Vermont Commercial Property Insurance

Vermont Commercial Property Landscape

Vermont's commercial property market has unique characteristics:

Vermont Business Demographics

Vermont Commercial Risks

Winter Weather:

• Extended business interruption from snow storms
• Roof damage and collapse
• Frozen pipes in commercial buildings
• Ice dams on commercial roofs
• Power outages affecting refrigeration and operations

Rural Challenges:

• Volunteer fire departments (Class 8-10)
• Longer emergency response times
• Limited water supply for firefighting
• Higher ISO fire protection classes

Building Age:

• Many downtown commercial buildings 100+ years old
• Actual cash value vs. replacement cost issues
• Code upgrade requirements
• Functional obsolescence

Businessowners Policy (BOP)

The BOP is the most common commercial policy for small Vermont businesses:

BOP Eligibility

Eligible Businesses:

• Retail stores
• Offices
• Restaurants and bars
• Small apartments (5 units or less)
• Processing/service operations
• Contractors (small operations)

Typical Size Limits:

• Buildings under 100,000 sq ft
• Gross revenues under $10 million (varies by insurer)
• No more than 5 rental units in building

Ineligible:

• Auto repair/service stations
• Bars/taverns (sometimes—insurer-specific)
• Banks/financial institutions
• Contractors (large operations)

BOP Coverage Components

BOP Advantages

Simplified:

• Package policy—easier than separate property and liability
• Standard coverages included
• Easier to understand

Cost-Effective:

• Lower premiums than separate policies
• Package discount
• Good for small businesses

Automatic Coverages:

• Business income with extended period (usually 30-60 days)
• Extra expense
• Some property off-premises
• Newly acquired property (automatic coverage period)

Exam Tip: BOP is designed for SMALL businesses (under $10M revenue, under 100,000 sq ft). Larger operations need commercial package policies.

Commercial Property Coverage Forms

For larger businesses or ineligible for BOP:

CP 00 10 - Building and Personal Property Coverage Form

The standard commercial property policy:

Covered Property:

1. Building (if Coverage A selected)

   • Permanently installed fixtures
   • Outdoor fixtures
   • Personal property used to maintain/service building
   • Additions and extensions

2. Business Personal Property (if Coverage B selected)

   • Furniture and fixtures
   • Machinery and equipment
   • Stock/inventory
   • Personal property of others in your care

3. Personal Property of Others (if Coverage C selected)

   • Property of others in your care, custody, or control

Covered Causes of Loss

Three options available:

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 Adds:

• Falling objects
• Weight of snow, ice, or sleet (critical for Vermont!)
• Water damage (not flood)
• Collapse (limited)

Special Form:

• All direct physical loss EXCEPT specifically excluded
• Broadest coverage
• Higher premium but comprehensive

Exam Tip: For Vermont businesses, Broad or Special Form is recommended due to "weight of snow, ice, or sleet" peril. Basic form does NOT cover this, leaving Vermont businesses exposed to roof collapse.

Business Interruption Coverage

Business Income Coverage reimburses lost income when business must close due to covered property loss:

What's Covered

Business Income:

• Net income that would have been earned
• Continuing operating expenses (rent, utilities, payroll)
• Loss period: From date of loss until business restored with due diligence

Extra Expense:

• Costs to continue operations temporarily
• Renting temporary location
• Equipment rental
• Expedited repairs

Vermont Business Interruption Scenarios

Common Vermont BI Claims:

1. Winter Storm Roof Collapse

   • Roof collapses from snow load
   • Business closed for 2-3 months for repairs
   • Lost income and continuing expenses covered

2. Frozen Pipes

   • Pipes burst over holiday weekend
   • Water damage requires 6 weeks to repair
   • Lost revenue during closure covered

3. Power Outage from Ice Storm

   • If causes direct property damage: covered
   • If no property damage: typically NOT covered (need utility services endorsement)

4. Winter Road Closure

   • If due to covered loss to property: covered
   • If just heavy snow closing roads: NOT covered (need civil authority endorsement)

Business Income Period

Period of Restoration:

• Begins 72 hours after physical loss (waiting period)
• Continues until property should be repaired with reasonable speed
• Ends when business restored or permanently relocated
• Extended period available (continues 30-60 days after repairs to recapture business)

Exam Tip: Business Income coverage requires DIRECT PHYSICAL LOSS to the property. Simply losing customers due to snow storms is NOT covered unless there's actual damage to the building.

