An industrial building is not only a risk while people are working in it. A warehouse emptied at the end of the season, a plant shut down for lack of orders, a site vacated and waiting to be sold – in the insurer's eyes, each of these is a different, and typically greater, risk than a building in use. As a broker, I see that many companies do not regard a shutdown as news that concerns the insurer: the premium keeps being paid, the policy is in the drawer, so everything is ‘fine’. Hungarian corporate property insurance conditions, however, have separate rules for vacant, disused buildings: they attach conditions to the cover, exclude certain losses and expect the shutdown to be notified. In this article I go through what the conditions say, what has to be notified, and what the company should do during the months of the shutdown.
- Hungarian corporate policy conditions typically treat a vacant, disused building separately: several insurers do not cover it by default, or only under a special clause, and the clause requires guarding, regular inspections, draining of water systems and disconnection of the power supply.
- Under Section 6:452 of the Hungarian Civil Code (Ptk.), halting operations and vacating the building is typically a material change that must be notified; if it is not notified, the insurer's obligation to pay does not arise, unless the company proves that the circumstance did not contribute to the loss.
- The typical exclusions in these clauses – unexplained shortages, burst pipes, rain entering through doors or windows left open, pilfering after the first break-in – are precisely the losses that are most common in empty buildings, so the routine during the shutdown is not a mere formality.
Why is an empty building a different risk in the insurer's eyes?
At an operating site, most losses start small and someone notices: the dripping pipe is shut off, someone traces the smell of smoke, the alarm gets a response, the broken window is boarded up the same day. In an empty building, the same loss can run on for weeks. Water flows from a frozen pipe until someone happens to pass by; on their second or third visit, burglars load up at their leisure; an abandoned building attracts vandals; a fire from an electrical fault is spotted by the neighbour. When the policy was taken out, the insurer underwrote an operating site – its activity, the presence of people, its level of protection, its risk class – and calculated the premium on that basis. If the building is vacated, it is not the insurer that has become tight-fisted; what has changed is the risk on which the contract was built – the strict wording of the conditions describes this; it does not punish.
What do the conditions say about vacant buildings?
Hungarian corporate property insurance conditions deal with the question at several levels, and the details differ from insurer to insurer. One Hungarian insurer's commercial property insurance conditions exclude from the scope of insurable property any building that is vacant or under construction, renovation or conversion, as well as disused equipment and dead stock – for such risks, at most an individual agreement may be possible with that insurer. Two other sets of Hungarian corporate conditions – a collection of special conditions for bespoke corporate contracts and an all-risks special condition – contain an almost identically worded clause on vacant property. Under this clause, the insurer provides cover only if the building is permanently guarded, with at least one security guard; the building is inspected, including from the inside, at least once a week; doors and windows are kept locked and damaged ones are replaced; process systems are completely drained and disconnected from the power supply; and, if there is no background heating, the drinking-water system is drained as well. The same clause excludes unexplained shortages, losses caused by burst or cracked water and process pipes, and damage from rain entering through unlocked or damaged doors and windows; and for burglary it pays only for the loss from the first break-in committed on the locked building, not for further pilfering. The general exclusion found in the escape-of-water cover of some conditions deserves special attention: the insurer does not pay for losses arising from a failure to shut off the pipes of a building that is temporarily unused or left unattended – this is not a vacant-building clause but part of the everyday cover, and it applies from the first day of the shutdown. The same exclusion also extends to frost damage in a building that is not adequately heated during the heating season. The wording differs from insurer to insurer: some have a clause with its own set of conditions, others a simple exclusion – it is worth searching the conditions of your own policy for the terms ‘vacant’, ‘disused’ and ‘not in operation’.
