Economic downturns can cause an increase in vacancies, as I wrote thirteen years ago FC&S cautions agents and policyholders to look at the Vacancy Exemption Clause. Many other reasons cause commercial buildings to become vacant and can negatively impact the amount of insurance coverage available if the building suffers a loss during that vacancy.
Law 360 – The Swedish Insurance Agency published an insurer’s motion for summary judgment in a Mississippi vacancy case.1 This should be a reminder to commercial insurance agents, property owners, developers and property managers. The insurance company argues that coverage was properly denied because:
[T]He only covers the insurance[s] direct physical loss caused by a covered peril to an “existing building”; during rehabilitation or renovation. There is no doubt that the fire did not occur while Sinjel’s building was “under rehabilitation or renovation”. According to Sinjel, no one even entered the building in 2020. Second, the insurance only covers[s] a vacant “Existing Building” for 60 consecutive days from the entry date of this policy unless planning permission has been obtained and rehabilitation or renovation work has commenced on the “Existing Building”. The plaintiff had done neither. It is undisputed that the plaintiff had not obtained a building permit or begun rehabilitation or renovation work on the building during the 60-day period following the inception of the policy. Therefore, there is no coverage for the fire under the terms and conditions of the Ohio policy, and Sinjel’s claim was properly denied.2
The problem for insurance agents, property owners, developers and property managers is that many buildings must be fully insured per lease, loan or investment terms, regardless of whether the buildings are vacant. When these agreements exist, coverage should be purchased with a vacant building restriction or endorsement. Delays in construction and permits occur all the time. The use and occupation of buildings changes all the time and sometimes without management’s knowledge.
The point of this post is that when a commercial building becomes vacant there is an issue of insurance coverage. However, insurance coverage issues are usually not considered at these times because the problem causing the vacancy usually lies with those involved in the operation of the building.
Today’s thought
When a team takes responsibility for its problems, the problem is solved. It’s true on the battlefield, it’s true in business, and it’s true in life.
—Jocko Willink
1 Alexa Scherzinger, No fire cover for vacant building, insurer tells courtLaw360 – Insurance Authority, 2 June 2023. Available online (subscription): https://www.law360.com/insurance-authority/articles/1683905/no-fire-coverage-for-vacant-building-insurer-tells-court
2 Sinjel v. Ohio Cas. ins. Co.No. 3:22-cv-419 (SD Miss. June 1, 2023).
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