Property Insurance and Your Small Business Text Size:

If you are an owner of a small business, you should consider obtaining property insurance for your business property. That way, if your office or manufacturing plant is damaged in an event covered by the policy, your insurance company will pay for the damage.

Kinds of Policies

There are two kinds of policies available for property insurance:

• A "named perils" policy specifically names the risks to be covered for an identified property. The standard ''named-perils'' policy of property insurance provides coverage against loss or damage caused by certain specified perils, beginning with fire and continuing with whatever other coverages are suited to the needs of the insured.
• An "all risk" policy specifically names the property and risks to be excluded. For a business owner, this is the single most important policy available because all physical damage to the property is covered unless the cause of the damage is specifically excluded in the policy.

Insured Property

Just about any property can be insured against any kind of risk. Tangible property can be insured by such forms of insurance as:

• Inland Marine Insurance. This originally referred to contracts of insurance which extended marine insurance coverage of cargo to the on-land portion of the journey. The name ''inland marine insurance'' stuck, even after the original concept was expanded. Now it includes "floater" policies, which insure property as it moves from place to place under transportation coverages. Such policies may also be used by a jeweler or a furrier, for example, to insure a rotating inventory of near-constant total value. Individuals can purchase floater coverage for everything from a tourist's luggage or a householder's jewelry to doctors' and dentists' equipment. Personal property floater coverage is generally written on an all-risk basis, subject to certain specifically excluded perils, such as water damage and breakage of fragile articles.
• Special Multi-Peril (SMP) Policy. This kind of policy combines both property insurance and liability insurance in one package (along with other kinds of coverage, such as crime insurance or boiler and machinery insurance). The property portion of an SMP policy covers buildings and personal property separately. One common kind of SMP policy is a builder's risk policy, which protects a builder or an owner/builder from loss or damage during the construction process or during repair or renovation.
• Manufacturer's Output Policy. This form originated as a type of inland marine coverage on manufactured products in transit to a purchaser or in storage pending sale and delivery. Today, the coverage has been expanded to include all-risk insurance on all of a manufacturer's real and personal property, including the property of others.
• Valuable Papers and Records Policy. This policy is designed to protect against the loss not only of everyday business records, such as accounts receivable, but also of such documents as blueprints, manuscripts and deeds.

Future profits and/or income are another property interest that can be insured. Forms of insurance include:

• Business Interruption Insurance. This form of insurance protects the earnings which a policyholder would have enjoyed had there been no interruption of its business as a result of the happening of an insured peril, such as a fire or burglary. See article on Business Interruption Insurance.
• Loss of Earning Insurance. For a business interruption policy to cover a claimed loss of earnings, the policyholder must establish that there would have been earnings. Insurers will look at the nature of earnings up to the time of loss and will also make projections as to future earnings had there been no loss.
• "Extra Expense" Coverage. This form is related to business interruption insurance and provides payment for extra expenses incurred by a policyholder to continue the normal conduct of business during the period necessary to restore physical facilities damaged by an insured risk.
• Contingent Business Interruption Insurance. This form provides a means of protecting against loss if a business is interrupted by a fire or other insured peril at premises which are not owned or operated by the policyholder.

Many other types of property insurance are also available, such as insurance for:

• Crops
• Credit
• High-risk property, such as livestock
• Boiler and machinery
• Automobiles
• Aircraft

Insurable Risks

Standard property insurance policies can be obtained to cover the following risks:

• Fire
• Lightning
• Windstorm and hail
• Vandalism and malicious mischief
• Water damage caused by a plumbing system
• Sprinkler leakage
• Flood
• Earthquake

Insurable Activities

The following activities can be covered in a standard property insurance policy:

• Removal of imperiled property
• Sue and labor, which are activities carried on to safeguard or recover property
• Debris removal
• Strike, riot or civil commotion

Typically Excluded Risks

The following kinds of risks are typically excluded from standard property insurance policies:

• War risks, such as enemy attack or invasion
• Order of civil authority, such as acts to prevent the spread of fire
• Policyholder neglect
• Loss by theft
• Vacancy
• Increase in hazard to the property

Legal Advice

Insuring your business property is important to your business's financial success. If you have any legal questions about insuring your business property or about interpreting an existing policy, contact a small business attorney or an insurance attorney in your area.

Questions for Your Attorney

• Do I need property insurance for my business if my business is located in my home?
• Will my business property insurance cover property damage if the damage resulted from a covered risk and an excluded risk?
• Will my inland marine insurance cover goods manufactured by my business when the goods are being transported by someone else?

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