Frequently Asked Questions - Commercial
What type of insurance do I need to cover my business?
Commercial insurance includes two main categories of insurance to
cover the various coverage lines, property insurance and liability
(casualty) insurance. Your business may not need all of the types
of coverage that are available. Your insurance agent or producer
should be able to advise you as to the exposures that are typical
in your industry and propose coverage options that address your
circumstances. It is your responsibility, however, to select the
options you need to adequately cover your business exposures.
What limit of insurance is adequate for my property?
A separate limit must be determined for each building or structure,
and for the business personal contents of each building or structure.
Most companies require you to fully insure the value of your building
at either the actual cash value (ACV) or the cost to rebuild. An
ACV basis takes into account depreciation of the building, whereas
Replacement Cost is the cost to repair or replace without applying
depreciation. The building limit also includes the value of permanently
installed fixtures, machinery and equipment, so be sure to consider
those items when determining the value of the building. If a building
is not insured to the extent required by the policy, you can be
subject to a coinsurance penalty at the time of a loss.
What does "permanently installed fixtures, machinery
and equipment" include?
This term includes such items as fire extinguishing equipment, heating
and air conditioning systems, refrigeration equipment; items that
are owned by you and used to maintain or service the building or
structure or its premises, even if not permanently installed. "Fixtures" are components that are attached to the building and cannot be removed
without affecting either the value of the structure or its asthetics.
These can include intercoms, floor coverings, permanently installed
blinds, drapery fittings or hardware, etc.
Machinery or equipment may be considered "permanently installed"
if it is set up for use in the insured's building with the
intention for it to remain there as long as the insured is in business
in that location.
How does the coinsurance penalty apply?
The coinsurance penalty is determined by the ratio of the limit
of insurance you are carrying on the building or property to the
limit the policy requires you to carry. For example, if the cost
to replace a building is $100,000 and the policy requires you to
insure to 100%, you should carry $100,000 on that building. If you
have chosen to insure the building for $80,000, the policy will
only cover 80% (80,000/100,000) of any covered loss, less the deductible.
Please see our Insuring
Your Business Brochure for a more detailed explanation
of coinsurance.
After my building was damaged by a fire, a local ordinance
required an upgrade to meet code requirements. Why doesn't
my insurance cover this?
Flood damage or damage caused by rising stream, river or lake levels, or rising ground water typically will only be covered if you purchased flood insurance through the National Flood Insurance Program (NFIP). This type of damage is not covered under a typical property insurance policy. Policyholders should first contact their agent for their policy to report flood damage. "Tips for filing claims" are available under the "Site Map" and then by clicking "Floods Happen" at www.floodsmart.gov. NFIP coverage information is available for various audiences at http://www.fema.gov/business/nfip.
After my building was damaged by a fire, a local ordinance
required an upgrade to meet code requirements. Why doesn't
my insurance cover this?
The standard insurance policy is intended to compensate an insured
for the cost (subject to policy limitations) to repair or replace
property damaged by a covered cause of loss. It applies to the property
that has been damaged. The situation
you have described relates to an increased cost of construction
due to an ordinance or law governing construction or rebuilding
that the property had not previously met. Unless specifically endorsed,
most policies do not provide this coverage. Ordinance or Law Coverage
is generally available, but it is typically an additional coverage
that must be purchased.
After an inspector from the company reviewed my property,
I received a list of "recommendations" the insurance
company is requiring me to address. Is this legal?
Yes. As the insurer is providing coverage for losses occurring at
your premises or as a result of your business operations, it has
a vested interest in the exposures that are likely to lead to a
loss. You have a responsibility to control those exposures where
possible. Under Maine law, an insurer can cancel your policy if
you fail to comply with reasonable loss control recommendations.
What other reasons allow a policy to be cancelled?
Maine law permits a commercial insurer to cancel a policy for:
- nonpayment of premium;
- fraud or material misrepresentation made by the insured or
with the insured's knowledge;
- a substantial change in the risk that increases the risk of
loss;
- failure to comply with reasonable loss control recommendations;
- a substantial breach of contractual duties, conditions or warranties;
or
- a determination by the Superintendent of Insurance that the
continuation of a class or block of business to which the policy
belongs will jeopardize the company's solvency or place
the insurer in violation of state insurance laws.
Please see the section relating to Cancellation/Nonrenewal
Hearings under our Frequently Asked Questions link for
more information relating to cancellation.
Are there any guidelines to follow after a loss has
occurred?
All policy contracts contain provisions describing what the insured
must do if a loss to the covered property occurs. The specific requirements
vary between different types of policies, depending upon whether
the insured exposure is commercial or personal, or whether it involves
property or liability exposures. Some requirements apply to all
types of policies, such as:
- Provide prompt notification of the loss to the company or agency,
specifying how, when and where the loss occurred;
- Provide prompt notification to police if the loss may involve
a theft or other crime;
- Take reasonable steps to protect the property from further
damage, and in some cases make reasonable and necessary repairs.
If such repairs are made, an accurate record of the repair expenses
must be given to the company.
- Submit a signed, sworn proof of loss within 60 days after requested
by the insurer. The insurer will provide the appropriate forms.
- Permit the company to inspect the damaged property as often
as reasonably required.
- Submit to an examination under oath, and sign the same.
In addition, property policies (both personal and commercial policies)
require the insured to provide a complete inventory of the damaged
property, showing the description and quantity of the damaged items,
the actual cash value and the amount of loss. All bills, receipts
and related documents that justify the figures must be provided.
The policy also allows the company to examine the insured's
books and records and to make copies of them.
The sworn proof of loss must identify:
- The time and cause of the loss;
- The interest of the insured and all others in the property;
- All liens and other encumbrances applying to the property;
- Any other insurance on the property;
- Any changes in the title, use, occupancy, or exposures since
the policy began;
- The inventory of the damaged property and the actual cash value
of each item and the amount of loss;
- Specifications of damaged buildings, fixtures or machinery,
and detailed repair estimates.
Additional information may be required, depending upon the type
of policy you have. You should refer to your policy contract.
A common misconception is that the company will compile an inventory
of the damaged property and be responsible for providing estimates
for repair. Although an adjuster may prepare an estimate of the
damage, it is for the company's use to compare with estimates
to be provided by the insured. Detailed information must be provided
by the insured to the company for an accurate assessment of the
loss to be made. It is the insured's responsibility to prove
the extent and amount of the loss.
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If you have any suggestions for things to be included here, please send them to Thomas.R.Michaud@maine.gov. Thank you for your suggestions and thank you for your patience.
