Commercial Property Insurance in Hawaiʻi: What Your Policy Actually Covers

A commercial property policy is not one document. It is a stack of forms that work together, and most owners, property managers and boards only learn how that stack fits together after something goes wrong. This guide walks through the parts that matter most in Hawaiʻi claims, in plain language, using widely used standard commercial forms as the example. Your policy may be different, especially if it was written by a surplus lines insurer or on the insurer’s own forms, so always check your actual policy.

Start with the declarations page

The declarations page is the summary of what you bought. Pull it out first and find these items:

• Who and where: the named insured, and every location and building listed.
• Limits: separate amounts for Building and for Business Personal Property, either per building or as one blanket limit.
• Causes of loss: Basic, Broad or Special.
• Coinsurance: a percentage such as 80%, 90% or 100%, or an agreed value instead.
• Valuation: actual cash value or replacement cost.
• Deductibles: the standard deductible plus any separate windstorm, hurricane or named storm deductible.
• Forms and endorsements: a list of form numbers. Every one of them can change your coverage.

What property is covered

Some property is not covered at all on widely used forms. That list includes land, foundations below the ground, excavation and grading, underground pipes and drains, paved surfaces such as parking lots and walkways, retaining walls that are not part of a building, and piers, wharves and docks. If something important to your property sits in one of those gaps, ask your agent about adding it by endorsement.

The causes of loss form: what events are covered

Your causes of loss form decides which events the policy responds to. Widely used commercial programs offer three levels:

Exclusions and limits that come up in Hawaiʻi claims

• Flood, surface water, waves, tides and tsunami. Excluded on standard forms. Flood coverage comes from a separate flood policy.
• Earth movement. Earthquake and landslide are excluded. Volcanic action, which on widely used forms includes lava flow, ash and airborne blast, is a covered cause. Fire or explosion that follows earth movement is generally covered too.
• Wear and tear, rust, corrosion and deterioration. Excluded. In salt air, insurers often point to corrosion. The real question is whether a storm or other covered event caused new damage.
• Rain inside the building. On the special form, interior rain damage is covered only if the roof or walls were first damaged by a covered cause, such as wind, and the rain came in through that damage.
• Mold, fungus, wet rot and bacteria. Excluded, with a small limited coverage (commonly $15,000) when it results from certain covered causes.
• Long-term leaks. Water or steam that leaked repeatedly over 14 days or more is commonly excluded.
• Utility services, ordinance or law, and government action. Excluded unless you added coverage by endorsement.

Valuation: how a covered loss is paid

• Actual cash value. The default on many commercial forms. Pays the cost to repair or replace, minus depreciation.
• Replacement cost. An optional coverage that pays to repair or replace with like kind and quality without subtracting depreciation, usually only after the work is done. On a widely used form you can take actual cash value first and still claim the difference later, if you tell the insurer within 180 days after the loss.
• Agreed value. Suspends the coinsurance clause for the period shown, based on a statement of values you give the insurer. It is the cleanest protection against a coinsurance penalty.

For how withheld depreciation works and how to recover it, see Depreciation, ACV and Replacement Cost.

Coinsurance: the clause that can shrink a covered claim

Most commercial policies require you to insure a building for a set percentage of its value. If, at the time of the loss, your limit is below that percentage, the insurer reduces the payment on every claim, even a small one. Hawaiʻi construction costs have climbed quickly, so values that were right a few years ago may not be now. We explain the math, with a worked example, in The Coinsurance Penalty.

Built-in coverages with their own limits

Beyond the main limits, widely used commercial forms include smaller coverages. These amounts are common defaults; your policy may raise or change them.

Several of these extensions apply only when the coinsurance percentage on your declarations is 80% or higher, or a value reporting symbol is shown.

Vacancy can cut coverage

If a building has been vacant for more than 60 consecutive days before a loss, widely used forms will not pay for vandalism, sprinkler leakage, building glass breakage, water damage, theft or attempted theft. Other covered losses are reduced by 15%. For a building owner, the building counts as vacant unless at least 31% of its total square footage is rented out or used for the owner’s customary operations. Buildings under construction or renovation are not considered vacant.

If occupancy is dropping between tenants, talk to your agent about a vacancy permit or endorsement before the 60 days run out.

Coverage you may need to buy separately

Your duties after a loss

Widely used commercial forms list what you must do after a loss. The main duties are:

• Give the insurer prompt notice, with a description of how, when and where the damage happened.
• Take reasonable steps to protect the property from further damage, and keep a record of what you spend.
• Take an inventory of damaged and undamaged property, and keep damaged property for inspection when you can.
• Let the insurer inspect the property and your records.
• Send a signed, sworn proof of loss within 60 days after the insurer asks for one.
• Answer questions under oath if the insurer requests an examination, and cooperate with the investigation.

On those forms, once you have filed a sworn proof of loss and you and the insurer agree on the amount (or an appraisal award is made), the insurer pays within 30 days. If you disagree on the amount of loss, either side can demand appraisal. The policy also limits how long you have to file suit, commonly two years from the date of the damage on standard commercial forms. For a day-by-day plan, see The First 30 Days After a Commercial Loss.

Common Questions