Building – A defined term in insurance referring to the policyholder's structure and its permanent fixtures
Picture this scenario: An unfortunate event such as a storm or fire damages your client’s property. They assumed their insurance policy covered all aspects of their ‘Building’, including the attached garage. But does it really? Misunderstandings about what is considered a part of the building can lead to major coverage gaps and client dissatisfaction.
TL;DR
- ‘Building’ refers to the property holder’s structure plus permanent fixtures and installations.
- Misinterpretations about its definition can lead to catastrophic coverage gaps.
- A frequent misunderstanding is the assumption that all buildings on a property are covered under ‘Building’.
- Agencies can implement clear communication and coverage-education initiatives to prevent costly pitfalls.
What Is 'Building' in Insurance?
From a client’s perspective, ‘building’ might seem like a self-explanatory term. However, when it comes to insurance, a building isn’t just any structure.
Plain-language definition: In insurance, when we say ‘building’, we mean more than just walls and a roof. It also includes permanently installed fixtures and structures like solar panels or fences.
Technical definition: ‘Building’ in insurance typically refers to the insured structure, its indoor and outdoor fixtures, and machinery and equipment used to service the building. The definition can vary, making it important to refer to building def in individual policy documents. This could influence the extent of coverage, especially in commercial policies covering industrial buildings or residential buildings.
Key Related Terms to Know
- Dwelling – A residential building where people live.
- Building Materials – The basic physical parts of a building such as wood, steel, concrete, and bricks.
- Modular Construction – A construction method involving the assembly of pre-made sections of a building.
- Zoning Ordinances – Laws that dictate how real property can and cannot be used in certain geographic areas.
- Building Codes – Set of rules governing the design and construction of buildings to ensure safety.
- Energy Efficiency – The goal of reducing the amount of energy required to provide services in a building.
- Green Building – The practice of designing, constructing, and operating buildings to maximise energy efficiency and reduce environmental impact.
Common Questions About 'Building'
What Structures Are Covered in ‘Building’?
When we refer to a building, we’re talking about the structure listed on the policy declarations page. This includes permanently installed fixtures, additions, alterations, and machinery servicing the building. However, the specifics can vary between insurers and policies.
Are All Buildings on a Property Covered?
No. Only the building listed in the policy is covered. Separate structures like detached garages or sheds would need separate coverage.
How Are Tenants’, Landlord’s, or Leasehold Improvements Handled?
If a tenant builds or installs improvements and ‘betterments’ to a rented property, such as a fancy new light fixture, these would not be considered part of the insured ‘building’. These improvements need separate coverage.
How Does ‘Building’ Coverage Interact with ‘Contents’ Coverage?
A building is the structure, fixtures and equipment, while ‘contents’ refers to personal property within the building. If a fire damaged both the building and its contents, both types of coverage would come into play.
Building vs. Dwelling
‘Dwelling’ and ‘building’ are often used interchangeably, but each carries unique implications.
Comparison Area | Building | Dwelling
|
Primary use case | Used to denote commercial or residential structures and related fixtures. | Specific to residential structures. |
Coverage / concept type | Applies to the insured structure plus equipment servicing the building. | Most often seen in homeowner’s insurance where it also includes residential structures. |
Typical exclusions | Certain external structures like fences, sheds, and detached garages. | Also excludes detached structures unless specifically covered. |
Who is most affected by errors | Commercial policyholders, business owners, and landlords. | Homeowners and tenant policyholders. |
Common mistakes | Misunderstanding what ‘building’ includes and assuming all buildings on a property are covered. | Assuming dwelling insurance covers all personal property inside the dwelling. |
Real Claim Examples Involving 'Building'
Scenario 1: A storm destroyed a policyholder’s outdoor signage—arguably part of the building structure. However, the building’s insurance policy did not cover outdoor signs, resulting in a denied claim and an unhappy client.
Scenario 2: A fire damaged a policyholder’s attached garage. Believing the whole building was covered, including the garage as part of the building, the policyholder was devastated to find out that ‘Building’ in their policy didn’t include the garage.
Scenario 3: During a building renovation, high-quality building materials were damaged. The owner assumed that this was part of the building coverage; however, the insurer considered it ‘contents’ as it hadn’t been installed yet. The claim was denied due to this misunderstanding.
Limitations and common mistakes
- Mistaking what ‘building’ coverage comprises.
- Not considering fixtures and installations when deciding on a coverage limit.
- Assuming all buildings on a property are covered under ‘Building’.
- Forgetting to insure important outdoor fixtures.
- Overlooking the need for separate insurance for improvements.
How to Explain 'Building' to Clients
For a Personal Lines client: “Your insurance policy covers your home and anything attached to it, like a garage or fence, plus equipment like your heating and air conditioning system.”
For a Small Business owner: “Your building insurance protects the structure where your business operates plus any permanent fixtures or machinery. But remember, it doesn’t cover detached buildings unless we add them to your policy.”
For a CFO or Risk Manager: “In an insurance context, ‘building’ can mean more than just the structure: It also includes services and fixtures, a concept that can significantly affect your coverage. We need to consider all aspects when deciding your total insured value.”