For more information, visit our section on Commercial Insurance - http://www.maine.gov/pfr/insurance/consumer/employers_other_groups/commercial_property_liability/index.html
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.
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.
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 aesthetics. 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.
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?
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.
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.
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.