In response to the COVID-19 pandemic, many business locations are shuttered, with work being done, if at all, only remotely. In addition, many businesses or owners of real property may have already filed or are considering filing insurance claims for associated losses from not being able to use their owned or leased premises. The purpose of this piece is to caution owners or tenants to review their property policies closely for vacancy-related conditions or exclusions.
Many insurance policies have exceptions from coverage if the covered property is vacated or unoccupied for a defined period of time (often 60 days, but sometimes shorter). For instance, there are policies that provide that if a property is vacant for more than a fixed number of days, there will no coverage for certain types of losses (e.g., vandalism or broken pipes), and that coverage for other types of losses will be reduced by 15% or more. Policies might provide that there is no coverage at all for certain types of losses immediately upon a property being vacated, and that there is no coverage for any types of loss if the vacancy continues for a certain period of time. Other policies provide that coverage remains in place if a property is vacant or unoccupied, but that the insurance company needs to be informed that the property has been vacated or left unoccupied.
In addition, policies also differ as to what qualifies as “vacant” or “unoccupied.” Some policies define these terms, which is helpful, but these definitions do not always comport with common understanding. For instance, one policy recently reviewed indicated that a landlord’s property would be considered vacant if a tenant is no longer using the property “to conduct its customary operations.”
While ambiguities in insurance policies, especially in exclusionary provisions, are to be resolved in favor of coverage, it is best to try to avoid being in a situation after a loss fighting about whether a property was vacant or unoccupied and, if so, whether there is coverage for a particular loss. Instead, it is better to be proactive on this issue.
If you are an owner or tenant of any real property, and that property is not being fully utilized during the COVID-19 crisis, you should consider notifying your insurance broker or insurance company of the situation and seek confirmation coverage will not be reduced or forfeited as a result. In doing so, however, you should avoid saying that the property is “vacant” or “unoccupied,” because (as noted above) those particular terms may have legal significance. Rather than using terms that could be later viewed as admissions, you should state the inquiry with reference to the facts and after consultation with your broker and/or counsel.