Property & Casualty Insurance Exam (National Portion)Property InsuranceMedium
A business owner has a commercial property policy that provides coverage for their building and business personal property. The policy includes a 'Vacancy' clause. If the building has been vacant for 75 consecutive days prior to a covered fire loss, how will the insurer likely respond to the claim?
- AThe insurer will pay the claim in full, as vacancy clauses typically only apply after 90 days.
- BThe insurer will pay the claim in full for the building, but deny coverage for the business personal property.
- CThe insurer will reduce the amount paid for the loss by 15% for both building and business personal property.
- DThe insurer will deny the entire claim for both building and business personal property.
Show answer & explanationAnswer & explanation
Correct answer: C. The insurer will reduce the amount paid for the loss by 15% for both building and business personal property.
Under a standard commercial property policy's Vacancy clause, if a building has been vacant for more than 60 consecutive days prior to a loss, the insurer will reduce the amount paid for certain covered perils (including fire) by 15%.
Why the other options are wrong
- A. The standard vacancy period for commercial property is 60 days, not 90 days, after which penalties apply.
- B. The 15% reduction typically applies to both building and business personal property if the peril is covered but subject to the vacancy clause.
- D. Complete denial is generally not the consequence of a vacancy clause for a covered peril like fire; rather, a reduction applies.
Commercial Property Vacancy Clause
A provision in a commercial property policy that modifies coverage if the insured building has been vacant for a specified period (typically 60 consecutive days) prior to a loss.
- Applies after 60 consecutive days of vacancy.
- Reduces payment for certain losses (e.g., fire, vandalism) by 15%.
- Vacancy means both absence of occupants and lack of contents for intended use.
Memory trick: Remember 'V'acancy means 'V'ery few claims get paid in 'V'acuum.