South Dakota Commercial Property Insurance

Commercial property insurance protects South Dakota businesses from property losses that could devastate operations. From Main Street retail to agricultural operations, adequate property coverage is essential.

Commercial Property Coverage Forms

Building and Personal Property Coverage Form (CP 00 10)

The standard BPP Coverage Form provides three coverage categories:

Coverage A - Building

Covered if you own the building:

• Building structure itself
• Completed additions and alterations
• Permanently installed fixtures
• Outdoor fixtures (if declared)
• Building equipment and machinery
• Personal property you own used to maintain the building

Exclusions:

• Land and water
• Foundation below ground (unless caused by covered building loss)
• Excavations and underground pipes
• Vehicles and aircraft

Coverage B - Business Personal Property (BPP)

Covered property you own:

• Furniture and fixtures
• Machinery and equipment
• Stock and inventory
• Supplies and materials
• All other personal property for business use

Property of Others in Your Care:

• Customer property
• Property for which you're legally liable
• Goods sold but not delivered

Improvements and Betterments (if you're tenant):

• Alterations you made to building
• Fixtures you installed
• Improvements you own

Exam Tip: Business Personal Property includes three categories: (1) property you own, (2) property of others in your care, and (3) improvements and betterments if you're a tenant.

Coverage C - Personal Property of Others

Optional Coverage:

• Property of others in your care, custody, or control
• Customers' property while on premises
• Must be declared and scheduled
• Separate limit from Coverage B

Causes of Loss Forms

Commercial property requires selecting a Causes of Loss Form:

Basic Form Perils (11)

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

Broad Form Additional Perils (7 more)

1. Falling objects
2. Weight of snow, ice, or sleet
3. Water damage (not flood)
4. Collapse (from specific causes)
5. Glass breakage
6. Volcanic eruption (additional coverage)
7. Theft

Special Form Coverage

• Covers all risks of direct physical loss except exclusions
• Broadest coverage available
• Most popular for commercial property
• Higher premium than Basic or Broad

Common Exclusions (all forms):

• Flood and surface water
• Earth movement (earthquake)
• Power failure (off premises)
• War and military action
• Nuclear hazard
• Intentional loss
• Ordinance or law
• Neglect

Exam Tip: Special Form is "all-risk" coverage - covers everything except what's excluded. Basic and Broad Forms are "named perils" - only cover listed perils.

Business Income Coverage

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

Purpose: Protects business income lost due to suspension of operations from covered property damage.

What It Covers:

1. Net Income (Net Profit or Loss)

   • Income business would have earned
   • Continues during suspension period
   • Based on financial records and projections

2. Continuing Normal Operating Expenses

   • Expenses that continue even if operations suspend:
     • Payroll (if covered)
     • Rent or mortgage payments
     • Utilities (if you must pay)
     • Loan payments
     • Property taxes
     • Insurance premiums
     • Interest payments

3. Extra Expenses

   • Extra costs to continue operations during restoration
   • Temporary location rental
   • Equipment rental
   • Extra advertising to notify customers
   • Other necessary expenses to minimize suspension

Period of Restoration

When Coverage Begins:

• 72 hours after the direct physical loss occurs
• Waiting period applies before payment

When Coverage Ends (earliest of):

• Date property is repaired/replaced and operations resume
• Date operations resume at new permanent location
• Date business should be resumed with reasonable speed

Extended Period of Restoration:

• Optional extension available (30, 60, 90 days)
• Covers continuing loss after property repaired
• Time needed to return to normal business levels

Coinsurance in Business Income

Coinsurance Requirement:

• Most policies have 50%, 60%, 80%, 90%, or 100% coinsurance
• Business must carry insurance = Expected Gross Earnings × Coinsurance %

Expected Gross Earnings:

• Net income + continuing expenses
• For 12-month period after loss
• Must project accurately

Coinsurance Penalty Formula:

$\text{Recovery} = \frac{\text{Insurance Carried}}{\text{Insurance Required}} \times \text{Loss}$

Example:

• Expected gross earnings: $500,000
• Coinsurance requirement: 80%
• Insurance required: $500,000 × 80% = $400,000
• Insurance carried: $300,000
• Loss: $100,000

\text{Recovery} = \frac{$300,000}{$400,000} \times $100,000 = $75,000

Business receives only $75,000 instead of $100,000 due to underinsurance.

