Key Takeaways
- Commercial property insurance protects Kentucky businesses from property damage and business interruption
- The Building and Personal Property (BPP) form is the foundation of commercial property coverage
- Business income coverage compensates for lost profits during suspension of operations
- Coinsurance clauses require adequate coverage limits to avoid claim penalties
- Kentucky businesses must consider weather risks including tornado, flood, and ice storm exposures
Kentucky Commercial Property Insurance
Commercial Property Coverage Forms
Building and Personal Property Coverage Form (BPP)
The BPP form provides the foundation for commercial property coverage in Kentucky:
| Coverage Category | Property Covered |
|---|---|
| Building | Structure, fixtures, equipment, improvements |
| Business Personal Property | Furniture, inventory, supplies, machinery |
| Personal Property of Others | Customer property in your care |
Building Coverage Details
Building coverage includes:
- Building structure
- Completed additions
- Permanently installed fixtures
- Machinery and equipment for building services
- Outdoor fixtures
- Materials and supplies for construction
Business Personal Property
Business personal property coverage includes:
- Furniture and fixtures
- Machinery and equipment
- Stock and inventory
- Office equipment and computers
- Leasehold improvements (tenant)
- Property used in business operations
Causes of Loss Forms
Kentucky businesses can choose from three coverage forms:
Basic Form (Named Perils)
Covers only these listed perils:
- Fire
- Lightning
- Explosion
- Windstorm or hail
- Smoke
- Aircraft or vehicles
- Riot or civil commotion
- Vandalism
- Sprinkler leakage
- Sinkhole collapse
- Volcanic action
Broad Form
Adds these perils to Basic Form:
- Falling objects
- Weight of snow, ice, or sleet
- Water damage (from appliances)
Special Form (Recommended)
Open perils coverage - covers all risks except those specifically excluded.
Standard exclusions:
- Flood
- Earthquake
- Wear and tear
- Employee dishonesty
- Governmental action
- Nuclear hazard
- War
Business Income Coverage
Purpose
Compensates businesses for lost income when operations are suspended due to covered property damage.
Coverage Components
| Component | Description |
|---|---|
| Net Income | Profit that would have been earned |
| Continuing Expenses | Operating costs that continue during suspension |
| Extra Expense | Costs to minimize suspension period |
| Extended Period | Coverage after restoration (60-180 days) |
Business Income Example
Scenario: Kentucky restaurant sustains tornado damage
| Loss Component | Amount |
|---|---|
| Monthly Net Income | $25,000 |
| Monthly Continuing Expenses | $15,000 |
| Restoration Period | 4 months |
| Total Business Income Loss | $160,000 |
Civil Authority Coverage
Pays when government order prohibits access to property:
- Must be due to covered peril at nearby property
- Typical waiting period: 72 hours
- Coverage period: 30 days typical
Coinsurance in Commercial Property
How Coinsurance Works
Coinsurance requires maintaining coverage equal to a specified percentage of property value.
Coinsurance Formula:
Coinsurance Example
| Factor | Amount |
|---|---|
| Property Value | $1,000,000 |
| Coinsurance Percentage | 80% |
| Required Coverage | $800,000 |
| Actual Coverage | $600,000 |
| Loss Amount | $200,000 |
Calculation:
The insured only recovers $150,000 instead of $200,000 due to underinsurance.
Avoiding Coinsurance Penalties
| Option | Description |
|---|---|
| Adequate Insurance | Carry at least required percentage |
| Agreed Value | Suspend coinsurance with agreed valuation |
| Regular Appraisals | Update values to reflect current costs |
| Blanket Coverage | Cover multiple locations under one limit |
Kentucky-Specific Commercial Considerations
Weather-Related Risks
| Risk | Mitigation Strategies |
|---|---|
| Tornado/Wind | Proper limits, percentage deductibles |
| Flood | Separate flood policy for at-risk areas |
| Ice Storms | Business income coverage essential |
| Hail | Roof condition, deductible structure |
Business Continuity Planning
Kentucky businesses should:
- Maintain comprehensive business income coverage
- Have contingency plans for operations
- Consider extra expense coverage
- Document inventory and equipment
- Plan for extended restoration periods
Flood Considerations for Commercial Properties
| Location | Flood Insurance Need |
|---|---|
| Ohio River Valley | Critical - high flood risk |
| Urban Louisville | Flash flooding, river flooding |
| Eastern Kentucky | Mountain stream flooding |
| Rural areas | Creek and watershed flooding |
Exam Tip: Coinsurance is a common exam topic. Remember the formula and know that carrying less than the required amount results in the insured becoming a co-insurer (sharing in losses). The agreed value option suspends coinsurance requirements.
A Kentucky business has a building worth $500,000 with 80% coinsurance and carries only $300,000 in coverage. If a fire causes $100,000 in damage, how much will the insurer pay?
Which commercial property causes of loss form provides the broadest coverage for a Kentucky business?
What does business income coverage pay for when a Kentucky business is closed due to tornado damage?