Like many businesses, your company may use, service, or repair property that belongs to someone else. If that property is damaged or destroyed while it's your possession, your company may be legally liable for the cost to repair or replace it. You can protect your business against such costs by purchasing adequate property insurance.
Commercial Property Policies
The standard ISO commercial property policy covers three types of personal property owned by someone else and used in your business:
- Leased personal property you must insure: This is property you have leased and are required to insure under the terms of the contract.
- Leased personal property you aren't required to insure: This is leased property you are not required to insure under the contract.
- Property of others not subject to a lease: This is personal property owned by someone else that isn't subject to a lease.
Leased Property You Must Insure
Many businesses lease personal property to use in their operations. Examples are copy machines, office furniture, production machinery, and construction equipment. Typically, the lease states that the lessee is responsible for any loss or damage the machines sustain during the term of the lease. It may also require the lessee to insure the leased item under a property policy.
Under the standard property policy, leased personal property you are contractually required to insure is covered as your Business Personal Property (BPP) if the property is scheduled in the declarations. If the property is lost or damaged, the amount of the loss will be determined based on the item's replacement cost or actual cash value, whichever valuation option applies to your BPP.
If you lease personal property, be sure it's scheduled on your policy. Otherwise, the item may not qualify as covered property.
Many personal property leases hold the lessee liable for all risk of loss of or damage by any cause. Property policies don't cover every cause of loss. This means that your lease may hold you responsible for damage by perils that aren't covered by your policy. For example, most property policies exclude damage caused by flood, earthquake, or pollution. If leased property is damaged by one of these perils and you are liable for the damage under the lease, your company may be stuck paying for the loss out of pocket.
Personal Property of Others
Personal property you use in your business but don't own and aren't required to insure is covered as Personal Property of Others. This category includes property that belongs to someone else but isn't subject to a lease, and property you lease under a contract that doesn't obligate you to insure the item.
Property that belongs to someone else will qualify as Property of Others only if it's in your care, custody, or control and is situated or within 100 feet of your premises.
Note that Personal Property of Others is covered only if a separate limit of insurance for such property appears in the declarations. If no limit is listed, your policy may provide little coverage for property you don't own. The standard ISO property policy automatically provides a $2,500 limit for unscheduled Property of Others if your policy includes a coinsurance percentage of 80% or more. This coverage is included in the limit shown in your policy for Your Business Personal Property (it's not extra insurance).
Property covered as Property of Others is valued based on its actual cash value, even if you have purchased replacement cost coverage for your BPP. You can purchase replacement cost coverage for Property of Others for an additional premium.
Commercial property policies are designed to cover property at fixed locations so most afford limited coverage for property away from your premises. The ISO property policy provides only $10,000 for Off-Premises Property. This coverage applies to property owned by you or someone else (whether you lease it or not) while:
- Temporarily at a location you don't own, lease, or operate
- At a storage location leased by you
- At a fair, trade show, or exhibition
If you use other people's property away from your premises, you may need to purchase extra insurance. Your insurer may be willing to increase the limit in your policy for Property Off-Premises.
Inland Marine Insurance
If your business leases or borrows property for use away from your premises and you are unable to insure the property adequately under your property policy, you should consider purchasing inland marine insurance. Inland marine is a division of property insurance. Inland marine policies are often called "floaters" because they cover property that moves from one location to another. Many automatically cover property owned by someone other than the insured.
Inland marine policies generally afford broader coverage and contain fewer exclusions than standard property policies.
There are many types of inland marine policies, and each is intended to cover a specific type of moveable property. A few examples include:
- A building contractor purchases a contractor's equipment policy to cover a bulldozer he's rented to use in a construction project.
- An accounting firm buys electronic data processing insurance to cover laptop computers it uses at an off-site training facility.
- An architectural firm holds social events at off-site locations where it displays artwork owned by local artists. The firm insures the artwork under a fine arts floater.
The type of floater you need depends on the nature of the property and the purpose for which it is used. Many types of inland marine insurance can be added to a property policy via an endorsement.