A commercial property policy includes a 'Vacancy' clause. A tenant moves out of a retail space, leaving it entirely empty for 70 consecutive days. During this period, a pipe bursts, causing significant water damage. How will the vacancy clause likely affect the claim?
- AThe amount paid for the loss will be reduced by 15% to 25%.
- BThe claim will be paid in full, as water damage is a covered peril.
- CThe claim will be denied entirely.
- DOnly losses due to vandalism would be affected, not water damage.
Show answer & explanationAnswer & explanation
Correct answer: A. The amount paid for the loss will be reduced by 15% to 25%.
A commercial property is considered vacant if it contains 31% or less of its customary contents or if 70% or more of the building is unused for at least 60 consecutive days. If a loss occurs while vacant beyond this period, certain perils (like vandalism, sprinkler leakage, glass breakage, theft) are excluded, and for all other covered perils, the amount paid for the loss is typically reduced by 15% to 25%. Since water damage from a burst pipe is a covered peril not specifically excluded by vacancy, the claim amount will be reduced.
Why the other options are wrong
- B. The vacancy clause will impose a penalty, even for covered perils.
- C. Denial is usually for specific perils like vandalism while vacant, not all perils.
- D. Vandalism is often excluded entirely, but other covered perils face a reduction.
Commercial Property Vacancy Clause
A provision in commercial property policies that modifies coverage when a building has been vacant for a specified period (e.g., 60 days). It typically excludes certain perils and reduces payment for others.
- A building is vacant if 31% or less of its contents are present, or 70% or more of its space is unused.
- Specific perils (e.g., vandalism, theft, sprinkler leakage, glass breakage) are excluded after 60 days of vacancy.
- For other covered perils, the loss payment is typically reduced by 15% or 25% (depending on policy wording).
Memory trick: Empty Space Means Less Pay.