Commercial Property Insurance Glossary

A

Abandonment

A policyholder cannot simply hand damaged property over to the insurer and demand payment of the full limit. The standard property form states there can be no abandonment of property to the insurer; the insurer chooses how to settle.

Actual Cash Value (ACV)

A way of valuing a loss that pays replacement cost minus depreciation. There is no single rigid formula — courts and adjusters weigh the property's age, condition, and useful life. ACV settlements can fall well short of what it costs to rebuild, and the gap widens with the age of the property.

Additional Coverages

Coverages built into the property form that pay for specific costs beyond direct damage — debris removal, fire department service charges, pollutant cleanup, preservation of property, and increased cost of construction. Each carries its own sublimit and rules.

Agreed Value

An arrangement where the insurer and insured agree on a property's value up front, which suspends the coinsurance clause for the policy term. It removes the risk of a coinsurance penalty and usually requires a signed statement of values.

Anti-Concurrent Causation

Policy language stating that an excluded loss is not covered even when a covered cause contributes to it, in any sequence. This is why a wind loss can be denied when flooding also played a role — the exclusion applies regardless of the covered contribution. It is among the most heavily litigated provisions in property insurance.

Appraisal

A dispute-resolution process used when the insurer and insured disagree on the value of the property or the amount of loss — not on whether the loss is covered. Each side picks a competent, impartial appraiser; the two select an umpire; and any two of the three can set a binding figure. The insurer keeps its right to deny the claim even after appraisal.

B

Basic Form

The narrowest of the three causes-of-loss forms. It covers a short list of named perils such as fire, lightning, explosion, windstorm, and vandalism. If a cause isn't listed, there's no coverage.

Blanket Insurance

A single limit covering multiple buildings, multiple locations, or multiple property categories under one amount. It offers flexibility at claim time but relies on accurate reported values; a margin clause can limit how much of the blanket limit is available at any one location.

Broad Form

The middle causes-of-loss form. It covers the basic-form perils plus additional named causes such as falling objects, weight of snow or ice, and certain water damage. Still named-perils, so unlisted causes aren't covered.

Building

In the property form, the building or structure at the described premises, including completed additions, permanently installed fixtures, machinery and equipment, and property used to maintain the building. A building is more than walls and a roof — plumbing, wiring, HVAC, and elevators count as part of it.

Business Income

The net income (profit or loss before taxes) the business would have earned, plus continuing normal operating expenses including payroll, during the time operations are suspended by a covered loss. Covered under a separate but closely linked form; property coverage alone does not replace lost income.

Business Owners Policy (BOP)

A packaged policy for smaller businesses that combines property and general liability coverage, and often additional coverages, into a single simplified contract. Designed for lower-complexity risks than a full commercial package.

Business Personal Property (BPP)

The contents a business owns and uses — furniture, fixtures, machinery, equipment, and stock — typically covered while in or on the described building or within 100 feet of it. Also called contents. Property insurance uses this term rather than "contents" because coverage can apply even when the property isn't literally inside the building.

C

Civil Authority

An additional coverage that can pay business income and extra expense when a government order prevents access to the premises because of damage to nearby property — for example, a closed area after a disaster. Coverage is time-limited and tied to specific conditions.

Coinsurance

A clause requiring the insured to carry a limit equal to at least a set percentage (commonly 80%, 90%, or 100%) of the property's value. If the limit falls short at the time of loss, a penalty reduces every claim — even partial ones — in proportion to the underinsurance. The penalty formula divides the limit carried by the limit required, then applies that ratio to the loss before the deductible.

Collapse

Sudden falling-in or caving-in of a building or part of one, so it can't be occupied for its intended use. Excluded as a general cause of loss but added back in limited circumstances, such as collapse caused by hidden decay or specified causes of loss.

Commercial Package Policy

A policy that combines two or more commercial coverage parts — most often commercial property and general liability — under one contract, sharing common declarations and conditions.

See also: Business Owners Policy, Monoline

Concurrent Causation

A situation where two or more causes — one covered, one excluded — combine to produce a single loss. How the policy treats this is governed by its anti-concurrent causation language, which typically defeats coverage when an excluded cause is involved.

Common shorthand for business personal property — the movable property inside a building, as opposed to the building itself.

