Delaware Dwelling and Commercial Property Insurance

Dwelling policies provide coverage for rental properties and homes not eligible for homeowners insurance. Commercial property insurance protects business buildings, contents, and operations from property losses.

Dwelling Policies

Purpose of Dwelling Policies

Dwelling policies cover:

• Rental properties (landlord owns, doesn't occupy)
• Vacant or unoccupied homes
• Homes under renovation
• Properties not eligible for homeowners policies
• Seasonal homes (in some cases)

NOT for:

• Owner-occupied primary residences (use homeowners policy)
• More than 4 family units (use commercial property insurance)

Dwelling Policy Forms

DP-1 Basic Form

Coverage Provided:

• Named Perils: 10 perils only
• Valuation: Actual Cash Value (ACV) only
• Contents: Optional Coverage C

10 Named Perils (DP-1):

1. Fire or lightning
2. Windstorm or hail
3. Explosion
4. Riot or civil commotion
5. Aircraft
6. Vehicles
7. Smoke
8. Vandalism or malicious mischief
9. Theft
10. Volcanic eruption

Use Case:

• Minimal coverage for low-value rentals
• Budget-conscious landlords
• Properties with limited exposure

DP-2 Broad Form

Coverage Provided:

• Named Perils: 16 perils (same as HO-2)
• Valuation: Replacement Cost or ACV
• Contents: Optional Coverage C
• Additional Coverages: Debris removal, reasonable repairs

Additional 6 Perils (DP-2 beyond DP-1): 11. Falling objects 12. Weight of ice, snow, or sleet 13. Accidental water discharge from plumbing/appliances 14. Sudden tearing, cracking, or bulging 15. Freezing of plumbing, heating, AC 16. Sudden electrical damage

Use Case:

• Most common dwelling policy
• Good balance of coverage and cost
• Suitable for typical rental properties

DP-3 Special Form

Coverage Provided:

• Dwelling: Open peril (all-risk)
• Contents: Named peril (16 perils)
• Valuation: Replacement Cost or ACV
• Broadest Coverage: Similar to HO-3 for homeowners

Advantages:

• Comprehensive protection for dwelling
• Covers perils not specifically excluded
• Better for high-value rental properties

Use Case:

• High-value rental properties
• Landlords wanting comprehensive coverage
• Properties in high-risk areas (coastal)

Exam Tip: DP-3 provides open peril coverage for the dwelling (like HO-3), while DP-1 and DP-2 provide named peril coverage. DP-3 is the broadest and most expensive dwelling policy form.

Dwelling Policy Coverage Structure

Coverage A: Dwelling

• Building structure
• Attached structures
• Materials on premises for construction/repair

Coverage B: Other Structures

• Detached structures (garage, shed)
• Typically 10% of Coverage A

Coverage C: Personal Property (Optional)

• Contents of rental unit (landlord's property)
• Appliances, furnishings provided by landlord
• Typically 10-20% of Coverage A

Coverage D: Fair Rental Value

• Replaces lost rental income if property uninhabitable
• Typically 20% of Coverage A
• Pays for period needed to repair property

Coverage E: Additional Living Expense (if owner-occupied)

• Similar to homeowners Loss of Use coverage
• Rarely used in dwelling policies (rentals)

Delaware Rental Property Considerations

Coastal Rental Properties:

• Vacation rentals in beach communities
• Higher premiums due to coastal exposure
• Wind/hail deductibles often apply
• Flood insurance essential for coastal rentals

Landlord Liability:

• Liability coverage available as endorsement
• Protects against tenant injury claims
• Premises liability for common areas
• Consider umbrella policy for additional protection

Vacant Property Issues:

• Many insurers exclude coverage if vacant 30-60+ days
• Increased risk of vandalism, theft, and damage
• Special vacant property insurance available
• Higher premiums for vacant properties

Commercial Property Insurance

Commercial Property Coverage Forms

Building and Personal Property Coverage Form (BPP):

• Standard commercial property coverage
• Covers building, business personal property, or both
• Cause of loss forms: Basic, Broad, or Special
• Used for most commercial property risks

Business Owner's Policy (BOP):

• Package policy combining property and liability
• Designed for small to mid-size businesses
• Lower premiums than separate policies
• Simplified coverage structure

BPP Coverage Structure

Coverage A: Building

• Covered: Building structure, permanently installed fixtures, additions
• Insured Options: Building owner
• Valuation: Replacement cost (if 80% coinsurance met)

Coverage B: Business Personal Property

• Covered: Furniture, equipment, inventory, machinery
• Insured Options: Business owner or tenant
• Valuation: Replacement cost or ACV

Coverage C: Personal Property of Others

• Covered: Customer property in your care, custody, or control
• Limit: Typically lower sublimit
• Examples: Customer goods for repair, stored property

Causes of Loss Forms

Commercial property offers three causes of loss options:

Special Form (Most Common):

• Open peril coverage (all-risk)
• Covers all perils except specifically excluded
• Higher premiums but comprehensive protection
• Preferred for most commercial properties

Business Income Coverage

Business Income (and Extra Expense):

• Covers lost income if business interrupted by covered loss
• Reimburses lost net profits and continuing expenses
• Includes extra expenses to minimize loss or continue operations
• Waiting period: Typically 72 hours before coverage begins

Coverage Calculation: $\text{Business Income} = \text{Net Profit} + \text{Continuing Expenses}$

