Q: Is bolted-down equipment covered as part of the building on the business owners policy? 

A laundromat had a fire claim which included significant building and business personal property damage. We have always insured the washing machines and dryers as building coverage, since most of them are permanently bolted down. The carrier is contending that all washing machines and dryers are considered personal property. The client has $569,000 of building coverage and $50,000 of business personal property coverage, so this is a big problem. 

The policy says "permanently installed machinery and equipment" are considered part of the building. This is an undefined term and should be interpreted in a very broad way. 

Response 1: You've already nailed it. If they're permanently attached, they qualify as "building" or if they are laundering equipment, they're also considered building. The language in both cases is a little loose, but I don't think a judge would waste too much time with an insurance company's argument that they aren't "building" items. Press the claim department for a specific ruling on these two points and I think the problem will disappear. 

A lesson to be learned: In cases like this, claims people frequently make this mistake. If you rely on this policy language to allocate values, it's a great idea to mention it to the underwriter in a memo when you write the coverage. Waving that memo at the adjuster at the time of a loss will keep the problem from developing.

Response 2: I would argue that the underwriter knew what kind of business this was and you clearly would have increased the business personal property limit if these machines were considered business personal property.

I'd also argue that these machines are used to service the building:

Section 1 – Property

A. Coverage

(5) Personal property owned by you that is used to maintain or service the buildings or structures or the premises, including:

 (a) Fire extinguishing equipment;

 (b) Outdoor furniture;

 (c) Floor coverings; and

 (d) Appliances used for refrigerating, ventilating, cooking, dishwashing

or laundering;

I know ISO has a commercial property endorsement that enables you to declare certain property as building property. I can't recall if they have a similar endorsement in their BOP program, but I would pursue that in the future.

Response 3: This is a common misconception held by many insurance professionals. You are correct that the policy does not define what permanently attached means. Court decisions are divided. If the bolts are removed, the machines can be moved. That doesn't necessarily make them permanent. There are business types that may make the property used to service the building.

That said, I think the carrier is correct in their interpretation. I highly recommend you contact your errors & omissions carrier and notify them of this potential claim.

Response 4: You have stated your position well and I doubt anyone here can bolster your argument to the carrier. This is why sharing your thoughts up front with the underwriter and documenting it is so important. Had that been done, the claim settlement would have been much simpler. If the building limit is sufficient for the building and the washers and dryers, you can show those calculations, which should help your case.

Response 6: If the washers and dryers are bolted to the building structure so that they cannot be readily moved elsewhere, I would say that they are “permanently installed". Evidence, if required, might include the duration of their residency at the insured location, and whether the insured has ever previously moved such equipment from one location to another.

This question was originally submitted by an agent through the Big “I" Virtual University's (VU) Ask an Expert service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.

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