Covered Cause of Loss

The cause of loss the policy actually insures against, determined by which causes-of-loss form (basic, broad, or special) is shown in the declarations. It's the trigger that turns a loss into a payable claim.

Covered Property

The property the policy insures — building, business personal property, and personal property of others — but only the categories for which a limit is shown in the declarations, and only to the extent not listed as property not covered. Covered*

See also: Building, Business Personal Property, Property Not

D

Debris Removal

An additional coverage that pays the cost of removing debris of covered property after a covered loss. It is capped — generally a percentage of the direct loss plus deductible, with a further fixed additional amount available in some circumstances — and must be reported within a set number of days.

Declarations

The front page (or pages) of the policy that identify the named insured, the covered locations, the limits, the coinsurance percentage, the deductible, and which forms apply. The declarations customize the standard form to the specific risk.

Deductible

The amount the insured absorbs on each loss before coverage responds. Most non-storm losses use a flat dollar deductible; wind and hail often use a percentage deductible calculated on the building's value, which can be far larger than buyers expect.

Depreciation

The reduction in a property's value from age, wear, and obsolescence. It's the amount subtracted from replacement cost to arrive at actual cash value. On a partial loss, deducting full depreciation can leave the insured unable to actually complete repairs.

Direct Physical Loss or Damage

The core trigger for property coverage — a tangible, physical alteration to covered property. Purely financial losses, or losses with no physical damage, generally fall outside property coverage, which is why business income depends on an underlying physical loss.

Duties in the Event of Loss

The steps the policyholder must take after a loss: give prompt notice, protect property from further damage, provide inventories, cooperate with the investigation, submit to examination under oath if asked, and file a signed, sworn proof of loss within the required time. Missing these can jeopardize the claim.

E

Earth Movement

An excluded cause of loss covering earthquake, landslide, mine subsidence, and earth sinking, rising, or shifting. Earthquake and related perils must be insured separately. Note that sinkhole collapse is treated distinctly under specified causes of loss.

See also: Exclusions, Sinkhole Collapse, Difference in Conditions

Examination Under Oath (EUO)

The insurer's right to question an insured under oath, separately from other insureds, about the claim and the insured's books and records. Answers must be signed. Refusing a proper EUO can breach the policy conditions.

Exclusions

The causes of loss and types of damage the policy will not pay for. Under special form, the exclusions define the coverage — everything not excluded is covered. Major exclusions include flood and surface water, earth movement, ordinance or law, wear and tear, faulty work, and government action.

Extra Expense

Coverage for the additional costs of keeping a business running after a covered loss — temporary space, expedited shipping, overtime — beyond normal operating expenses. Often paired with business income coverage.

F

Faulty Workmanship

An excluded category covering defective design, materials, or construction. The defect itself isn't covered, though resulting damage from a separate covered peril may be.

Fire Department Service Charge

A small additional coverage that reimburses charges a fire department bills when called to protect covered property, up to a fixed amount, with no deductible.

First-Party Coverage

Insurance that pays the policyholder directly for the policyholder's own losses — the nature of property insurance — as distinct from third-party (liability) coverage that pays others on the insured's behalf.

Flood

Rising or surface water, waves, storm surge, tides, and overflow of any body of water. Excluded under standard property policies and insured separately through the National Flood Insurance Program or the private flood market. One of the most commonly misunderstood coverage gaps.

Functional Replacement Cost

A valuation basis that pays to repair or rebuild using modern equivalent materials rather than matching original construction. Common for older or architecturally distinctive buildings where exact replacement would be impractical.

Fungus / Mold

Any form of fungus, including mold and mildew, plus its spores and by-products. Loss from fungus is excluded except in limited circumstances, and where covered it is typically subject to a low sublimit.

I

Improvements and Betterments

Fixtures, alterations, and additions made by a tenant to a space they occupy but don't own and can't legally remove. Insurable as the tenant's use interest, with special valuation rules if not promptly repaired.

Increased Cost of Construction

An additional coverage tied to replacement cost that pays the extra cost of complying with building codes when repairing or rebuilding after a covered loss. It addresses part of the ordinance-or-law gap.

Indemnity

The principle that insurance restores the insured to roughly the financial position held before the loss — no better, no worse. It underlies valuation rules, the financial-interest limit, and subrogation.

