Many if not most businesses lease equipment of one sort or another. Unfortunately these same businesses often think that coverage for these items is automatically covered in their property insurance policy. Just last week I was working with a Santa Cruz insurance client who needed to send a Certificate of Insurance to a leasing company but didn’t have the appropriate coverage so they turned to me for help.
Typically an equipment lease makes the lessee responsible for the leased property which includes insuring that property for loss. Most commercial property insurance policies have the ability to cover leased property however, if your agent or broker isn’t familiar with the exact policy language there may be a discrepancy between the compensation the leasing company requires if the property is destroyed and what the insurance company will pay.
Normally equipment leases require the lessee to replace the damaged equipment or pay off the balance of the lease. Leased equipment is covered as “Personal Property of Others” on the property insurance policy. Unfortunately, most standard policies pay out just Actual Cash Value, or the new equipment cost minus depreciation. This makes the lessee (i.e. business owner) responsible for the difference between these two amounts and may have an out of pocket expense beyond the deductible if there is a loss.
2 Easy Ways to Get the Coverage:
One way to cover this area of exposure is to add an endorsement to your commercial policy to extend Replacement Cost Coverage to the leased equipment. Another option is the “schedule” each piece of equipment onto your policy for it’s exact value.
It’s important to discuss the extent, type and value of your leased equipment with you broker so that your property insurance policy can be endorsed accordingly.