Exam Tip: Coinsurance penalizes under-insurance. Business must carry adequate limits or become a co-insurer, sharing in the loss proportionately.

Business Income Options

Agreed Value Option:

• Suspends coinsurance clause
• Submit financial statement and projections
• Agree on business income value
• Pay premium based on agreed value
• No penalty if projections wrong (within reason)

Maximum Period of Indemnity:

• Alternative to coinsurance
• Pay limit = monthly limit × maximum months (120, 180, etc.)
• No coinsurance calculations
• Simpler for businesses with consistent income

Monthly Limit of Indemnity:

• Limit expressed as monthly payment
• Fraction of total limit (typically 1/3 or 1/4)
• No coinsurance requirement

Property Valuation

Valuation Methods

Replacement Cost Coverage

Requirements to Collect Replacement Cost:

1. Property must be repaired or replaced
2. Repairs at same or another location
3. Repairs made with reasonable speed
4. Amount spent determines recovery

Settlement Process:

1. Insurer pays ACV immediately (replacement cost minus depreciation)
2. Business repairs or replaces property
3. Submits receipts and proof
4. Insurer pays remaining replacement cost (up to limit)

If Business Doesn't Repair:

• Receives only ACV
• Loses replacement cost benefit

South Dakota Business Considerations

Severe Weather Impact on Businesses

Hail Damage:

• Roof damage to commercial buildings
• Parking lot vehicle damage (customers and fleet)
• Exterior building damage
• Signage damage
• Outdoor inventory and equipment

Windstorm Damage:

• Roof and structural damage
• Broken windows and doors
• Damage to outdoor equipment
• Business interruption from repairs

Winter Storms:

• Roof collapse from snow/ice weight
• Pipe freezing and water damage
• Ice dams causing interior damage
• Business interruption from severe blizzards

Claims Preparation:

• Document property condition with photos/video
• Maintain inspection records
• Keep financial records current for business income claims
• Have emergency plan for severe weather

Agricultural Business Property

Farm Operations:

• Farm buildings and structures
• Farm equipment and machinery (separate coverage)
• Livestock (separate coverage)
• Harvested crops in storage
• Supplies and fuel

Unique Exposures:

• Grain elevators and storage
• Processing facilities
• Farm markets and stands
• Agritourism operations

Seasonal Businesses

Coverage Considerations:

• Business income varies by season
• Maximum period of indemnity may be better than coinsurance
• Consider timing of loss (peak vs. off-season)
• Extra expense coverage critical for peak season reopening

Examples:

• Tourism businesses (Black Hills region)
• Agricultural operations (harvest season)
• Outdoor recreation facilities
• Seasonal restaurants and retail

Inland Marine Coverage

Commercial Inland Marine

Purpose: Cover property not adequately insured under standard commercial property forms.

Common Inland Marine Coverages

Contractors Equipment Coverage

Covers:

• Construction equipment and tools
• Mobile equipment (dozers, excavators, loaders)
• Hand tools and power tools
• Scaffolding and temporary structures

Coverage Territory: Usually US and Canada

Perils: Typically all-risk coverage

Who Needs It: Contractors, construction companies, landscapers

Commercial Articles Coverage

Covers:

• Cameras and musical instruments
• Medical and dental equipment
• Computer equipment (off premises)
• Salesperson's samples
• Sports equipment

Ideal For: Photographers, physicians, sales representatives

Accounts Receivable Coverage

Covers:

• Sums you're unable to collect due to damage to records
• Interest charges on loans to offset uncollectible amounts
• Collection expenses exceeding normal
• Other reasonable expenses

Critical For: Businesses with significant outstanding receivables

Valuable Papers and Records

Covers:

• Cost to research and replace valuable papers
• Includes books, maps, drawings, plans
• Documents with intrinsic value
• Electronic data (with endorsement)

