New Mexico Commercial Property Insurance

ISO Commercial Property Forms

Building and Personal Property Coverage Form (CP 00 10)

The CP 00 10 is the standard ISO commercial property coverage form providing insurable property coverage.

Coverage Options:

• Building (real property)
• Business Personal Property (contents, inventory, equipment)
• Personal Property of Others (in insured's care)

Three Causes of Loss Forms

Commercial property policies offer three levels of peril coverage:

Basic Causes of Loss (CP 10 10)

11 Named Perils Covered:

1. Fire
2. Lightning
3. Explosion
4. Windstorm or hail
5. Smoke
6. Aircraft or vehicles
7. Riot or civil commotion
8. Vandalism
9. Sprinkler leakage
10. Sinkhole collapse
11. Volcanic action

Best For: Price-sensitive businesses seeking minimum viable coverage

Broad Causes of Loss (CP 10 20)

Basic Perils PLUS:

• Falling objects
• Weight of snow, ice, or sleet
• Water damage (from plumbing, HVAC, not flood)

Best For: Businesses wanting more comprehensive coverage at moderate cost

Special Causes of Loss (CP 10 30)

Open Peril Coverage:

• Covers all risks of direct physical loss except those specifically excluded
• Most comprehensive commercial property coverage
• Similar to homeowners HO-3 concept

Common Exclusions:

• Flood (requires separate policy)
• Earthquake (available by endorsement)
• Ordinance or Law (available by endorsement)
• War and governmental action
• Nuclear hazard
• Intentional loss
• Wear and tear, deterioration

Best For: Businesses with significant property values needing maximum protection

Exam Tip: Know the difference between the three Causes of Loss forms: Basic = 11 named perils, Broad = Basic plus 3 more, Special = open peril (all-risk).

Valuation Methods

Replacement Cost vs. Actual Cash Value

Replacement Cost:

• Cost to replace damaged property with new property of like kind and quality
• No deduction for depreciation
• Higher premiums
• Most common for buildings and equipment

Actual Cash Value (ACV):

• Replacement cost MINUS depreciation
• Lower premiums
• May be only option for older equipment
• Common for older buildings

Agreed Value Option:

• Insurer and insured agree on property value at policy inception
• Suspends coinsurance requirement
• Useful for unique or difficult-to-value property
• Requires annual appraisal or valuation

Functional Replacement Cost

Alternative Valuation:

• Replaces damaged property with less costly property that performs the same function
• Lower premiums than full replacement cost
• Used for older buildings where exact replacement is unnecessary
• Example: Replace ornate plaster ceiling with drywall ceiling

Coinsurance Provisions

How Coinsurance Works

Coinsurance clauses encourage adequate insurance by penalizing underinsurance:

Common Coinsurance Percentages:

• 80% (most common)
• 90%
• 100%

The Coinsurance Formula:

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

Where: Amount Required = Property Value × Coinsurance %

Coinsurance Example

Scenario:

• Building value: $500,000
• Coinsurance requirement: 80%
• Insurance required: $500,000 × 80% = $400,000
• Insurance actually carried: $300,000 (UNDERINSURED)
• Loss: $100,000
• Deductible: $1,000

Calculation: \text{Payment} = \frac{$300,000}{$400,000} \times $100,000 - $1,000 = $74,000

Result: Insured receives only $74,000 of the $100,000 loss (minus deductible) due to being underinsured.

Avoiding Coinsurance Penalties

Options:

1. Maintain adequate limits - Insure to at least the coinsurance percentage
2. Agreed Value coverage - Suspends coinsurance (requires appraisal)
3. Replacement Cost coverage with proper valuations
4. Annual reviews - Update Coverage A as property values change

Critical Point: Coinsurance penalties surprise many New Mexico business owners. Educate clients about maintaining adequate limits as property values increase.

Business Income Coverage

Coverage for Lost Income

Business Income (formerly Business Interruption) coverage pays for:

• Lost net income during period of restoration
• Continuing expenses (payroll, rent, utilities, loan payments)
• Period begins when property damage occurs
• Ends when property is repaired or business resumes

Coverage Trigger

Requirements for Coverage:

1. Direct physical loss to property
2. Covered peril causes the loss
3. Business operations suspended or reduced
4. During period of restoration (reasonable time to repair)

Not Covered:

• Business closure without property damage
• Loss of market or customers unrelated to property damage
• Delays beyond reasonable restoration period

Extra Expense Coverage

Purpose: Pays costs to continue operations during repairs

Covered Expenses:

• Temporary location rental
• Equipment rental
• Overtime labor to expedite repairs
• Temporary utilities setup
• Additional delivery costs

Difference from Business Income:

• Extra Expense = costs to MINIMIZE loss
• Business Income = lost income and continuing expenses

Maximum Period of Indemnity

Optional Limitation:

• Limits coverage to specified time period (30, 60, 90, 120 days)
• Lower premium than unlimited period of restoration
• Risk: if restoration takes longer, coverage runs out

