Valuable Papers and Records Coverage

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Many businesses store critical documents on their premises. Examples are building leases, insurance policies, business licenses, patient medical records, and building permits. The insurance term for such documents is valuable papers and records.

Like buildings and office furniture, valuable papers may be damaged or destroyed by a fire or other peril. These documents are important, so you will need to restore or reproduce them. Replacing these items can be time-consuming and expensive. Fortunately, you can protect your business against these costs by purchasing valuable papers and records insurance.

Meaning of Valuable Papers

The precise meaning of valuable papers and records can vary from one property policy to another. Some policies define this term specifically. The definition may include written, printed or inscribed documents or records, including books, maps, films, drawings, deeds, mortgages, and manuscripts.

Other policies provide a broad description of the term rather than a definition. For example, the ISO property policy states that valuable papers include, but is not limited to, items such as books of account, deeds, manuscripts, abstracts, drawings and card index systems. No matter how valuable papers and records are described in the policy, this term is not intended to include money and securities.

What's Covered?

Under many commercial property policies, the cost to replace or restore information on valuable papers and records are listed under Property Not Covered. Nevertheless, these costs may be covered, at least to some degree, under a section entitled Coverage Extensions.

Valuable papers coverage applies to the cost to replace or restore lost information on records, whether or not duplicates exist. For example, suppose that you want to expand a warehouse you own. You hire an architect to produce drawings of three possible configurations for your building. The drawings have been in your possession for only a week when they are destroyed by a tornado. Neither you nor the architect has any copies. To replace the drawings, you must pay the architect to recreate them. The cost to replace the drawings should be covered by your valuable papers and records insurance.

When a document is destroyed, you may be able to reconstruct it from other documents you have on hand. For example, suppose your accounting ledger has been destroyed by a fire. Happily, you are able to reconstruct your accounting records using your client files and vendor records. Your valuable papers and records insurance should cover the cost of blank materials (a new accounting ledger) and the cost of labor to recreate the accounting data.

Note that many property policies do not provide all-risk coverage for valuable papers and records. Instead, such records are covered for named perils only. Examples of perils that are typically covered include fire, lightning, explosion, windstorm, hail and sinkhole collapse.

What Limit Do You Need?

Valuable papers and records coverage is subject to a sublimit. If a loss occurs, your insurer will not pay more than the sublimit shown on your policy. This sublimit may be as low as $2,500. To protect your business against losses, you may need to buy extra coverage.

When choosing a limit, consider the types of documents that are at risk. How much will it cost to replace them? Will you need to hire temporary staff? How many hours will it take to reproduce the records? Will you need to obtain originals? Will original work (such as the architectural drawings cited above) need to be recreated?

Valuable Papers Endorsement

If your commercial property policy does not cover valuable papers, these items can be insured by an endorsement. The endorsement generally provides the same or even broader coverage that is included in a typical property policy. Some endorsements cover valuable papers on an all-risk rather than a named perils basis. That is, they cover damage to covered property caused by any peril that isn't specifically excluded.

No Coverage for Electronic Records

Most policies (and endorsements) that cover valuable papers specifically state that no coverage applies to valuable papers that exist as electronic data. In other words, electronic documents are not considered valuable papers.

Many businesses keep important records in electronic form. Unfortunately, property policies generally provide very little coverage for damage to electronic data. You can protect your firm against losses involving damage to your electronic files by purchasing electronic data processing coverage.