Vacancy/Occupancy Clauses in Property Insurance

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It is also significant that even where there is coverage for other perils, the insurer will reduce the amount of the loss or damage by 15 percent. So, for instance, a covered windstorm or vehicle damage loss to the building would be reduced by 15 percent if the building were vacant for more than 60 consecutive days.

Note that the preceding comments refer to a standard commercial property form. Non-standard or independently filed forms, as well as earlier or later editions of standard forms, may read differently — and for this reason agents and adjusters need to read and understand the vacancy provision of the particular policy form that applies.

The vacancy provision can pose problems for commercial insureds where, say, one retail shop is the only operating business in a strip mall or multiple unit building. Although the retail shop is conducting business, unless at least 31 percent of the building is rented and/or used for customary operations, the building will be considered vacant as far as the building owner is concerned, and the coverage restrictions will apply. (Another way to look at this is if 70 percent of the building is determined to be vacant for more than 60 consecutive days, the vacancy provision will apply to exclude or limit coverage.)

Seasonal businesses such as vacation resorts, ski lodges, and golf courses, motels and restaurants that close during the winter can also be vulnerable to the vacancy provision. Since the customary operations of these seasonal businesses are not being carried out during the months that they are closed, seemingly the buildings would meet the definition of vacant as expressed in the policy and the coverage restrictions would apply. Some insurers may be willing to provide the seasonal insured with a vacancy permit endorsement (explained later in this article) for the period during which the business is closed, while others may require the insured to purchase a policy with limited perils from an excess and surplus lines insurer.

In standard homeowners policies, specifically the HO-3 Special Form 4 , coverage for glass breakage and vandalism/malicious mischief ceases if the dwelling has been vacant for more than 60 consecutive days before the loss. (Note that in earlier editions, the policy limits vacancy to 30 days.)

In addition, there is no coverage for leakage from within a plumbing, heating, air conditioning or automatic sprinkler system, or appliance, caused by freezing, unless heat is maintained in the building or the water supply is shut off. However, if the building is protected by an automatic sprinkler system, the insured is required to continue the water supply and maintain heat in the building for coverage to apply. (The standard commercial property Causes of Loss Forms contain a similar provision.) While vacancy or unoccupancy is not specifically mentioned, the provision implies that the dwelling is unoccupied. In fact, some earlier editions of the homeowners forms specifically stated that the exclusion for loss by freezing applied while the dwelling is vacant or unoccupied, unless the insured has maintained heat or shut off the water supply. While more current forms have eliminated the reference to vacant or unoccupied, the inference is that the dwelling is unoccupied or event vacant, for why else would the insured be required to maintain heat in the dwelling or shut off the water supply, unless he or she were to be out of the dwelling for a temporary or extended period?


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