Many commercial property and equipment floater policies have a coinsurance condition. This is used by these insurance carriers to create accurate rates by making an incentive for policy holders to insure the property for the correct amount. It is important to understand how the coinsurance condition works and know what it is on your policies.

The coinsurance condition requires the insured to carry insurance equal to a specified percentage of the actual cash value or replacement cost value of the covered property. As long as this condition is fulfilled, the insured will be paid in full for any covered losses up to the limit of insurance. However, if the coinsurance condition is not fulfilled then the loss payments will be reduced proportionately. The following formula calculates the loss payment amount:

Loss Payment = [Amount of insurance carried / Amount of insurance required] x Loss

For example:

ACV of Building/Equipment is $100,000
Limit of Insurance is $60,000
Coinsurance Percentage is 80%
Amount of loss is $40,000
Amount of insurance required is 80% x $100,000 (ACV of Building/Equipment)

Loss Payment = [60,000 / 80,000] x 40,000 = $30,000 (minus any deductible)

As you can see from this example; fulfilling the coinsurance condition is very important for minimizing risk and exposure. To receive full payment for the loss the building or equipment has to be covered for at least $80,000. Since the limit is only $60,000 your loss payment will be reduced proportionately. That is why in this example only $30,000 is recovered on a loss valued at $40,000.

Please review your current policies to find out the coinsurance percentage on your policy. These can range from 60 to 125 percent. It is important to insure the property for the full value and use the coinsurance clause as a buffer for inflation, changes in building costs, bad appraisals, and other things that could arise. This will help avoid any coinsurance penalties that could result in a claim situation. We would like the opportunity to review your current policies and offer comparative commercial property or equipment floater quotes.

The Building and Personal Property Coverage Form or BPP is the most common commercial property form. The BPP can cover the building, business personal property, and the personal property of others. However; the BPP does not have to include all three of these categories or equally cover each of these categories. For instance, if the insured owns or leases a small office and does not take into custody the personal property others, he may cover the building and business personal property and choose not to cover the personal property of others.

The BPP defines the building as the actual structure or building noted in the policy, completed additions, indoor and outdoor fixtures, permanently installed equipment or machinery, and personal property owned by the insured and used to sustain or service the building.

The BPP defines business personal property as property owned by the insured and used in the insured’s business. The property must be located in the building, on the premises, or in a car located within 100 feet of the premises, although there is one exception. Up to $10,000 of business personal property can be recovered that is considered off-premises.

The coverage for the personal property of others is probably not needed for most companies in the landscaping, lawn care, or tree trimming business. Only if you are taking care of the personal property of someone else and storing it on your premises would you need personal property of others coverage. The only example I can think of would be if you repaired equipment for others on your premises. Then coverage for the personal property of others would be a great idea.

Insurance is a legal contract between your landscaping business and the insurance carrier. The contract outlines the conditions, exclusions, coverage limits, and many other variables related to how the insurance will apply in a claim situation. It is important to review all policies when you receive them and understand the key concepts of what the policy will and will not cover. As the single source for landscapers’ business insurance, we recommend that you call your BearWise Landscapers agent to review any coverage questions you may have. Our agents will also take the time to sit down with you and discuss the different aspects of your insurance policies.

On Equipment Floater and Commercial Property insurance policies, we often run across landscapers that are unaware of the way their insurance carrier is valuing the covered property. Your insurance policy will state the way in which it values property and you should consider this when purchasing insurance. The type of property valuation not only affects the policy’s premium, but will greatly affect the amount your business recovers in the event of a loss. There are a few ways of valuing property covered by insurance policies, but the most common ways are through the Actual Cost Value (ACV) and the Replacement Cost Value (RCV).

Actual Cost Value – This approach to property values will judge the value of a stolen lawn mower by the current market value of a similar mower made in the same year with just as much wear and tear from the hours it has been used. The insurance carrier will write a check to your business for this depreciated value and that will be the end of the claim. In most cases, the landscaping business has to pony up more money to purchase another mower.

Replacement Cost Value – This approach to property values will judge the value of a stolen lawn mower not by the market value, but by the cost it takes to replace it. The replacement lawn mower will be similar in its functioning ability and equal or greater in overall value to the one that was stolen.

For landscapers, you need to make sure your equipment floater and commercial property insurance policies use the replacement cost valuation. This simple change in your policy will hardly affect your premium and will potentially have a huge impact on your business when you have a claim. If you have any questions about your current insurance policies, please contact me or one of our other licensed insurance professionals.