The Impact on Property Coverage When Closing or Repurposing a Building
By Gary Armstrong
In this economically challenging time, school districts are looking at all aspects of their operations for ways to save money. Because more than 75 percent of your costs are in personnel, that is an obvious area to look at when considering budget constraints. Beyond personnel there are other issues that districts are actively considering that involve your facilities – repurposing buildings, closing campuses, and finishing out existing construction projects without the intention of occupying them. It is to this point I’d like to focus your attention.
What many districts haven’t considered are the potential implications to their property coverage once they have decided to repurpose or vacate a building. Property coverages purchased by school districts typically include a “vacancy” clause that essentially states once a building is void of enough “business personal policy” (contents) to conduct customary operations after a defined period of time (usually 60-90 consecutive days), property coverage changes.
The TASB Risk Management Fund considers a building vacant after 90 consecutive days when it does not contain enough contents to conduct customary operations.
Why? Because there is increased risk to loss from fire, theft, vandalism, glass breakage, or frozen/busted water pipes due to inclement weather because the building is no longer in use. In the industry, this is termed a “moral hazard.” The TASB Risk Management Fund considers a building vacant after 90 consecutive days when it does not contain enough contents to conduct customary operations. There are exceptions, e.g. between school terms (summer & spring break), and at times when school is not in session.
For those buildings still under construction, vacancy doesn’t apply since the Builders Risk policy purchased by districts is generally designed to provide coverage until you reach “substantial completion.” However, not all policies are written the same, so check to make sure you know when the coverage ceases. You need to also understand how the districts’ property coverage will respond, particularly if you are thinking about finishing out the construction project but not occupy it for the time being.
Please check with your property provider/carrier as to how their vacancy clause applies because not everyone treats it the same. Also, there may be some options, such as repurposing, that will allow the district to maintain some level of coverage. In the final analysis it may not make a difference in your decision, but at least you will know the potential implications on your property coverage in advance.
