Margin Clauses Making Agreed Value Options Extinct!



...broad-brush review of blanket and agreed amount coverage. Briefly, blanket coverage can be written in three ways: (1) vertically, (2) hori- zontally, or (3) as a combination of the two.

When insurance is written vertically, coverage applies to two or more items of property, such as a build- ing and business personal property, in one building or structure; or in a single “fire division,” meaning a building or a section of a building cut off by other buildings or sections by adequate clear space or a fire wall.

Horizontal coverage signifies that a single kind of property, such as buildings, is being covered in two or more fire divisions at one or more locations. A combination of the two, which is quite common, would require coverage encompassing two or more buildings or structures and their business personal property. One of the prerequisites of blanket insurance is the statement of values. This lists the type of property to be covered, i.e., buildings, business personal property or personal prop- erty of others; the location of such property and its replacement value.

The statement of values needs to be completed and filed with the insurer annually so that the under- writer can promulgate the blanket rate, which is determined by taking the average of those declared property values.

At the time insurance on com- mercial property is purchased, the insured must select an amount that will meet the applicable coinsur- ance percentage, ranging from 80 to 100 percent. However, when the insurance is to be written on a blanket basis, 90 percent coinsur- ance is the required minimum.

“The margin clause can operate differently among insurers. In fact, the percentage might vary with the insured, insurer, the location of the property, the nature of the protection and other factors.”