Preparing Unoccupied or Vacant Property for the Winter Months

“Unprecedented times” has been the go-to phrase of 2020. As COVID-19 forced many businesses to shift to a work-from-home model for the foreseeable future, many offices and retail spaces are now left empty for the first time. With winter around the corner and no one in the buildings, there’s an increased chance for vandalism, burst water pipes, and damage from winter storms. 

Most property owners may believe they have coverage for physical damage while their building is empty, but what do they mean by empty? Is the building vacant or unoccupied? Unfortunately, when a property becomes vacant or unoccupied, the insurance becomes complicated, and may even be limited. Let’s look at some ways to make sure you have the appropriate coverage.  To begin, it’s important to dive into what differentiates a property from being vacant versus being unoccupied. According to IRMI, the International Risk Management Institution, a vacant building “contains little or no furniture or other personal property” for a period of 60 days or longer ¹. An unoccupied building, however, has personal and/or business property on-site, but zero people are present for less than 60 days.

Think about a traditional office building whose tenants sent their employees home in March with plans to return within the next two months. These employees only took their immediate necessities home – laptops, keyboards, etc., but they left the larger items such as printers, monitors and filing cabinets. In this scenario, the building would be considered unoccupied. The employees could immediately return to the building to work, based on the property still onsite. Now, let’s say the same tenant now has decided they won’t be returning to the office for at least a year due to the increased COVID-19 cases. They allow employees to come in, clean out their workspaces and take their monitors home; while the management staff takes any historical or necessary documents out of the office. The building has now become vacant.

The distinction between these two definitions can mean the difference between paying out-of-pocket for water damage from a burst pipe or having your insurance policy provide for the repairs. In a vacant building, a policy is often not likely to respond to certain causes of loss, like water damage. For a simply unoccupied building, the coverage can be much clearer and straightforward – as long as the cause of loss itself is covered within the policy.

The Insurance Services Office (ISO) Defines "Vacancy" by Two Key Factors: 

• If a building has been rented to a tenant, the building becomes vacant when there is no longer enough business personal property to conduct customary operations.
• For property owners or lessees of an entire building, the entire property is considered vacant if less than 31% of the space is used by tenants “to conduct their customary operations, or used by the building owner for its customary operations.”

Let’s expand on the example we mentioned above: you’re the building owner who’s forced to close your tenant’s offices due to rising COVID-19 cases. Your tenants are no longer able to go about their business in your building; does that now make the property vacant? Not necessarily. This is where the ISO policy language is ambiguous. For a tenant, they are deemed unoccupied based on the presence of business personal property and the ability to “conduct it’s customary operations.” If the tenant has enough business personal property to resume operations, the vacancy provision is harder to apply. Now for a building owner, they could have coverage due to the percentage of space still leased to the tenants; ISO states a minimum of 31% must be leased and used by tenants. The vacancy provision does not clarify if the operations must be active, simply that operations could begin immediately ². 

The goal of the ISO vacancy provision is to trigger a coverage exclusion for the insured if the building cannot be used for its intended purposes due to the lack of equipment. The standard ISO form bases vacancy on the presence of property, not people. 

If your property does become vacant, and you experience a loss, the standard form may exclude coverage from the following causes of loss after 60 days: 

• Vandalism
• Sprinkler leakage, unless you have protected the system against freezing
• Building glass breakage
• Water damage
• Theft; or Attempted Theft

All other causes of loss may be provided for, but the payment will be reduced by 15%. It’s important to note, though, that each carrier form can have different variations of the vacancy provision so it’s critical your agent explains any differences from the standard ISO form or cause of loss exclusions that could change your overall coverage ³. 

Regardless of if your building is unoccupied or vacant, as we approach the winter season, with more empty commercial spaces, how does a building owner best prepare for a shutdown or reduced capacity? Here are some important questions to consider:

• How will facilities be inspected and maintained during the vacancy period?
• Who will be responsible for maintaining and monitoring those facilities?
• What additional security exposures may exist when facilities are vacant or idle?
• Will there be additional security staff or video surveillance to help limit exposures?
• Have key technology assets, documents and supplies necessary to maintain business operations been removed to a secure location?
• How will fire protection and detection systems be inspected, tested and maintained?

These questions will help not only protect you from a potential loss, but also ensure that your property is running efficiently during the coldest months of the year ⁴. 

A few safety best practices during the colder COVID months include: 

• Secure all building openings (doors, windows, roof access etc.) to limit access by unauthorized persons.
• Maintain/provide manual security and/or electronic surveillance and monitored burglar alarm systems.
• Place flammable and combustible liquids in existing flammable liquids storage room or cabinet or remove from building.
• Have management or maintenance staff walk the grounds regularly and inspect landscaping and equipment such as controllers, timers, sprinkler systems, sidewalks, fencing and outdoor lighting. This includes building recreational centers, like a gym or cafe.
• Add weather stripping around windows or repair any poorly-closing doors to reduce wind gusts and maximize heating efficiency ⁵.

COVID-19 and the upcoming winter season are the source of many questions, but don’t let the status of your insurance coverage be one of them. The vacancy provision in a commercial insurance policy has the potential to create a gap in your coverage, creating an even bigger hole in your bottom line. Reach out to your trusted insurance advisor to make sure you have the correct coverage for your property and building. 

The descriptions of coverages listed in this article are brief and subject to the provisions, limitations, and exclusions that can only be expressed in your policy and related endorsements. For additional information of how Swingle Collins & Associates can assist in meeting your coverage needs, please contact your dedicated risk manager. The information contained in this article is provided for informational and educational purposes only. It contains general information on insurance issues and may not reflect the most current developments in insurance coverage and is unlikely to apply in all factual scenarios. The information does not include all the terms, coverages, exclusions, limitations or conditions that may be contained in the actual insurance contract language. The policies themselves must be read for those details. Sample policy forms will be made available upon reasonable request. Thank you.