Best For: Businesses confident they can resume operations quickly

Businessowners Policy (BOP)

Purpose and Eligibility

The Businessowners Policy (BOP) is a package policy combining:

• Commercial property coverage
• Commercial general liability coverage
• Business income and extra expense coverage

Eligible Businesses (typical criteria):

• Offices: Professional, administrative (under 100,000 sq ft)
• Retail: Stores, shops (under 25,000 sq ft)
• Restaurants: Limited cooking (under 7,500 sq ft)
• Apartment buildings: Up to 6 stories
• Wholesale operations: Limited sales volume

Ineligible Businesses:

• Bars and taverns
• Auto repair shops and dealers
• Banks and financial institutions
• Contractors (some types)
• Manufacturing (many types)

BOP Advantages

BOP Property Coverage

Included Coverages:

• Building (if owned) - Replacement Cost basis
• Business Personal Property - Replacement Cost basis
• Business Income (12 months maximum)
• Extra Expense coverage
• Loss of Income from dependent properties (limited)
• Newly acquired property (automatic coverage for 30 days)

Causes of Loss: Special Form (open peril) standard in ISO BOP

BOP Liability Coverage

General Liability Included:

• Bodily injury and property damage liability
• Personal and advertising injury liability
• Medical expenses (no-fault, typically $5,000)
• Fire legal liability (for rented premises)

Typical Limits: $1,000,000 per occurrence / $2,000,000 aggregate

Marketing Opportunity: BOPs are ideal for small New Mexico businesses—simpler than commercial package policies and often more affordable.

New Mexico Commercial Property Risks

Wildfire Risk for Commercial Properties

Businesses at Risk:

• Forest-adjacent properties (ski resorts, mountain lodges, rural businesses)
• Properties in wildland-urban interface
• Timber and forestry operations
• Outdoor recreation businesses

Risk Mitigation:

• Defensible space around buildings
• Fire-resistant construction materials
• Sprinkler systems
• Emergency response plans
• Business income coverage (critical for extended closures)

Severe Weather Risks

Hail Damage:

• Roof damage to commercial buildings
• Vehicle damage to business fleets
• Outdoor equipment and inventory
• Higher deductibles common in hail-prone areas

Wind Damage:

• Roof and structure damage
• Sign and awning damage
• Debris impact
• Seasonal (spring and summer months)

Water Damage Risks

Common Causes:

• Plumbing failures
• HVAC leaks
• Roof leaks during monsoon season
• Sprinkler system malfunctions

Covered: Under Broad and Special Causes of Loss forms

Not Covered: Flood (requires separate policy)

Commercial Property Endorsements

Important New Mexico Endorsements

Accounts Receivable Coverage

Purpose: Covers loss if customer account records destroyed

Typical Situation: Fire destroys computer system with customer invoices/billing records

Coverage: Pays for amounts you cannot collect due to record loss

Valuable Papers and Records

Purpose: Covers cost to recreate business records, documents, blueprints

Coverage: Restoration cost (not intrinsic value)

Best For: Architects, engineers, contractors with project documents

Inland Marine Coverage

What is Inland Marine?

Inland Marine insurance covers:

• Property in transit
• Mobile property
• Property at various locations
• Specialized property types

Common Inland Marine Coverages

Contractors Equipment:

• Mobile equipment used at job sites
• Tools and machinery
• Coverage applies anywhere in coverage territory

Builders Risk:

• Buildings under construction
• Materials at job site
• Temporary structures
• Soft costs (architect fees, interest) with endorsement

Installation Floater:

• Property being installed (HVAC, machinery)
• Coverage during transport and installation
• Until property becomes building fixture

Electronic Data Processing (EDP):

• Computer hardware
• Software and media
• Data restoration costs
• Extra expense after data loss

Exam Tip: Inland Marine covers property that moves or is specialized. Think: "if it moves or is unique, it might need inland marine coverage."

Claims Considerations

Proof of Loss Requirements

Insureds must provide:

• Time and cause of loss
• Interest in damaged property
• All liens or encumbrances on property
• Other insurance covering same property
• Detailed inventory of damaged property
• Receipts, invoices, or other value documentation

Timing: Typically within 60 days of insurer's request

Duties After Loss

Insured Must:

• Give immediate notice to insurer
• Protect property from further damage
• Prepare inventory of damaged property
• Allow insurer to inspect property
• Cooperate with investigation
• Submit proof of loss when requested

Failure to Comply: Can result in claim denial

Appraisal Process

If parties disagree on amount of loss:

1. Each party selects an appraiser
2. Appraisers select an umpire
3. Appraisers submit estimates to umpire
4. Agreement of any two determines loss amount
5. Each party pays own appraiser; share umpire cost

Appraisal Does NOT Determine:

• Whether coverage applies
• Whether loss is covered
• Policy interpretation questions

On the Exam: Know that appraisal resolves VALUE disputes, not COVERAGE disputes. Coverage disputes may require litigation.