Minnesota Commercial Property Insurance

Commercial property insurance protects business assets and income from covered perils.

Commercial Property Coverage Forms

Building and Personal Property Coverage Form (CP 00 10)

The CP 00 10 form is the standard commercial property coverage form:

What Can Be Covered:

• Building: If you own it
• Business Personal Property: Contents, inventory, equipment
• Personal Property of Others: In your care, custody, or control

Coverage Options:

Exam Tip: Special Form is open perils (covers everything except exclusions). Basic and Broad Forms are named perils (covers only listed perils). Special Form is most common for buildings; Broad Form often used for contents.

Building Coverage

Includes:

• Building structure
• Permanently installed fixtures
• HVAC systems
• Outdoor fixtures (fences, paved surfaces)
• Personal property used to maintain the building

Excludes:

• Land and water
• Foundations below basement floor
• Underground pipes
• Growing crops, lawns

Business Personal Property Coverage

Includes:

• Furniture and fixtures
• Machinery and equipment
• Stock and inventory
• Improvements and betterments (if tenant)

Excludes:

• Money and securities (requires separate coverage)
• Accounts, deeds, manuscripts
• Aircraft, autos, watercraft
• Property in transit (requires inland marine)

Coinsurance

How Coinsurance Works

Coinsurance Clause Purpose:

• Encourages insureds to carry adequate insurance
• Penalizes underinsurance
• Common percentages: 80%, 90%, 100%

Coinsurance Formula:

$\text{Amount Paid} = \frac{\text{Insurance Carried}}{\text{Insurance Required}} \times \text{Loss} - \text{Deductible}$

Where Insurance Required = Value at Time of Loss × Coinsurance %

Example: 80% Coinsurance

Scenario 1: Adequate Insurance

• Building value: $1,000,000
• Coinsurance: 80%
• Insurance required: $1,000,000 × 80% = $800,000
• Insurance carried: $800,000
• Loss: $200,000
• Deductible: $5,000

Amount paid = ($800,000 / $800,000) × $200,000 - $5,000 = $195,000 (full payment)

Scenario 2: Underinsured

• Building value: $1,000,000
• Coinsurance: 80%
• Insurance required: $1,000,000 × 80% = $800,000
• Insurance carried: $600,000 (underinsured by $200,000)
• Loss: $200,000
• Deductible: $5,000

Amount paid = ($600,000 / $800,000) × $200,000 - $5,000 = $145,000 (penalty of $50,000)

Exam Tip: Coinsurance penalties apply when the insured carries LESS than the required percentage of value. The penalty is proportional to the underinsurance. Always carry at least the coinsurance percentage to avoid penalties.

Business Income Coverage

Business Income (and Extra Expense) Coverage Form (CP 00 30)

Coverage:

• Loss of net income during period of restoration
• Continuing operating expenses
• Extra expenses to minimize business interruption

When Coverage Applies:

• Covered peril damages property
• Business operations suspended or reduced
• During "period of restoration"

Period of Restoration:

• Starts 72 hours after direct physical loss
• Ends when property repaired/replaced
• Or when business resumes at new location
• Limited by policy period

What's Covered:

• Lost net income (revenue minus expenses that don't continue)
• Continuing expenses (payroll, rent, utilities)
• Extra expenses to minimize interruption

Example:

• Fire damages restaurant, closed 3 months
• Lost revenue: $150,000
• Continuing expenses (rent, key employee salaries): $50,000
• Extra expenses (temporary location): $20,000
• Total business income claim: $220,000

Exam Tip: Business income coverage requires a covered peril to cause physical damage to property. It does NOT cover business closures from non-physical causes (like pandemics, government orders without physical damage, or market conditions).

Minnesota-Specific Commercial Considerations

Cold Climate Exposures

Heating System Failure:

• Critical for business operations
• Can lead to frozen pipes, inventory damage
• Equipment breakdown coverage essential

Snow Load on Roofs:

• Flat commercial roofs susceptible
• Building codes specify requirements
• Enhanced coverage for snow removal may be needed

Frozen Pipes:

• Common in warehouses, unheated areas
• Can cause extensive business interruption
• Adequate heat and monitoring essential

Equipment Breakdown Coverage

What It Covers:

• Mechanical breakdown of equipment
• Boilers and pressure vessels
• HVAC systems (critical in Minnesota)
• Production machinery
• Computer equipment

Why Important in Minnesota:

• Heating systems under extreme stress
• Equipment failures in cold weather
• Business interruption from breakdowns
• Expensive repair costs

Common Commercial Property Endorsements

Agreed Value

Purpose:

• Suspends coinsurance clause
• Insured and insurer agree on property value upfront
• No coinsurance penalty if loss occurs

Requirements:

• Submit statement of values annually
• Insurer accepts agreed value
• Carry insurance equal to agreed value

Inflation Guard

Purpose:

• Automatically increases limits during policy period
• Protects against inflation
• Prevents underinsurance

How It Works:

• Percentage increase (e.g., 4% annually)
• Compounds quarterly
• Premium adjusts accordingly

Ordinance or Law Coverage

Coverage:

• Increased costs due to building codes
• Demolition costs
• Debris removal beyond standard limits

Why Important:

• Older buildings must meet current codes when repaired
• Can add 25-50% to reconstruction costs
• Not covered under standard policy

Exam Tip: Ordinance or Law coverage is critical for older commercial buildings. When damaged, repairs must meet current building codes, which often requires complete demolition and reconstruction using modern standards.