Resource Library

Property Coverage and Weather-related Claims

This old building took a major hit from a tornado and sustained severe damage.Date: October 2021

MCIT members schedule more than $6 billion in property with MCIT that spread across the state. MCIT has processed thousands of property claims for its members, with millions of dollars in claim payments. The majority of these claims arise from weather-related events including high winds, tornados, lightning, hail and floods.

MCIT’s property coverage form, like a person’s homeowners and auto policies, is a specific, detailed document. It contains many sections and provisions including definitions, conditions, endorsements, limitations of coverage, extensions of coverage, limits and sublimits of coverage, exclusions and sometimes exceptions to exclusions. It can be complicated, and members who understand their property coverage will be better able to prepare, plan for and respond to a loss, as well as minimize the disruption and uncertainty that can occur after a loss.

The coverage provisions discussed here are what typically apply in weather-related claim situations.

Building Coverage                                                                                                          

MCIT coverage applies when there is direct physical loss or damage to covered property as a result of a covered loss. The first category of coverage is building. Members may cover:

  • Owned buildings.
  • Buildings in which the member has an insurable interest, which can be a legal interest other than ownership.
  • Buildings the member is obligated to cover as through a lease, contract or other formal agreement.

In addition to the structure itself, building coverage extends to mechanical systems that pertain to the service of the building, such as ventilation, heating, air conditioning and refrigeration systems.

Fixtures, machinery and equipment that are permanently attached to the building are also considered part of the building for coverage purposes. This includes, for example, a large sign that might be attached to a building or a major conveyor system that is mounted to the interior of a recyclables processing building. The key is that this equipment must be permanently installed or attached to the structure to be considered part of the building.

Two points to remember:

  1. The building must be listed on the member’s property schedule to be covered.
  2. The building must be physically damaged by a covered loss.

Covered losses, or perils, include storm-related events, such as wind, hail, lightning, tornado and flood.

Members are increasingly developing and implementing risk management strategies to be prepared for all types of exposures. MCIT is occasionally asked if the expenses incurred in preparing for a weather event that does not result in physical damage are covered by MCIT. Examples are the cost of sand bagging property that is not damaged because the sandbags either diverted the water or the flooding never materialized, or the cost of evacuating and housing staff or inmates from a building that ultimately is not damaged. Although these are important risk management plans—and encouraged to help reduce loss for the member and MCIT—these mitigating expenses are not covered by MCIT, as there has been no direct physical damage to a covered building.

Contents Coverage                                                                                                         

If a building is scheduled for property coverage, then the contents of that building can also be covered. This coverage also applies to contents contained in rented or leased buildings.

Contents are described as property that is owned by the member and designed to be kept inside the building. Common contents include office furniture, desks, tables, chairs, office supplies, file cabinets and office equipment.

Contents that are temporarily outside and within 500 feet of a scheduled building are also covered. For example, if tables and chairs that are normally used inside are used outside for a volunteer appreciation ceremony, those items, if damaged by a covered loss, would be considered contents because they are outside the building temporarily and within 500 feet of it.

Contents are typically valued on a replacement cost basis, meaning members should determine what it will cost to replace the items with new, like-kind and quality ones. The difference between replacement cost and actual cash value is discussed later.

All contents must be usual to the member’s occupancy. In other words, there needs to be a good business reason for the property to be in the building for coverage to apply.

The member must establish a contents value at replacement cost for each covered building. That value, in turn, must be scheduled. MCIT recommends keeping a running contents inventory with values for each building and updating the replacement cost each year. MCIT annually applies an inflation adjustment factor to the member-supplied contents value to help keep pace with the costs to replace damaged property.

Members do not need to notify MCIT each time an item is added or deleted from the contents inventory, as the bottom line total of the inventory will be the basis of the coverage limit available in the event of loss. MCIT should be notified if significant changes are made, such as a building addition, resulting in significantly more contents or the replacement of an entire suite, so that the appropriate contents limit is scheduled.

