Identifying the type of insurance relevant to your business can be a bit difficult, therefore, the need to know how property damage insurance works. Property damage in business insurance means damage to the property of a business which includes the property of a third party and its contents.
What Is Property Damage?
Property damage simply means the physical damage to the tangible property of a business. By tangible, it means something that can be felt or touched which include computers, buildings, and so on.
Several property damage claims usually result after a physical injury to tangible property which is owned by the claimant (the person making the claim). For example, the owner of a building sues the company in charge of plumbing for the damage caused when an accidental fire started during the welding of a pipe.
What Is Property Damage Insurance?
Property damage insurance is under the public liability insurance which covers accidental damage to the property of businesses. For instance, you spill something on the furniture or carpet of a client while working, then any claim against you would be adequately covered by the property damage insurance.
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How Property Damage Operates
Many businesses insurance caters for property damages;
Business auto policies cater to third-party damage claims as a result of usage of vehicles for business.
General liability insurance caters for the third-party damage claims.
Commercial property insurance caters for damage to the property of a business as a result of unforeseen occurrences like fire or theft.
However, commercial property insurance is often incorporated into business owners’ policy (BOP) which gives general liability coverage, property coverage, and business interruption insurance.
Forms Of Property Damage
Several small firms buy the Commercial General Liability (CGL) plan to cover themselves against third-party claims on property damage. What property damage represents concerning your policy is outlined in the policy definition which is a subset of your policy documents.
An insurance advisory organization called the Insurance Services Office (ISO) offers standard policies which are being used by many insurance carriers. The Commercial General Liability (CGL) form has two sections that define property damage in two ways.
These two definitions are;
Physical damage to tangible property which results from loss of use of the property. Every such loss shall be assumed to have happened at the time when the physical injury that caused it.
Loss of use of tangible property with no physical damage insight. Every such loss shall be assumed to have happened at the time when the event occurred.
Both definitions are specific about offering coverage to tangible property. The first definition talks about physical injury to a tangible property with loss of usage of the property while the second definition covers the loss of the usage of a tangible property yet to be injured. So, each time a claim involves the loss of use, it is assumed that the loss had occurred at the same time as the property damage occurred.
What “loss of use” Stands For
The initial part of the definition of property damage includes loss of use of a tangible property that has been affected (injured).
For instance, a baking company employs an appliance expert to fix their steam cooker. While an employee of the appliance company works on the cooker, an explosion occurred that accidentally affected a doughnut maker nearby. Repairs for the doughnut maker take six months because the replacement parts are difficult to come by.
The baking company sues the appliance company for the cost to get the machine fixed and the loss of use. Now, the baking company has lost the sales it would have earned from doughnut sale, therefore, the value of the lost revenue is the loss of use.
So, the claim for the loss of use can be sued for even if the property of the claimant is not destroyed physically.
Here is an example; James is a popular restaurant owner in a busy environment. A crane that is used to move construction equipment from one end of the street to the other end accidentally breaks forcing the local authorities to shut down the street until the crane is removed.
The crane did not cause any physical damage to the restaurant but its negligence has resulted in the loss of sales for two weeks for the restaurant. James sues the construction company for the loss of use requesting to be compensated for the two weeks’ loss of sales.
Commercial Vehicle Property Damage
The commercial vehicle plan caters to both physical damage and property damage. The property damage is the damage to property of a third-party and it’s captured under the commercial auto liability policy. Physical damage is the damage to a vehicle that belongs to the policy owner and it’s captured under comprehensive and collision coverage.
The Business Auto Policy of ISO defines property damage as damage to or loss of use of a tangible property. However, this does not clarify between damaged and undamaged tangible property because most auto liability claims involve properties that have been physically damaged.
Commercial Property Damage
The commercial property policy covers your business property and its contents in the case of damage due to riots, vandalism, unforeseen events like high winds or fire. You can buy BOPs or standalone commercial property plans. However, the commercial property damage plan does cover property damage due to earthquakes and floods. Therefore, there is a need to buy a separate policy or endorsement to get cover from those occurrences.
So, property damage in business insurance is the damage to the property of a third-party or the damage to the property of a business which includes its contents.
How To Buy Property Damage Insurance
Property damage policy is under the public liability insurance, so, it’s unlikely to be seen as a separate cover. So, if you already possess the public liability insurance, it will serve as a cover for accidental injuries to both third-parties and the clients. This can also be the same as damage to property.