In a recent ruling that has sent ripples through the business insurance sector, a federal appeals court upheld that an insurance policy cannot cover a building that was non-existent at the time the policy was issued. This decision, favoring a unit of Hanover Insurance Group, has significant implications for businesses and their commercial property insurance costs.
The Case in Focus
The case in question involved Sector Corp, a property management company based in Portland, Oregon, and PSC Custom LLC, a company operating in the tank trailer and tank truck industry from Saint Cloud, Minnesota. In 2013, Sector Corp agreed to lease premises on its property in Billings, Montana, to PSC Custom. The lease agreement required Sector to acquire fire and casualty insurance for the entire premises, including any improvements made on it.Sector purchased commercial general liability insurance policies from Hanover American Insurance Co., a Hanover Insurance Group unit, from 2013 through 2019. In 2014, PSC Custom erected a 6,100-square-foot structure on the property, which was destroyed by a fire and explosion in 2019, resulting in repair costs exceeding $400,000.
The Court’s Ruling
When PSC Custom and St. Johns, the company managing insurance policies on Sector’s behalf, submitted claims to Hanover for the loss of the structure, Hanover denied the claims. The insurer argued that the policy did not expressly list the center as covered property on the premises.The U.S. District Court in Billings, Montana, ruled in favor of the insurer, a decision later affirmed by a three-judge panel of the 9th U.S. Circuit Court of Appeals in San Francisco. The court stated that the policy provides coverage for physical loss or damage to “covered property,” which is defined to include a building or structure described in the policy’s declarations. Since the structure did not exist when the policy was issued in 2013, it was not covered under the policy.
Impact on Commercial Property Insurance Costs
This ruling underscores the importance of businesses thoroughly understanding their commercial property insurance policies. It also highlights the potential for increased commercial property insurance costs for businesses in high-risk sectors, as they may need to regularly update their policies to include new structures or improvements.
Advice for Small Businesses
In light of this ruling, small businesses should pay close attention when seeking a new commercial property insurance policy or renewing their current one. It is crucial to ensure that all existing and planned structures are explicitly covered in the policy. Regular reviews and updates of the policy are also necessary to accommodate any changes or additions to the property. Consulting with a knowledgeable insurance agent or broker can provide valuable guidance in navigating these complexities. Learn more at the best commercial property insurance companies.
This case serves as a stark reminder of the intricacies of commercial property insurance. Businesses must remain vigilant in understanding their coverage and ensuring that their policies accurately reflect their property’s current state. By doing so, they can avoid unexpected costs and ensure they are adequately protected against potential losses.