Vacancy Clause in Commercial Property (2/11/13)

  When I was starting (a LONG time ago) we made a BIG deal discussing the difference between VACANCY and UNOCCUPIED. Vacancy meant totally empty and that was what was needed to trigger the vacancy clause on a commercial property policy (a HO policy does not have a vacancy clause but coverage is for the 'residence premises' which can cause issues but we will hold that off for another day). The old rule was "leave a chair in there" and it won't be vacant. This changed many years ago now. The word 'unoccupied' does not really show up any more and the location does not need to be empty to be considered vacant. Here is the Vacancy Condition from the Building & Personal Property Form (CP 00 10 10 12)--

6. Vacancy
a. Description Of Terms

      (1) As used in this Vacancy Condition, the term building and the term vacant have the meanings set forth in (1)(a) and (1)(b) below:

         (a)  When this policy is issued to a tenant, and with respect to that tenant's interest in Covered Property, building means the unit or suite rented or leased to the tenant. Such building is vacant when it does not contain enough business personal property to conduct customary operations. 

            (b) When this policy is issued to the owner or general lessee of a building, building means the entire building. Such building is vacant unless at least 31% of its total square footage is:

        (i) Rented to a lessee or sublessee and used by the lessee or sublessee to conduct its customary operations; and/or

     (ii) Used by the building owner to conduct customary operations.

(2) Buildings under construction or renovation are not considered vacant.

   If a building is vacant by the terms above for more than 60 days several key coverage are suspended and those that are not will have the loss settlement reduced by 15%. I have had several agents and brokers tell me that an insured has been stung by this and the agent never thought about it as s/he never thought it was vacant since it was not empty. So, a word of warning----you might have clients with building/locations that could be considered vacant by the above terms that you never thought of as vacant since the building was not empty. Many insurance folks have either missed this change (it goes back to the late 90's) or they just have trouble remembering it.