Limits: Typically per loss, not per item

Equipment Breakdown (Boiler and Machinery)

Covers:

• Sudden and accidental breakdown of equipment
• Mechanical breakdown
• Electrical arcing
• Steam boiler explosion

Covered Equipment:

• HVAC systems
• Boilers and pressure vessels
• Electrical equipment
• Mechanical equipment

Additional Coverages:

• Property damage from breakdown
• Business income loss
• Extra expense
• Expediting expenses (rush repairs)

Exam Tip: Equipment breakdown (formerly boiler and machinery) covers sudden mechanical/electrical breakdown NOT covered under standard property forms. Essential for manufacturing and businesses with complex equipment.

Bailee Coverage

Who Needs It: Businesses holding customers' property

Examples:

• Dry cleaners
• Repair shops
• Storage facilities
• Veterinary clinics
• Equipment rental companies

Legal Liability:

• Covers property of others while in your care, custody, or control
• Bailee's customer policy protects customer property
• Limits based on typical property values

Commercial Property Endorsements

Flood Insurance

Availability:

• NFIP (National Flood Insurance Program)
• Private flood insurance (increasing availability)

Limits:

• NFIP: Up to $500,000 building, $500,000 contents
• Private market: Higher limits available

Who Needs It:

• Businesses in flood zones (required by lenders)
• Businesses near waterways
• Spring snowmelt creates risk in many SD areas

Earthquake Coverage

Available as endorsement or separate policy:

• Not common in South Dakota
• Very low premiums due to low risk
• May be required by lenders for certain properties

Ordinance or Law Coverage

Covers:

• Undamaged portion of building (must be demolished)
• Increased cost to comply with building codes
• Demolition costs

When Needed:

• Older buildings not meeting current codes
• Building codes changed since construction
• Substantial renovation triggers code compliance

Example: Fire damages 60% of building. Building code requires complete tear-down and rebuild to current standards. Ordinance or law coverage pays for:

• Loss to undamaged 40%
• Demolition costs
• Increased construction costs to meet codes

Spoilage Coverage

Covers:

• Loss of perishable goods due to equipment breakdown
• Mechanical failure of refrigeration
• Power outage (if scheduled)

Who Needs It:

• Restaurants and food service
• Grocery stores
• Florists
• Pharmaceutical companies

Business Continuity and Risk Management

Business Income Worksheet

To determine adequate business income limits, calculate:

1. Net Income (Net Profit or Loss)

   • Before-tax profit for 12-month period
   • Include if operations suspend

2. Continuing Operating Expenses

   • Payroll (if continuing)
   • Rent/mortgage
   • Utilities (base amount)
   • Insurance
   • Taxes
   • Debt service
   • Other expenses that continue

3. Total = Net Income + Continuing Expenses

4. Apply Coinsurance % or Select Agreed Value

Disaster Preparedness

Before Disaster:

• Document property with photos/video
• Inventory equipment and contents
• Maintain financial records off-site (cloud backup)
• Create emergency response plan
• Identify alternate operating locations
• Build relationships with contractors

After Loss:

• Document damage immediately
• Prevent further damage (board up, cover, pump water)
• Notify insurer immediately
• Keep receipts for emergency repairs and extra expenses
• Track business income losses
• Maintain records of all loss-related expenses

Summary: Commercial Property Insurance

Key Points: ✓ Building and Personal Property Form covers buildings, BPP, and property of others ✓ Choose Causes of Loss Form: Basic (11 perils), Broad (18 perils), or Special (all-risk) ✓ Business Income covers lost income + continuing expenses + extra expense ✓ Coinsurance requires adequate limits - carry 80-100% of expected gross earnings ✓ Replacement cost coverage requires actual repair/replacement to collect full value ✓ South Dakota severe weather (hail, wind, winter storms) creates significant exposure ✓ Inland marine covers mobile equipment, tools, valuable papers, and specialized property ✓ Equipment breakdown essential for businesses with mechanical/electrical equipment ✓ Flood not covered - requires separate flood insurance ✓ Proper valuation and adequate limits critical to avoid coinsurance penalties