Ingress/Egress

Coverage relating to the inability to get into or out of the premises because of damage nearby. Related to civil authority coverage and typically time-limited.

L

Limit of Insurance

The maximum the insurer will pay for a covered loss to a category of property, shown in the declarations. Loss payments, coinsurance, and additional coverages all operate within these limits.

Loss Payment

The policy condition setting out how the insurer may settle: pay the value of the property, pay to repair or replace it, take the property at an agreed or appraised value, or rebuild with like kind and quality. Payment generally follows within a set time after the sworn proof of loss and agreement or appraisal.

See also: Appraisal, Proof of Loss, Valuation

M

Margin Clause

An endorsement on blanket policies capping recovery at a location to a stated percentage (for example, 110%) of that location's reported value. It limits the flexibility of blanket coverage when a single location is under-reported.

Mitigation

The insured's duty to take reasonable steps to protect covered property from further damage after a loss. Reasonable protection expenses are considered in settlement, but they don't increase the limit.

Monoline Policy

A policy covering a single line of insurance — property only, for instance — rather than combining multiple coverage parts into a package.

N

Named Insured

The person or entity shown in the declarations as the insured — the "you" of the policy. The first named insured holds certain rights and responsibilities, such as receiving notices and making policy changes.

Named Perils

A coverage approach that lists the specific causes of loss the policy will pay for; anything not listed is not covered. Basic and broad forms are named-perils. The burden is on the insured to show the loss came from a listed peril.

See also: Basic Form, Broad Form, Special Form

Named Storm Deductible

A percentage deductible that applies only to officially named storms, such as hurricanes. Because ordinary wind and hail losses fall under the smaller flat deductible, a named-storm deductible is narrower — and generally better for the insured — than an all-wind percentage deductible.

O

Open Perils

Another name for special-form coverage — the policy covers loss from any cause except those specifically excluded. Sometimes loosely called "all-risk," a term regulators discourage because no policy covers every risk.

Ordinance or Law

The extra cost of complying with current building codes when repairing or rebuilding, which the base policy excludes. It can be a significant uncovered amount for older buildings and is added back through specific coverage.

P

Peak Season Endorsement

An endorsement that automatically raises personal property limits for a defined period, matching higher inventory values during busy seasons.

Percentage Deductible

A deductible expressed as a percentage of the insured value rather than a flat dollar figure, used mainly for wind and hail. Because it applies to the building's value and not the size of the loss, the dollar amount can be large — a 5% deductible on a \$5 million building is \$250,000.

Period of Restoration

The time frame for business income coverage. It begins at the date of physical loss and ends when the property should be repaired, rebuilt, or replaced with reasonable speed and similar quality — or when the business resumes at a new permanent location, whichever is earlier.

Personal Property of Others

Property belonging to others that is in the insured's care, custody, or control and located at the described premises. Covered, but payment is made for the account of the owner.

Pollutant Cleanup and Removal

An additional coverage that pays to extract pollutants from land or water at the premises when the release results from a covered cause of loss, subject to an annual cap and reporting deadline.

Preservation of Property

A coverage that protects covered property while it is being moved from the premises to save it from a covered cause of loss, and for a limited time while stored elsewhere.

Proof of Loss

A signed, sworn statement the insured submits, with the detail the insurer requests, to document the claim — usually due within a set number of days after the insurer's request. Failing to submit a proper proof of loss can breach the policy.

Property Not Covered

Categories the policy specifically excludes from covered property regardless of the causes-of-loss form — such as land, water, currency and securities, vehicles licensed for road use, growing crops, and certain outdoor property.

Proximate Cause

The dominant, effective cause that sets a loss in motion. Determining the proximate cause matters when multiple events contribute to a loss, and interacts with anti-concurrent causation language.

Public Adjuster

A licensed professional an insured can hire to document and negotiate a claim on the insured's behalf, distinct from the insurer's own adjuster.

R

Recoverable Depreciation

Under replacement cost coverage, the depreciation amount the insurer initially holds back and pays out once repairs or replacement are actually completed. Until the work is done, the insured typically receives only the actual cash value.

Recovered Property

Property found after a loss has been settled. Either party must notify the other; the insured may keep it and repay the settlement, or leave it with the insurer, subject to the limit and recovery expenses.

