When a commercial building is vacant or unoccupied, there are generally two problems.  The property is exposed to an increased amount of risk; for example, it becomes a target for vandals.  In addition, discovery of a loss may be delayed; a water pipe can burst and go undetected for days.  As a result of the increased risk and delay in detection, insurance policies are not as broad when a property is considered vacant.

Defining Vacancy

In the mid 1990’s, commercial property policies started defining exactly when a building is considered vacant.  The definition is found in the Conditions section of the policy.  With each new edition of the policy, the definition has been revised.  Today, you must review the actual policy covering a building in order to determine which definition of vacancy will apply.  Some policies state that a building is considered vacant unless at least 31% of the total square footage is being used to conduct customary operations.  This would mean that if only one floor of a four-story building is being used, the vacancy restrictions of the policy would apply.

The Threshold

For a short period of time, vacancy is not a problem because the vacancy condition in a commercial property policy contains a threshold.  Usually after the building has been “vacant” for either 30 or 60 days, the restrictions on coverage are activated.

Restrictions on Coverage

When a building has been vacant for longer than the policy threshold, there are two changes in coverage:

·         Excluded Perils

There is no coverage for six causes of loss:  theft, attempted theft, vandalism, glass breakage, water damage, and sprinkler leakage

·         Reduced Coverage

For other covered perils, payment of a loss is reduced by 15%.  With a $100,000 fire loss, the policy will only pay $85,000

When your building is unoccupied or vacant, be certain to check the vacancy condition in your property policy.  If you are not certain how the provision will apply, get it cleared up before the loss and get it in writing.  When your building is vacant check with your agent and ask him your options.  He/she should be able to negotiate coverage through an endorsement, vacancy permit, or special vacancy policy.  Remember, most carriers do not hesitate to activate the vacancy provisions of a policy if the conditions at the time of claim warrant it.