Like building coverage, the contents must be physically damaged by a covered loss to activate coverage. The expense of moving contents from the basement to a higher level in anticipation of a flood is not considered direct physical damage.

Property in the Open (PIO) Coverage                                                                               

Unlike contents that are kept inside a building, property in the open coverage is designed to cover items that are kept and intended to be kept outside at a permanent location. Because this property is often in remote locations, it can be easily overlooked when thinking about coverage.

Property in the open includes items such as:

  • Fences
  • Bleachers
  • Lighting fixtures
  • Picnic tables
  • Benches
  • Flag poles
  • Above-ground fuel tanks/pumps
  • Radio and television antennas
  • Repeaters
  • Playground equipment
  • Bike racks
  • Satellite dishes
  • Statues and monuments

Because of its exposure to the elements, this property is frequently victim to weather-related events.

All PIO must be individually scheduled with MCIT at its replacement cost. Members should take inventory of all PIO items annually and ensure that they are scheduled with accurate values assigned. Changes such as new property, property that is no longer owned by the member or adjustments in value should be submitted to MCIT as they arise, so the member’s schedules can be updated.

MCIT annually applies an inflation adjustment factor to the member-supplied PIO value to help keep pace with the costs to replace damaged property. For more information about property in the open, members should see Property in the Open: Property that Stays Put Outside.

Inland Marine Coverage                                                                                                  

Inland marine coverage applies to property that generally is mobile and moveable. For example, inland marine covers heavy (not licensed for road use) equipment, such as graders, loaders and backhoes under contractors equipment coverage at actual cash value. Inland marine also includes miscellaneous personal property coverage for smaller portable items such as boats, motors, ATVs, sheriff’s equipment and lead-testing equipment at actual cash value. Miscellaneous Personal Property Coverage provides more information about this coverage type.

Electronic Data Processing (EDP) Coverage

Electronic data processing coverage is another line categorized under MCIT’s inland marine coverage. EDP coverage applies to electronic, computer-related equipment that can accept and manipulate data into a desired format or result.

The equipment must be connected to or capable of being connected to a computer system. Examples include desktop computers, digital cameras, laptops, hard drives, monitors, printers, voting equipment, 800 MHz systems, copiers, servers, uninterruptible power supply systems and GPS/GIS systems.

This equipment has unique exposures to loss, as it is sensitive to power disruption and changes in atmospheric conditions. It is often damaged as a result of lightning. Although members have the option of covering this equipment under other lines, including contents and miscellaneous personal property, EDP coverage provides broader coverage than other lines, particularly in the area of loss caused by electrical disturbance. EDP coverage is at replacement cost.

Key features of the coverage:

  • Applies to both stationary and mobile equipment
  • Applies to equipment that is either inside or outside
  • Can cover damage caused by a lighting strike that occurs off of member property
  • Can cover damage caused by artificially generated power surges
  • Can cover damage caused by extreme changes in temperature including dampness or dryness
  • Provides a $100,000 limit of coverage to reproduce data lost or damaged as a result of a covered loss

MCIT EDP coverage is provided on a blanket basis. Members must create an inventory of all EDP equipment they want covered. The inventory should include a description of the equipment, its location and the cost to replace it, including installation costs, if applicable. An updated inventory is submitted to MCIT at least annually, and the total value of the equipment is the limit of coverage provided. The EDP inventory is due to MCIT by April 30 each year. Members may update the inventory whenever needed.

In the event of a loss, MCIT verifies that the damaged equipment is represented on the inventory, and the total value of the equipment, or blanket amount, is the limit of coverage available in the event of a loss. The benefit of blanket coverage is that members do not have to report each individual item they acquire to MCIT throughout the year for coverage to apply.