Replacement Cost

A valuation basis that pays to rebuild or replace at today's cost with no deduction for depreciation. It's the stronger valuation, though insurers commonly hold back the depreciation portion until repairs are completed. Replacement Cost*

See also: Actual Cash Value, Recoverable Depreciation, Functional

Reservation of Rights

A notice an insurer issues while investigating a claim, preserving its ability to raise coverage defenses later without being treated as having waived them. These notices can be broad or specific, and insureds should clarify which.

S

Salvage

The residual value of damaged property. Its value factors into the loss settlement, and the insurer may take damaged property at an agreed or appraised value.

Scheduled Insurance

Coverage listing each item or location separately with its own limit. It gives precise, item-by-item coverage but no flexibility to shift limits between locations at claim time.

Sinkhole Collapse

The sudden sinking or collapse of land into empty spaces created by water acting on limestone or dolomite. Treated as a specified cause of loss — distinct from the broader earth-movement exclusion — though it excludes the cost of filling the sinkhole and man-made cavities.

Special Form

The broadest causes-of-loss form. It covers direct physical loss from any cause except those specifically excluded, shifting the burden to the insurer to prove an exclusion applies. The market standard for most commercial risks.

Specific Insurance

Coverage that applies a separate, dedicated limit to a single building or item — the opposite of blanket coverage, which spreads one limit across several.

Specified Causes of Loss

A defined set of named perils — fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, leakage from fire-extinguishing equipment, sinkhole collapse, volcanic action, falling objects, weight of snow ice or sleet, and water damage. Certain coverage add-backs, like some collapse and theft provisions, key off this list.

Statement of Values

A schedule the insured provides listing the values of insured property by location. It supports agreed value, blanket coverage, and rating, and its accuracy directly affects claim outcomes.

Stock

Merchandise held for sale, raw materials, and goods in process or finished — a category of business personal property. Special valuation applies to stock sold but not yet delivered.

Sublimit

A cap that applies to a specific coverage or category that is lower than the overall policy limit — common for debris removal, valuable papers, pollutant cleanup, and mold.

Subrogation

The insurer's right, after paying a claim, to step into the insured's shoes and pursue recovery from a third party responsible for the loss. It supports the indemnity principle by shifting cost back to the at-fault party.

U

Underinsurance

Carrying a limit below the property's value. Beyond simply capping recovery at the limit, underinsurance triggers the coinsurance penalty, reducing payment on every loss including partial ones.

V

Vacancy

A condition that restricts coverage when a building has been vacant beyond a set period (commonly 60 consecutive days). Certain perils — vandalism, water damage, theft, glass breakage, sprinkler leakage — become excluded, and other covered losses are paid at a reduced amount. Buildings under construction or renovation aren't considered vacant.

Valuable Papers and Records

Documents and records, including those on electronic media, covered for the cost to research, replace, or restore them — typically subject to a sublimit.

Valuation

The policy condition that determines how a loss is measured — actual cash value by default, replacement cost when the coverage and conditions are met, and special rules for stock, glass, improvements and betterments, and valuable papers.

Value Reporting Form

An endorsement for insureds whose personal property values fluctuate. The insured periodically reports current values and premium adjusts accordingly. Under-reporting at the time of loss triggers a penalty that limits recovery.

W

Water Damage (Covered)

Accidental discharge or leakage of water or steam from a system or appliance on the premises that breaks apart or cracks — a covered event, distinct from excluded flood or surface water. The distinction between this and flood is central to many coverage disputes.

Wear and Tear

Gradual deterioration from ordinary use — an excluded cause of loss treated as a maintenance issue rather than an insurable event. Resulting damage from a separate covered peril may still be covered.

Windstorm

A covered peril across all three causes-of-loss forms, but frequently subject to a separate percentage or named-storm deductible, especially in catastrophe-exposed regions. *These definitions describe how terms are typically used in standard commercial property coverage and are general information, not a substitute for the specific language of any policy. Actual coverage, exclusions, deductibles, and definitions vary by carrier, form edition, and jurisdiction.*

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These definitions are general information about commercial property insurance, not legal or coverage advice, and do not modify any policy. Terms as used in a specific policy are governed solely by that policy's language. Insurance is offered through Diversified Risk Solutions, LLC.