Duty to notify: a shutdown is a material change
Under Section 6:452(2) of the Hungarian Civil Code (Ptk.), the policyholder must notify the insurer of changes in material circumstances in the manner and within the time limit set in the contract. What counts as material is specified in the conditions, and Hungarian conditions typically include a change in or cessation of the activity, a change in the way the building is used, and changes to protective equipment and guarding – vacancy affects all three categories. The time limit is set by your own conditions and is typically counted in days. The consequence of failing to notify is set out in Section 6:452(3): the insurer's obligation to pay does not arise, unless the policyholder proves that the insurer knew of the unnotified circumstance or that it did not contribute to the occurrence of the insured event. In practice, this looks as follows: the shutdown has nothing to do with the damage from a storm that tears the roof off an empty building whose vacancy was not notified, so here the insurer would find it hard to argue that its obligation did not arise; the damage from a frozen pipe in an unheated building left undrained, on the other hand, arises precisely from the unnotified circumstance. Notification also has a less pleasant but fair side: following the logic of the Civil Code, Hungarian conditions typically allow the insurer, once informed of the change, to propose an amendment to the contract or, if under its conditions it cannot accept the risk, to terminate the contract. This sounds worse than it is: after notification, the cover continues on agreed terms, and in the event of a claim there is no dispute about what the insurer knew. Because stock has been cleared out and machines dismantled, the sum insured can also be adjusted, which may affect the premium – the article on notifying changes in your details describes the notification process.
The months of the shutdown: a routine that keeps the cover alive
It is not enough to meet the conditions of the clause; you also have to document them – in the event of a claim, the insurer asks what evidence there is of the weekly inspection or the guarding. During a shutdown, these are the points that typically matter:
- Guarding or remote surveillance: do not switch off the alarm and the cameras to save money – the article on security measures covers the protection requirements.
- Regular, logged walk-throughs: date, signature, a few photos – this is the evidence for the ‘weekly inspection’ point in the conditions.
- Water: main stopcock closed and the system drained if there is no background heating; heating kept at a minimum level where the pipes cannot be drained – the article on escape of water explains in detail why this is the most common loss in empty buildings.
- Gas shut off, non-essential circuits disconnected, process systems drained; keep the power supply to the alarm and the lighting.
- Checking doors, windows, the roof and gutters: rain entering through a window left open is a typical exclusion.
- Stock and machines moved out: if they go elsewhere, they need cover there – a change of insured location must also be notified.
- Fire-protection equipment and mandatory inspections: a shutdown does not put them on hold, and in a claim an overdue electrical inspection is just as much of an issue.
Seasonal businesses and sites awaiting sale: two separate cases
For a business that operates seasonally, the off-season is foreseeable, so it is worth disclosing it when the policy is taken out: if the insurer knows that the site is emptied for months every year, the conditions can deal with this from the outset, and it does not have to be notified again each year – the solution differs from insurer to insurer. A site awaiting sale or already vacated is different: here the shutdown begins with the final clear-out, and the old building has ‘vacant’ status from the day of moving out, while attention is already on the new location. The article on moving premises describes the sequence; I would only add here that it is worth maintaining cover for the old building under the vacant-building clause until the sale, and that on the sale, under Section 6:447 of the Civil Code, the insurable interest ceases and the contract terminates for that building – the new owner takes out their own contract.
What should the company do before and during the shutdown?
Before the shutdown, look up in your own conditions the clause on vacant, disused buildings and the time limit for notifying changes. Notify the insurer in writing of what is being shut down, from when and until when it is expected to last, and what protection remains in place – ask for written confirmation and keep it with your claims documents. If the insurer proposes an amendment, set up the shutdown routine according to the new conditions; if it terminates the contract, it is worth arranging new cover to start from the day the old one ends. In the event of a loss, the primary route for reporting it is the insurer's claims line; if a case gets stuck or is disputed, I help where I can, acting on the company's behalf. If you let me know before the shutdown, I also help with finding the relevant clause in the conditions and putting together the content of the notification – making the notification, however, is the policyholder's duty, and I cannot take it over. The insurer pays only for what is an insured event under your contract; with an empty building, this sentence is to be taken even more literally than usual.
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Sources
- Hungarian Civil Code (Ptk.) – Act V of 2013, Section 6:452 (duty of disclosure and duty to notify changes, consequences of failure to comply), Section 6:447 (termination of the contract on cessation of insurable interest)
- Generali – Collection of special conditions for bespoke corporate property insurance contracts (EVKF, reg. no. 23539, 29 October 2022), special condition ES 0067: Disused buildings (example of policy conditions)
- CIG Pannónia – Special Contract Conditions for All Risks Corporate Property Insurance (CP-10300/1), clause 12: Clause on vacant properties (example of policy conditions)
- Generali Vagyonőr property insurance conditions for businesses (VVF, 26 October 2018) – vacant buildings and disused equipment as risks requiring a separate agreement; II.1.3.1.1 e) escape-of-water exclusion (shutting off the pipes of an unused building)