Members should adjust their total blanket limit when the estimated total replacement cost for covered EDP items exceeds the EDP coverage limit shown in their inland marine schedule, and when the annual itemized list is sent to MCIT. For more information about EDP coverage and blanket limit coverage, members should see Electronic Data Processing Coverage and Understanding Scheduled Property Coverage.

Coverage Extensions                                                                                                      

The coverages discussed above all respond to repair or replace covered property that is physically damaged as a result of a covered loss. MCIT also provides several coverage extensions that apply to costs that are not truly direct physical loss or damage. For example, MCIT provides a fire department service charge coverage that grants up to $2,500 toward the cost of the fire department responding to save or protect covered property. Two other coverage extensions that often come into play as a result of weather-related claims are extra expense coverage and debris removal coverage.

Extra Expense Coverage

When a claim results in a member being displaced from a covered building due to the severity of the damage; or if typical services, such as electricity, heat and air-conditioning, are not functioning and therefore prevent normal occupancy, the extra expense coverage can play an important role. It is designed to pay for the additional costs incurred in a covered claim to maintain business operations during the period of restoration until normal operations are resumed.

For example, if a facility is closed due to damage caused by flooding and the building cannot be used, extra expense coverage would apply to the costs to secure an alternate location over and above the total cost that would have normally been incurred to conduct member business.

Coverage applies to the moving expenses to get set up in a temporary location, the cost to lease or rent the temporary location and utilities (air conditioning, heat, phone service, electricity) that are more than what a member would have had to pay had business been conducted in the damaged building.

This coverage applies only to expenses incurred during the period of restoration and ends once the damaged building has been repaired. All county members are provided a $200,000 per claim limit under this extension that is over and above the coverage available to repair or replace the damaged building. A higher limit can be purchased. Noncounty members typically have lower limits that are noted on their coverage declarations.

Debris Removal Coverage

Debris removal coverage responds when a member incurs expenses to remove debris from covered property remaining as a result of a covered loss. It is typically used in larger losses involving tornados, high winds or fire when a member needs to haul away debris or building remains to facilitate repairs and rebuilding.

A member can work with a competitively priced contractor to complete this work. Covered expenses include the cost to dismantle, collect and haul away the materials, as well as tipping fees incurred in disposing of the materials.

Debris removal coverage does not apply to the cost of removing contaminants, the contamination caused by the contaminants or any pollutant from the property.

Coverage is provided on the following basis: 25 percent of the physical loss payable at that location or a maximum of $1 million, whichever is less. For example, if a member has $500,000 in damaged property there is an additional $125,000 available for debris removal, if needed.

Use of this coverage extension does not increase the scheduled limit of coverage available for the claim. In other words, the physical damage and debris removal costs payable combined cannot exceed the scheduled limits of coverage available for the damaged building.

Location Schedules                                                                                                         

All members with property coverage have a location schedule on file with MCIT. This document details the each property item the entity has covered, the line of coverage that applies (building, contents, property in the open), the limit of coverage available and how that property is valued if damaged or destroyed. It is crucial to keep the schedules up to date, and MCIT recommends that members review their schedules at least annually to ensure that:

  • All property they want covered is listed.
  • All property they no longer own or do not wish to cover is removed.
  • The property values and limits of coverage are reviewed for accuracy.

A complete copy of a member’s current schedule is sent to the entity each August with the coming year’s contribution estimate and each December with the renewal information. MCIT recommends that members review their schedules at those times for accuracy and consult with department heads when appropriate.

Members can view current schedules when needed and make changes easily to them at any time via the member portal at MCIT.org.

Claim Valuation

The amount of coverage available for a property damage claim is determined in part by how the property is listed in the schedule. The schedule requires that a dollar value be assigned to each property item and that the dollar amount represents either the replacement cost (RC) or the actual cash value (ACV):

  • Replacement cost is the cost to repair, replace or rebuild damaged property with something new of like-kind and quality. Most member property is valued on a replacement cost basis including buildings, contents, property in the open and electronic data processing equipment.
  • Actual cash value is the replacement cost of the property less a deduction for physical depreciation. Inland marine coverages including contractors equipment and miscellaneous personal property are valued this way. ACV is necessary as most of these items are either kept or used outside, are subject to the elements and depreciate quickly. MCIT also requires that tax-forfeited property (property confiscated by law enforcement or acquired through court order) if scheduled is listed at actual cash value.

