policy periods. For example, cracks in the concrete exterior of a building may first become apparent in one policy period but continue to grow in successive years in which different policies may apply. In this case, progressive, gradual damage is only covered by the policy in effect when the damage first became apparent (when the cracks in the concrete first appeared).
However, where the damage is caused by discrete events, each insurance company is responsible for the isolated damage that actually occurred during the years it underwrote the risk.
Coverage in the event of an earthquake
Property insurance policies usually do not cover damage caused by an earthquake. In California, the insurance carrier is required to inform a policyholder of the absence of coverage and to offer the policyholder an option to purchase an additional policy.