Types of Property Policies

Correct

The answer is A: Denied entirely — water damage is not covered after 60 days

Under the standard commercial property vacancy provision, if a building has been vacant for more than 60 consecutive days, the insurer will not pay for losses caused by vandalism, sprinkler leakage, building glass breakage, water damage, theft, or attempted theft. Since the building has been vacant for 75 days and the loss is water damage, the claim is denied entirely. For other covered causes of loss (like fire), the payment would be reduced by 15% rather than denied. The vacancy provision reflects the increased risk that unoccupied buildings face.

Reviewed in our October 2026 Texas fact-check.

Correct

The answer is A: No, equipment breakdown is excluded on standard property forms

Standard commercial property policies typically exclude losses caused by mechanical breakdown, electrical breakdown, or equipment failure. Equipment Breakdown (formerly Boiler and Machinery) Insurance specifically covers damage caused by the sudden and accidental breakdown of covered equipment, including damage to the equipment itself, spoilage of perishable goods, business income loss, and extra expenses. Without this coverage, the bakery must absorb the $8,000 spoilage loss and the cost to repair or replace the compressor.

Reviewed in our October 2026 Texas fact-check.

Correct

The answer is D: $360,000 — the rebuild cost, within the 25% extension

Extended Replacement Cost coverage pays up to a specified percentage (in this case, 25%) above the Coverage A limit. The maximum available is $300,000 x 1.25 = $375,000. Since the actual rebuild cost is $360,000, which is within the $375,000 cap, the insurer pays the full $360,000. Extended Replacement Cost differs from Guaranteed Replacement Cost, which has no cap and pays whatever it costs to rebuild regardless of the policy limit. Extended Replacement Cost provides a cushion above the policy limit but still has a maximum payout.

Reviewed in our October 2026 Texas fact-check.

Correct

The answer is D: $600,000 — payment is capped at the values last reported

Under the ISO Value Reporting Form, if a required report after the first is not submitted, the insurer will not pay more for loss at a location than the values last reported for it. The last report showed $600,000, so that is the most the insurer pays even though the inventory was worth $900,000 at the time of the fire. A report that was filed but understated the values on its report dates is penalized differently: the insurer pays only the proportion of the loss that the reported values bear to the actual values on those dates. Either way, the rules push insureds to report promptly and accurately. Businesses with predictable seasonal peaks may find a Peak Season Limit of Insurance a simpler alternative.

Reviewed in our October 2026 Texas fact-check.

Correct

The answer is B: Improvements and betterments — the tenant's personal property

Tenant's Improvements and Betterments (TIBs) are fixtures, alterations, and additions made by a tenant to leased premises at the tenant's own expense. Under commercial property policies, TIBs are classified as business personal property of the tenant, not building property. Under the ISO building and personal property form, TIBs the tenant promptly repairs or replaces are valued at actual cash value, or replacement cost if that option applies. If the tenant does not repair promptly, the payment is a share of the original cost based on the remaining lease term (the tenant's use interest). If someone else, such as the landlord, pays for the repair, the policy pays nothing. This is a commonly tested P&C exam topic.

Reviewed in our October 2026 Texas fact-check.