The Policy Review That Closed a $600,000 Coverage Gap

The situation

Taras taught at a university and Natalia managed construction projects for a general contractor, but on evenings and weekends they ran a second business together: a small equipment rental yard just outside Collingwood, renting skid steers, generators, and trailers to local contractors and homeowners doing renovation work. They had bought the property and the original fleet of equipment six years earlier, insured it through a broker at the time, and had renewed the same policy every year since without much thought. The business had grown steadily. The insurance had not changed at all.

What brought them to Treadstone Law was not a claim. It was a conversation. Natalia had a colleague in the construction industry, Fernanda, who ran a similar outdoor equipment operation elsewhere in the region. Fernanda's yard had suffered a fire the year before, and her insurer had denied most of the claim, pointing to wording in her policy that excluded equipment stored outside the insured building. Fernanda had assumed, like most business owners do, that if it was insured property used in her business, it was covered. It was not, and the denial nearly ended the business. Natalia mentioned it to Taras over dinner, half as gossip and half as a nagging worry. Neither of them actually knew what their own policy said about equipment kept in the yard rather than inside the storage building.

What the review found

Treadstone Law was retained to review the commercial property policy against what the business actually owned and how it actually operated, rather than what had been true when the policy was first written. Two problems surfaced, and either one alone would have been serious.

The first was a straightforward gap in what the policy insured at all. The policy covered the storage building and its contents on a named perils basis, meaning it paid out only for the specific causes of loss listed in the policy — fire, theft, wind, and a handful of others — and only for property located inside the building. Almost all of the rental fleet, the skid steers, generators, and trailers that generated most of the business's revenue, sat in the fenced yard outside the building between rentals. None of it was covered. This was the exact gap that had gutted Fernanda's claim. An itemized inventory put the uninsured yard equipment at roughly $260,000 in replacement value.

The second problem was subtler and, in dollar terms, larger. The building itself was insured for $560,000, a figure carried forward unchanged from the original purchase policy. Construction costs in the region had risen sharply since then, and a professional appraisal Treadstone arranged through the couple's insurance broker put the true replacement cost of the building at roughly $900,000. That $340,000 gap mattered for a reason most policyholders never learn about until it is too late: most commercial property policies contain a coinsurance clause, which requires the insured to carry coverage equal to a set percentage — commonly 80 to 90 percent — of the property's full replacement cost. If the insured limit falls below that threshold, the insurer does not simply pay out up to the policy limit on a loss. It pays only the proportion of the loss that matches the proportion of coverage actually carried, even on a partial loss. Carrying only $560,000 against a required $810,000 (90 percent of $900,000) meant the policy was carrying only about 69 percent of the required coverage. On a serious fire or structural loss, the insurer could have paid out little more than two-thirds of the damage, regardless of the stated policy limit, and the couple would have been left funding the rest themselves.

Put together, the two gaps meant the business was carrying roughly $600,000 of real exposure that its insurance would not have covered: $340,000 in building underinsurance and $260,000 in uninsured equipment. Nothing had gone wrong yet. But nothing had to.

What we did

1. Pulled the full policy wording, not just the declarations page. Most business owners only ever see the summary page listing their limits and premium. The exclusions, the coinsurance clause, and the definition of insured property that excluded the yard were all in the body of the policy, which almost nobody reads until a claim is denied.
2. Commissioned an independent replacement cost estimate for the building. Insured values set years earlier at purchase price rarely reflect current construction costs. A qualified appraisal gave Taras and Natalia a defensible, current number to insure against, rather than a guess.
3. Built a documented inventory of the equipment fleet. Serial numbers, purchase records, and current replacement values for every piece of equipment kept in the yard, which became the basis for pricing proper coverage and would have been essential to any future claim regardless.
4. Worked with the couple's broker to restructure the policy. The building limit was raised to meet the coinsurance requirement, and a separate inland marine policy — the standard product for insuring mobile equipment and property that moves outside a fixed building — was added to cover the yard fleet on an all-risk basis rather than the narrower named perils form.
5. Reviewed the endorsement wording before the couple signed off on renewal. Insurers sometimes add their own conditions in exchange for closing a known gap, such as requiring a fence, lighting, or an alarm system for outdoor equipment. Treadstone confirmed the conditions were ones the business already met, so the new coverage would actually respond if it was ever needed.

The outcome

The restructured policy cost more in annual premium than the old one, a few thousand dollars a year, and Taras and Natalia felt that increase every renewal. But it closed a roughly $600,000 gap between what they thought they had and what they actually had, and it did so without a fire, a theft, or a denied claim ever forcing the issue. No lawsuit was filed, no adjuster was ever involved, and no coverage dispute reached a court. That was the point.

Eighteen months after the review, a windstorm took down part of the yard's perimeter fence and damaged a generator that had been sitting outside. Under the old policy, that generator would not have been covered at all. Under the new inland marine policy, the claim was accepted without argument, because the equipment was properly insured and properly documented from the start. It was a small claim, a few thousand dollars, but it was the first real test of the coverage, and it worked exactly as intended.

Fernanda's business, by contrast, spent close to two years in a coverage dispute with her insurer before reaching a partial settlement well below what the fire had actually cost her. She and her insurer eventually resolved the matter, but only after legal costs, lost operating time, and a payout that left her rebuilding with her own money. Taras and Natalia never had to have that fight, because the gap that caused it was found and closed before there was anything to fight over.

What you can learn from this