Vacant or abandoned commercial buildings are a hazard to any community. Even if carefully boarded up, they are often used by vagrants as a place to stay or by criminals as a base for illegal activities. Fires started by squatters to keep warm often get out of control, leading to a major conflagration that can endanger nearby buildings, fire service responders and an entire neighborhood. In an economic downturn, office buildings, shopping centers and factories may be vacant for long periods of time. Owners – either the property owner or a bank that may have acquired the property in a foreclosure – need to take steps to prevent loss and to be certain that the insurance on the property remains effective.
The commercial Building and Personal Property Coverage Form (CP 00 10 06 07) provides specific terms regarding vacancy loss conditions. A rented building is vacant when it does not contain enough business personal property to conduct customary operations. If owned or under a general lease a building is considered vacant unless at least 31% of its total square footage is rented to a lessee or sub-lessee and used by the lessee or sub-lessee to conduct its customary operation, or is used by the building owner to conduct customary operations. Buildings under construction or renovation are not considered vacant.
Vacancy may totally bar coverage, but not in every case. Provision 6.b. specifies that if the building where loss or damage occurs has been vacant for more than 60 consecutive days before the loss or damage, the insurer will not pay for any loss or damage caused by sprinkler leakage, unless the insured protected the system against freezing, glass breakage, water damage, theft or attempted theft. But for other covered causes of loss, the insurer will reduce the amount it would otherwise pay for the loss or damage by 15%. This additional 15% deduction is on the “amount we would otherwise pay” which would be amounts subject to deductibles and coinsurance calculations.
Currently, one of the primary targets for theft or vandalism in a vacant structure is copper wiring and plumbing. In some areas, copper thieves have even stolen the wiring to lamp posts on highways, so the chances of a vacant building being targeted remains high. In one case, the amount of loss from stolen copper was approximately $100,000, in addition to $600,000 in other damage to the building.
There are a growing number of both state and federal laws regarding the theft and marketing of stolen copper. Some of these now require scrap metal dealers to demand a paper-trail for any purchases of copper or other valuable metals in an attempt reduce the risks of theft. If the law requires a metals dealer to secure proof that the copper being purchased was obtained legitimately, there would be less motivation for such theft; penalties for requiring such proof would also encourage dealers to comply with the anti-metal-theft legislation.
National Underwriter, in its August 27, 2012, issue advised, “Before providing Vacant Building coverage, a carrier may require that certain protections be in place. For example, it may ask the insured to warrant that the building has a central burglar alarm and that it is working. Another common policy addition is the Secured Building Warranty, which guarantees that all the doors are locked, all the windows are secured or boarded up, and all possible openings are covered.”