Commercial Property Insurance: How Much Coverage Do You Really Have?

For purposes of our discussion, assume a policyholder owns a building that suffered a near-total covered loss. Assume the policyholder holds a commercial property policy insuring multiple separate properties with an aggregate policy limit of $100 million. Finally, assume the damaged building has a "scheduled" value of $10 million based on a schedule of values on file with the insurer, a market value of $15 million, and that repairs necessary to return the building to its pre-loss condition will cost $20 million. Whether the policyholder is entitled to recover $20 million, $15 million, $10 million (or some number in between) depends on the type of policy at issue and the interaction of loss payment (or loss-settlement), valuation and like provisions governing the extent of the insurer's liability. Examples of those policies and provisions are discussed below

Blanket vs. Scheduled Limit Policies

Commercial property policies covering multiple properties usually contain either "blanket" or "scheduled" limits of liability. A blanket limit policy is one with a stated limit that applies on an aggregate basis to any or all locations covered by the policy. These limits are typically much larger than the value of any single property and are reduced by payment of loss to one or more properties, with the balance of the applicable blanket limit available to cover damage to the other properties. Where a property policy provides a blanket limit, absent express language to the contrary, coverage for damage to a particular building is not limited to the amount stated as the building's value even where the policy has or references a schedule of values for each location. In contrast, a policy with true "scheduled" limits is one that contains or references a schedule of insured values for each property and makes expressly clear that the insurer's liability for each scheduled location is limited to the scheduled value for that location.