Example:

• Restaurant damaged by fire, closed for 2 months
• Net profit: $15,000/month
• Continuing expenses: $10,000/month (rent, utilities, salaries)
• Business income coverage: $50,000 (2 months × $25,000)

Extra Expense Coverage:

• Costs to minimize loss or continue operations
• Temporary location rental
• Equipment rental
• Overtime labor to speed repairs

Delaware Commercial Property Risks

Coastal Business Properties:

• Retail shops in beach communities (Rehoboth, Dewey)
• Restaurants and hotels near coastline
• Higher premiums due to hurricane/windstorm risk
• Flood insurance essential

Wilmington Commercial Market:

• Office buildings and financial services
• Retail and restaurant businesses
• Lower coastal risk but urban property exposures
• Sprinkler requirements for many buildings

Tourism and Hospitality:

• Hotels, motels, and vacation rentals
• Restaurants and entertainment venues
• Seasonal revenue considerations
• Business income critical for tourism businesses

Business Owner's Policy (BOP)

BOP Eligibility

Eligible Businesses:

• Small to mid-size retail stores
• Office buildings (under 100,000 sq ft typically)
• Restaurants and service businesses
• Apartment buildings (under 6 stories typically)
• Wholesalers and distributors

Ineligible Businesses:

• Banks and financial institutions
• Auto dealers and repair shops
• Bars and nightclubs
• Manufacturers with significant risks

BOP Coverage Components

Property Coverage:

• Building (if owner)
• Business personal property
• Business income and extra expense
• Valuable papers and records (limited)
• Equipment breakdown (often included)

Liability Coverage:

• General liability (premises and operations)
• Products and completed operations
• Personal and advertising injury
• Medical payments

Standard Limit:

• Liability: $1 million per occurrence, $2 million aggregate

Advantages of BOP

Cost Savings:

• Typically 20-40% less expensive than separate policies
• Package discount for combined coverage
• Simplified underwriting

Comprehensive Coverage:

• Property and liability in one policy
• Includes business income automatically
• Standard endorsements available

Ease of Management:

• Single policy to manage
• One renewal date
• Simplified claims process

Exam Tip: A Business Owner's Policy (BOP) combines property and liability coverage for small businesses at a discounted premium compared to purchasing separate policies. BOPs typically include business income coverage automatically.

Additional Commercial Property Coverages

Equipment Breakdown Coverage

Formerly "Boiler and Machinery Insurance":

• Covers mechanical and electrical breakdown
• HVAC systems, refrigeration, electrical systems
• Computer equipment and production machinery

What's Covered:

• Repair or replacement of damaged equipment
• Business income loss during repairs
• Spoilage of refrigerated goods
• Extra expense to continue operations

Delaware Applications:

• Restaurants: Refrigeration and cooking equipment
• Retail: HVAC and electrical systems
• Office buildings: Elevators, HVAC, electrical

Inland Marine Coverage

Purpose:

• Covers property in transit or at various locations
• Broader coverage than standard property forms
• Covers specialized property and equipment

Common Inland Marine Coverages:

Contractors Equipment:

• Tools and equipment used by contractors
• Covers equipment at job sites and in transit
• Important for Delaware construction businesses

Electronic Equipment:

• Computers, servers, and data processing equipment
• Broader coverage than standard property forms
• Includes data restoration

Accounts Receivable:

• Covers loss of accounts receivable records
• If fire or other loss destroys records
• Covers uncollectible amounts

Valuable Papers and Records:

• Coverage for important documents
• Cost to research and reconstruct records
• Critical for businesses relying on documents

Ocean Marine vs. Inland Marine

Ocean Marine (not covered in P&C licensing typically):

• Ships and cargo on ocean voyages
• Delaware has maritime exposure (port activities)
• Requires specialized insurance

Inland Marine:

• Property in transit on land
• Movable property and equipment
• Broader than standard property coverage
• Part of P&C insurance licensing

Coinsurance in Commercial Property

Coinsurance Requirement

Purpose:

• Encourages policyholders to insure to adequate limits
• Penalties for underinsurance
• Ensures fair premium distribution

Common Coinsurance Percentages:

• 80%: Most common for commercial property
• 90% or 100%: Higher coinsurance = lower premiums

Coinsurance Formula

If property is underinsured (below coinsurance requirement):

$\text{Insurance Payment} = \frac{\text{Amount of Insurance Carried}}{\text{Amount of Insurance Required}} \times \text{Loss Amount}$

Where: \text{Amount Required} = \text{Property Value} \times \text{Coinsurance %}

Coinsurance Example

Scenario:

• Building value: $1,000,000
• Coinsurance requirement: 80%
• Insurance carried: $600,000
• Loss: $200,000

Required Insurance:

• $1,000,000 × 80% = $800,000

Coinsurance Penalty Applies (insured only $600,000, needed $800,000):

Payment Calculation:

• $600,000 (carried) ÷ $800,000 (required) × $200,000 (loss) = $150,000 paid
• Policyholder receives $150,000, not full $200,000

Coinsurance Penalty:

• Underinsurance penalty: $50,000

Exam Tip: Coinsurance penalizes underinsurance in commercial property. If you don't carry insurance equal to the coinsurance percentage of the property value, you become a co-insurer and share in the loss. Always insure to at least the coinsurance requirement to avoid penalties.