What Perils Are Covered by Commercial Property Insurance? #Video

Common Perils Covered by Commercial Property Insurance

Most commercial property insurance policies cover a broad range of risks, often referred to as “named perils.” If a peril is explicitly listed in the policy, the insurer will cover the damage it causes. Some policies, however, offer “all-risk” coverage, which protects against all perils except those specifically excluded. Below are the most common perils covered:

1. Fire and Smoke Damage

One of the most significant risks to any business, fire can destroy buildings, equipment, and inventory. Most policies cover fire damage, including smoke-related harm, regardless of the cause—whether it’s electrical faults, lightning strikes, or accidental fires.

2. Theft and Vandalism

Burglary, robbery, and vandalism are significant threats, especially for retail businesses and warehouses storing valuable goods. Commercial property insurance typically covers losses from stolen goods and damages caused by break-ins or malicious acts like graffiti or destruction of property.

3. Windstorms and Hail

Extreme weather events, such as tornadoes, hurricanes, and hailstorms, can cause severe structural damage. A standard commercial property insurance policy generally includes coverage for wind and hail, but businesses in high-risk areas (like coastal regions) might need to purchase additional coverage for hurricanes.

4. Water Damage (Excluding Floods)

Water damage caused by burst pipes, accidental leaks, or sprinkler malfunctions is usually covered. However, flood damage is typically excluded from standard policies and requires separate flood insurance, especially for businesses in flood-prone areas.

5. Explosions

Whether caused by a gas leak, a boiler malfunction, or an industrial accident, explosions can be catastrophic. Commercial property insurance usually covers explosion-related damages, though businesses dealing with hazardous materials may need specialized coverage.

6. Riots and Civil Commotion

Damage caused by riots, looting, and civil unrest is generally covered, ensuring businesses can recover from losses caused by such events.

7. Vehicle or Aircraft Damage

If an aircraft or vehicle (that’s not owned by the business) crashes into the property, the resulting damage is typically covered by commercial property insurance.

8. Falling Objects

Unpredictable events, such as damage caused by falling trees, utility poles, or debris from a construction site, are usually covered under standard policies.

Additional Coverage Options

While standard commercial property insurance policies cover many perils, businesses may need extra protection based on their specific risks.

1. Flood Insurance

Standard policies do not cover floods. Businesses in flood-prone areas (like those near rivers or coastal zones) should consider purchasing a separate flood insurance policy, often through the National Flood Insurance Program (NFIP) or private insurers.

2. Earthquake Insurance

Similarly, damage caused by earthquakes, landslides, or soil shifting is not included in standard policies. Businesses in seismically active areas (such as California) must purchase earthquake insurance separately.

3. Business Interruption Insurance

If a covered peril forces a business to temporarily close, business interruption insurance covers lost income, operating expenses, and even temporary relocation costs. This is particularly useful for retail businesses, restaurants, and manufacturing companies.

4. Equipment Breakdown Insurance

While standard policies cover damage from perils like fire or storms, they don’t cover mechanical or electrical failures of essential equipment. Equipment breakdown insurance covers the repair or replacement costs of heating systems, industrial machinery, refrigeration units, and computers.

5. Sewer Backup Coverage

Water damage from a burst pipe is typically covered, but damage caused by sewer backups or overflowing drains is not included in most policies. Businesses can purchase sewer backup coverage as an add-on.