What Are the Requirements for Direct Damage Coverage Under Commercial Property Insurance?

What Are the Requirements for Direct Damage Coverage Under Commercial Property Insurance?

Not all losses are automatically covered by commercial property insurance. To receive direct damage coverage, your loss must meet specific conditions outlined in your policy.

Key Takeaway: To access direct damage coverage, your commercial property loss must involve covered property, occur at a covered location, and stem from a covered cause—within the policy period.

Why Direct Damage Coverage Matters

Commercial property insurance helps businesses recover when the unexpected happens—like a fire, vandalism, or severe weather. But to receive funds for repairing or replacing damaged property, the loss must meet certain criteria under what’s known as direct damage coverage.

This coverage is vital because it ensures you’re financially protected after physical damage to your property, as long as the loss checks all the required boxes.

5 Requirements for Direct Damage Coverage

1. There Must Be Direct Physical Damage

The damage must directly affect your property. That means:

• Structural damage (e.g., a collapsed roof from a storm)
• Destroyed inventory or machinery
• Ruined fixtures or equipment

Indirect losses—like lost income or temporary relocation costs—are handled differently and usually fall under business interruption coverage.

2. The Damage Must Affect Covered Property

Your policy will only cover property specifically listed and defined in your policy. This typically includes:

• Buildings (structures, fixtures, installed equipment)
• Business personal property (inventory, furniture, movable machinery)
• The personal property of others (e.g., client-owned goods in your care—often with sublimits)

Not everything at your business is automatically covered, so it’s critical to review your policy details regularly.

3. The Loss Must Occur at a Covered Location

To qualify for direct damage coverage:

• The loss must happen at a listed location, or within a certain distance (usually up to 1,000 feet).
• Limited protection may apply for goods in transit or at newly acquired locations—but only if these fall within the territory listed in your policy (typically the U.S., Puerto Rico, or Canada).

4. The Cause Must Be Covered

Losses must stem from a covered cause of loss (also called a peril). The type of policy you have matters here:

• Named perils policy: Only listed events (e.g., fire, wind, theft) are covered.
• All-risk/open perils policy: All causes are covered unless specifically excluded.

Common covered perils include:

• Fire
• Explosion
• Vandalism
• Water damage (certain types)

Common exclusions include:

• War
• Government seizure
• Mechanical failure
• Utility service interruption.

5. The Loss Must Fall Within the Policy Period

No matter how severe the damage, if it occurred before or after your coverage period, it may not be covered.

Most commercial property policies cover a 12-month period starting from the activation date. Always confirm that your policy is current and active when losses occur.

How BDI Can Help

At Barnard Donegan Insurance, we don’t just sell policies—we help you understand them. Commercial property insurance can feel complex, especially when it comes to direct damage coverage. Our team takes the time to walk through your coverage, answer your questions, and ensure you’re protected—where and when it matters most.

Not sure your property coverage meets today’s standards? We’re here to help. Contact us today to schedule a commercial property insurance review →

People Also Asked

1. What is direct damage coverage in commercial property insurance? It covers the cost to repair or replace physically damaged property due to covered events like fire, storm, or vandalism.

2. How do I know if my property is covered? Check your policy’s declaration page for listed properties and locations. You can also ask your insurance advisor for clarification.

3. Does direct damage coverage include business interruption? No. Direct damage covers physical loss only. Business interruption insurance must be purchased separately to cover lost income.