Vermont-Specific Commercial Property Concerns

Older Buildings and Code Upgrade

Many Vermont commercial buildings are 50-150+ years old:

Challenges:

• Replacement Cost: May be higher than building value
• Code Upgrades: Repairs may require bringing building to current code
• Functional Obsolescence: Outdated design may reduce value
• Undivided Interest: Multiple owners in old downtown buildings

Ordinance or Law Coverage:

• Coverage A - Loss to Undamaged Portion: Pays to demolish undamaged part if required by law
• Coverage B - Demolition Cost: Pays cost to demolish damaged building
• Coverage C - Increased Cost of Construction: Pays extra cost to meet current building codes

Critical for Vermont: Many older buildings will require code upgrades if substantially damaged (>50% damage threshold in many municipalities).

Seasonal Business Operations

Vermont's tourism and seasonal businesses face unique issues:

Ski Resorts and Winter Tourism:

• High winter revenue concentration
• Weather-dependent income
• Equipment breakdown exposure (ski lifts)
• Seasonal employee issues

Summer Tourism:

• Lake properties and outdoor recreation
• Seasonal income
• Vacancy during off-season

Agricultural Operations:

• Crop/harvest timing critical
• Maple syrup production (very time-sensitive)
• Dairy operations (continuous)
• Seasonal help

Insurance Considerations:

• Business income limits based on seasonal fluctuations
• Peak season loss more severe
• Vacant/unoccupied issues during off-season
• Special agricultural coverage needed

Vacant and Unoccupied Buildings

Definitions:

• Vacant: No people AND no property/operations (empty building)
• Unoccupied: No people but property/operations remain (closed for winter)

Coverage Implications:

• If vacant >60 consecutive days: coverage restrictions apply
• Vandalism, theft, water damage, glass breakage typically excluded
• Some perils reduced to 85% of coverage limits
• Must notify insurer of extended vacancy

Vermont Challenge: Many seasonal businesses vacant 3-6 months, requiring special seasonal policies or vacancy permits.

Valuation Methods

Commercial property can be insured using different valuation methods:

Replacement Cost

Coinsurance Clause

Most commercial property policies include coinsurance:

How It Works:

• Requires insuring property to stated percentage of value (typically 80%, 90%, or 100%)
• If underinsured, claim payment reduced proportionally
• Formula: (Amount of Insurance Carried ÷ Amount Required) × Loss = Payment

Example:

• Building value: $500,000
• 80% coinsurance clause
• Required insurance: $400,000 (80% of $500,000)
• Actual insurance: $300,000 (underinsured!)
• Loss: $100,000

Claim Payment:

• ($300,000 carried ÷ $400,000 required) × $100,000 loss = $75,000 paid
• Coinsurance penalty: $25,000 (insured pays this)

Exam Tip: Coinsurance penalizes underinsurance. To avoid coinsurance penalty, insure property to at least the percentage required (80%, 90%, or 100% of value) OR purchase agreed value coverage.

Commercial Property Exclusions

Standard exclusions in commercial property policies:

Major Exclusions

Water Damage Limitations

Excluded:

• Flood (rising water from outside)
• Sewer backup (without endorsement)
• Seepage through foundation
• Water below ground surface

Covered:

• Sudden and accidental discharge (broken pipes)
• Rain through roof opening caused by covered peril
• Sprinkler leakage
• Weight of ice or snow collapsing roof causing water entry

Vermont Commercial Property Underwriting

Insurers consider these factors when underwriting Vermont commercial property:

Key Underwriting Factors

Hard-to-Insure Commercial Risks

Challenges:

• Restaurants and bars (fire and liability risk)
• Vacant buildings
• Buildings over 100 years old
• Properties with old wiring or oil tanks
• High-hazard occupancies (welding, auto repair)
• Buildings with flat roofs (snow load risk in VT)

Solutions:

• Specialty insurers
• Surplus lines market
• Higher deductibles
• Property improvements
• Risk management programs

Summary

Vermont commercial property insurance addresses:

• Small business market: BOP popular for businesses under $10M revenue
• Winter weather: Weight of snow/ice coverage critical
• Business interruption: Extended closures from winter damage
• Older buildings: Code upgrade and replacement cost challenges
• Seasonal operations: Vacancy and fluctuating income issues
• Rural locations: Higher ISO classes and limited fire protection

Key coverage considerations:

• Broad or Special Form to include weight of snow/ice
• Adequate business income limits reflecting seasonal fluctuations
• Ordinance or Law coverage for older buildings
• Coinsurance compliance or agreed value
• Vacancy permits for seasonal closures

Next chapter covers Vermont auto insurance and casualty coverage.