Ask the Expert: How long after a building becomes empty is it considered “vacant” for underwriting purposes?

By DAVID PRICE

Published 7/29/2010

Subscribe to Property & Casualty

Print This Article

Return To Article

Normal Text

Large Text

David Price,
Executive Vice President and Chief Underwriting Officer
Burns & Wilcox

It is 60 days for accounts that Burns & Wilcox handles. After that, you usually need to shift to a vacant-property policy.

The 60-day criteria provides a reasonable amount of time so a resident can take a vacation or a landlord can hold off reoccupancy to upgrade or remodel a property without switching to a vacant-property policy.

Be aware that the treatment of vacant property does vary, depending on the rules of the insurance carrier and the criteria or flexibility of the underwriter. For example, standard-market insurers usually rely on policy language specified by the Insurance Services Office (ISO), which does not use a cutoff date to determine whether a property is considered vacant. Instead, ISO suggests including a penalty clause in a regular property policy. The clause states that if a building is vacant at the time of a covered loss, the owner is paid only 80 percent of what would normally be covered. There is no distinction between a building vacant a day or a year if there’s a loss.

Comment on This Article

Name:
Email (will not be published):
Subject:
Comment:

- 8/30/2010 3:13:00 PM
- InsuranceGeek
- Vacant Buildings
- I don't understand the statements about ISO not having a cutoff date or the amount of the penalty. Under the ISO CP 00 10, if a property has been vacant for more than 60 consecutive days, some losses aren't covered at all. For all other losses, the loss payment is reduced by 15%, so 85% of the loss is paid, exclusive of the deductible. For homeowners policies, it is much more ambiguous. If the named insured's residency has ended, some adjusters and some legal jurisdictions say that the coverage on the dwelling ends. For more info on this potentially catastrophic coverage gap, check this white paper out: http://www.iiaba.net/VU/NonMember/WhereYouReside.htm
- 8/30/2010 4:26:58 PM
- Patrick Nolan
- ISo Vacancy Provision
- The ISO provision (form CP 00 10) for vacancy which is defined as less than 31% of total square footage occupied is a 15% penalty of what would otherwise be paid on the loss. Excluded Perils under the vacancy provision are: Vandalism; Sprinkler Leakage, unless you have protected the system against freezing; building glass brakage; water damage; theft; or attenpted theft.
- 8/30/2010 6:30:24 PM
- John O Eubank
- Vacancy
- Mr. Price is totally wrong in his statement "The clause states that if a building is vacant at the time of a covered loss, the owner is paid only 80 percent of what would normally be covered. There is no distinction between a building vacant a day or a year if there’s a loss." The most current ISO CP 00 10 says: b. Vacancy Provisions If the building where loss or damage occurs has been vacant for more than 60 consecutive days before that loss or damage occurs: (1) We will not pay for any loss or damage caused by any of the following even if they are Covered Causes of Loss: (a) Vandalism; (b) Sprinkler leakage, unless you have protected the system against freezing; (c) Building glass breakage; (d) Water damage; (e) Theft; or (f) Attempted theft. (2) With respect to Covered Causes of Loss other than those listed in b.(1)(a) through b.(1)(f) above, we will reduce the amount we would otherwise pay for the loss or damage by 15%. The building is vacant after day one, but the penalty does not apply until after the 60th consecutive day. As noted the penalty is 15% for most perils or the insured gets 85%, not 80% of the loss. This provision has not changed in the ISO form since 1896. What has changed in the provision of when is a building vacant. Under the 1995 form (the 1986, 1988, 1990 and 1991 forms are different) vacancy is established (with respect to a building owner's coverage) when 70% or more of the square footage of the building is not rented or not used to conduct customary operations. These criteria recognize that a building owner may occupy the entire building, or may rent part or all of the building to tenants. 2000 Changes (Same in the 2002 and 2007 forms) ISO revised the Vacancy Condition to: ? Clarify that rented space must be used to conduct customary operations, if a condition of vacancy is to be avoided. The rental agreement itself (e.g., $1-per-year token rental) is not the determining factor. ? Restate the percentage threshold for vacancy under an owner's policy, with no change in the actual threshold. The 1995 form presents the threshold in terms of space that is not rented/used (70% or more of the premises in square feet). The 2000 - 2007 forms presents the threshold in terms of space that is being rented/used (at least 31% of the premises in square feet). ? For example, a building is vacant when 70% of the space is not rented/used and 30% of the space is rented/used…the building is not vacant when 31% or more of the space is rented/used. ? Add reference to the total square footage. ? Add references to a general lessee, lessee, sub-lessee and building owner, in various parts of the provision which relates to an owner's policy. ? No change from prior forms for a tenant Now did this totally confuse you????? Try to explain to your insured!!!!!!!!!!! John Eubank, CPCU, ARM President Professional Insurance Education, Inc.
- 8/31/2010 12:00:33 AM
- Jim Fujioka
- Vacant versus Unoccupied
- As stated in your article, ISO language does not indicate any kind of cutoff date, but my question is how is the insurance company to prove that the residential property is really vacant or unoccupied.
- 8/31/2010 7:11:55 AM
- John Eubank
- Vacant Building
- Oops: In my comment yesterday I hit the send key before I saw a typo. The date should have been 1986 not 1896. The building is vacant after day one, but the penalty does not apply until after the 60th consecutive day. As noted the penalty is 15% for most perils or the insured gets 85%, not 80% of the loss. This provision has not changed in the ISO form since 1986 (not 1896).