It is the responsibility of each member to assign an accurate replacement cost or actual cash value to scheduled property. MCIT assists with setting the replacement cost of larger buildings by obtaining professional appraisals every five years on all buildings scheduled greater than $100,000. MCIT annually applies an inflation adjustment factor to all scheduled building values to help keep pace with the costs to replace damaged property. Members should develop a procedure to review values of smaller buildings, contents, property in the open, electronic data processing equipment and other equipment on a regular basis and to report changes to MCIT.

Establishing the actual cash value of inland marine equipment can be difficult, as members have to calculate some level of actual depreciation. MCIT recommends that members contact local dealers and online sources to compare recent sale prices. Determining an accurate value is important because if it is set too high, members pay an unnecessarily high price for coverage, and if it is too low, they may not have adequate coverage limits.

The claim adjustment process determines if damaged property can be repaired or if it needs to be replaced. The MCIT Coverage Document outlines that for buildings, contents and property in the open, the coverage for the damaged property will not exceed the smallest of the following:

  • The cost to repair
  • The cost to replace it on the same site with new materials of equivalent size, kind and quality
  • The actual cost incurred in rebuilding, repairing, or replacing the damaged or destroyed property on the same or another site but not to exceed the size and capacity that existed at the time of loss

If during a claim, it is determined that the scheduled value of a damaged item is not sufficient to replace it, MCIT provides up to an additional 25 percent of the scheduled amount to help in the adjustment process. For example, if a building scheduled at $500,000 is damaged, a member actually has up to $625,000 ($500,000 scheduled value + $125,000 (25 percent of $500,000) to repair or replace it.

The damage and repair/ replacement costs will need to be supported by contractor estimates and approved by the MCIT claim staff. The 25 percent margin clause does not apply to equipment on the EDP inventory.

This provision should not take the place of a disciplined approach to reviewing the scheduled values. For more information about replacement cost coverage, see Replacement Cost Coverage.

Exclusion Examples                                                                                                        

MCIT provides broad, cost-effective coverage to meet the unique needs and exposures of its public entity members. However, not all property and loss events (perils) are insurable, and exclusions are necessary for multiple reasons. Examples of exclusions that apply to all lines of property coverage (building, contents, property in the open and inland marine) and that can apply to weather-related claims include:

Property that is not covered:

  • Growing crops and standing timber
  • Lawns, pavements and roadways
  • Tunnels and bridges used for vehicular and railroad traffic
  • Property below ground or below basement level (except elevator equipment and sump pumps)

Perils (loss events) that are not covered:

  • Wear and tear or gradual deterioration
  • Asbestos removal
  • Fungus, wet rot, dry rot and bacteria (mold)
  • Pollution

These examples are not all-inclusive. Loss caused by flood and earth movement along with loss expenses related to compliance with law or ordinance building requirements are also excluded, but MCIT adds back limited coverage through endorsements, which are discussed in the next section.

Coverage Endorsements                                                                                                 

Flood Endorsement

MCIT’s flood coverage responds to direct physical loss or damage to covered property caused by or resulting from flood. Flood is:

  • Overflowing of any body of water.
  • Breaking of boundaries.
  • Rapid accumulation of rainwater or snow melt.
  • Water that backs up through sewers or drains when caused by a flood event.

