National Underwriter - August 15 2011

Experts Offer Best-Practice Tips For
Securing, Insuring Vacant Properties

BY SUSANNE SCLAFANE

DURING A WEBINAR titled “The New Edifice of Vacant Property: Protecting Asset Value as Commercial Real Estate Slowly Recovers” presented by PropertyCasualty360.com,
Zurich’s Jeff Shearman, senior risk-engineering consultant, reviewed a
host of security best practices for idle and vacant properties.

When preparing to idle a facility, “do a vulnerability analysis” to identify areas that natural elements can affect, such as roof hatches and windows, as well as areas that human elements can affect, he says, referring to human actions ranging from setting fires to squatting.

Shearman distinguishes between idle and
vacant properties, giving slightly different
definitions for risk-engineering purposes. Idle
properties are those with contents and sys-
tems left in place so that the facility can be
used for the same purpose in very short order.

Vocabulary Lesson: Defining Vacancy

A BUILDING THAT LOOKS occupied to the average person may be consid- ered vacant to an insurance carrier— and such vacancies can trigger a clause in standard policies that limits coverage for unwary building owners and lessees.

Giving some insurance basics for vacant buildings during a recent Property- Casualty360.com webinar, Christopher Zoidis, vice president of the Special Risk Division of wholesaler/MGA Burns & Wilcox, notes that insurers specifically define vacant property in standard ISO ( Insurance Service Office) forms with clauses referring to “less than 31 percent of the square footage” being occupied.

For tenants, a building that does not contain “enough business personal property to conduct customary operations” is also “vacant” according to the wording of vacancy clauses in standard policies, Zoidis adds.

If a building is vacant under this definition for a period of more than 60 days, then standard ISO forms eliminate coverage for some key specific perils, he says. According to a recent whitepaper published by Zurich North America, the perils excluded by the vacancy clause are vandalism, building glass breakage, water damage, theft or attempted theft, and sprinkler leakage. And a penalty kicks in reducing losses paid for covered perils—like fire and wind—by 15 percent, says Zoidis.

Zoidis notes that vacancy permits, which reinstate coverage for the excluded perils, have become widely available— from both standard and excess-and-surplus lines carriers—over the last few years. Some residential property owners can even get replacement-cost coverage, he says, noting that the actual-cash-value basis of coverage had been the prevailing standard for vacant property prior to 2010. NU

though not predictable tours” daily or weekly.

“Don’t go every Tuesday at 2 o’clock,” Shearman says. And the tour shouldn’t be a “WD-40,” he adds, coining his own phrase for a drive-by at 40 miles per hour.

In a vacant facility, such tours can be done more irregularly and less frequently, he says.

For an idle facility, it’s very important that protection (fire- and security-alarm systems) remain in place. “In a vacant facility, insurers still like to see such systems as much as possible. But if there’s just bare concrete and block walls, then…it’s more palatable to idle or take down [protection] systems,” Shearman says.

In either case—whether a building is idle or vacant—resources such as copper pipe and wiring may remain on site, making it a good idea to maintain a security-alarm system. Shearman advises owners to check whether the security system is “tied into the fire-alarm dialer.” In some instances Shearman knows of, owners believed they were taking only the fire-alarm system out, not realizing that the burglar alarms were on the same modem, and they unknowingly took those offline too.

Other guidelines Shearman provided that apply to both idle and vacant buildings: J Consider fencing the facility perimeter; there are security systems available that will activate if a fence is cut.

“They can make decorative fences that don’t make it look like a prison but provide some added level of security,” he says, helping owners to balance the goal of security with curb-appeal for potential buyers. J Secure mail slots and drop points, such as night deposits for banking facilities.