The most MCIT will pay under the flood endorsement is:

  • $1million per member per flood
  • $1million per member per coverage year
  • $20 million per flood aggregate limit shared by all members
  • $20 million aggregate limit per year for all members combined

The flood endorsement does not apply to scheduled property when any portion is located within high-risk areas as designated by the National Flood Insurance Program (NFIP). Members should establish a schedule to review flood zone maps, as they change often, to confirm the location of their buildings. Flood coverage must be purchased independently through NFIP for property located within high risk areas.

MCIT’s coverage does not apply to the cost to dewater land, and all other applicable exclusions within the coverage document still apply. For example, pollution cleanup as a result of a flood is not covered nor is flood damage to roads and bridges.

Earth Movement Coverage Endorsement

MCIT’s earth movement endorsement is structured in much the same way as the flood coverage. MCIT pays for direct physical loss or damage to covered property caused by or resulting from any natural or manmade earth movement including:

  • Earthquake
  • Landslide
  • Mudflow
  • Earth sinking, rising or shifting

Coverage limits are set at $1 million per occurrence with a maximum of $1 million available per member during a coverage year subject to a $20 million aggregate limit per occurrence or per coverage year shared by all members. Exclusions include damage resulting from flood, the cost or time to remediate or restore land, as well as all other exclusions contained within the coverage document.

People occasionally see news reports of roads vanishing into sink holes. Because roads are not covered under MCIT property coverage, the endorsement does not extend to that type of claim, but it would if the sinkhole caused damage to a scheduled building.

Law or Ordinance Coverage Endorsement

The law or ordinance endorsement provides coverage for the additional costs of complying with laws regulating the construction and repairs of buildings damaged by a covered loss. An example is a member having to tear down the undamaged portion of a building and rebuilding the entire structure on another site to satisfy zoning or set back requirements that were in effect at the time of the loss.

The coverage limit available is $10 million per loss occurrence, which is shared by all members affected by the same loss. This coverage extension does not increase the limit of coverage available to the damaged property. If a building has a scheduled value of $500,000, the 125 percent provision can increase the limit to $625,000. Any covered law or ordinance expense will be paid within the $625,000 limit and will not increase that limit.

Costs that are not eligible under the endorsement include those:

  • Related to addressing contamination or pollutants.
  • To satisfy accessibility requirements under the Americans with Disabilities Act.
  • Related to building components that did not exist prior to the loss. For example, the endorsement does not cover the cost of installing fire suppression sprinklers in a building if they did not exist prior to the loss. If sprinklers were in the building but code now requires a more sprinklers, the endorsement would cover that additional cost.

As a point of clarification, the law or ordinance must be in effect at the time the loss occurred.

Risk Management Suggestions                                                                                        

To manage the risks of weather-related incidents and improve their outcomes, MCIT encourages members to:

  • Participate in MCIT’s annual coverage review to assist in understanding MCIT’s property coverage including exclusions, endorsements, limitations and sublimits of coverage.
  • Develop a procedure routinely to review all schedules to confirm all property is scheduled with appropriate replacement cost or actual cash values. Involve department heads and notify MCIT promptly of any required changes.
  • Utilize the member portal at org to report to MCIT immediately all newly acquired buildings, property in the open , contractors equipment and miscellaneous personal property. Higher-value contents and electronic data processing equipment should also be reported and added to inventories.
  • Report loss (or potential loss) to MCIT as soon as possible. Claims are submitted via the member portal. Questions about whether to submit a claim should be directed to Zahir Siddiqui, MCIT property/casualty claims manager toll-free at 866.547.6516 ext.6442.
  • Take appropriate steps after a loss to prevent further damage to property. Document, verify and substantiate all damage.
  • Assist MCIT and its claims representatives in the claim adjustment process.
  • Review the MCIT Coverage Document and contact the MCIT risk management consultant to determine how coverage applies to a specific situation.
  • Review page 22 of the Essentials of Risk Management for Motor Vehicles guide for information about automobile physical damage coverage.

The information contained in this document is intended for general information purposes only and does not constitute legal or coverage advice on any specific matter.