By Chris Dunlap

For real estate owners, managing tenants is just one aspect of profitability. Another is preserving base building systems. From the building envelope to the mechanical, electrical and plumbing infrastructure, maintenance and systems upkeep are critical to minimizing risk. Here’s a look at the Top 5 building systems, and the potential liability they carry, if not maintained properly.

  1. Building Envelope. The building’s skin – it’s roof, windows, cladding and doors - can all be susceptible to leaks. The envelope is a building’s first line of defense when faced with a catastrophic risk, like a hurricane, strong winds or a heavy storm. Wind can break windows or water can leak into a punctured roof. Extreme heat and cold can also create damage when the building envelope is deficient.
    Insurance Coverage: Any damage to your physical building will be covered under your property policy. If caused by a third party or adjacent building, your property insurer may then subrogate (seek reimbursement) from those responsible.
    TIP: Do regular, routine building inspections across the envelope. Don’t forget to secure all roof equipment properly.
  2. Plumbing. Water systems are real estate’s loss leader. There’s nearly a 50 percent chance that a building’s next claim will be water related. Furthermore, water-related building losses cost on average three times as much as claims that don’t involve water damage. High costs include cleaning and drying out the building after interior sprinklers put out a fire, or a pipe bursts.
    Insurance Coverage: While your property policy will cover water loss claims that include damage to your core building, damage to tenant space will be covered under your general liability (GL) policy.
    TIP: Prevent water damage by inspecting fire protection systems and test them regularly, per NFPA requirements. For domestic water lines, conduct preventative maintenance and ensure insulation is adequate.
  3. Electrical. Lighting and power distribution can be the source or outages and electrical fires. Fire and life safety systems run on a building’s electrical infrastructure and can become a liability should they not be in working order.
    Insurance Coverage: Electrical fires will affect your property policy, while electrical problems that impact the resident/occupant safety, like a wrongful death claim, will hit your GL policy.
    TIP: Always conduct recommended preventative maintenance and discuss the need for infrared testing with your licensed electrician. Frequent visual inspections and keeping electrical areas clear of combustibles, coupled with infrared testing annually, will provide warning of a future electrical failure.
  4. HVAC/Mechanical. Air handling units, boilers, cooling towers, filters and fuel tanks can generate water losses and gas leaks - a major risk to occupants and a source of damage to building interiors. One of the biggest liabilities with cooling systems is the potential for them to spread mold or even Legionella, a bacteria that causes Legionnaires’ Disease, a deadly form of pneumonia.
    Insurance Coverage: Physical damage to mechanical systems would be covered under the building’s property policy. Cases of mold or Legionnaires’ Disease and the like will fall under your GL policy.
    TIP: Prevent the spread of Legionella by, having routine lab testing done to detect whether the bacteria is present. Consistently monitor equipment pressures to detect gas leaks immediately, and make sure boilers are inspected annually, per local code.
  5. Amenities. Management of facility amenities – pools, saunas, gyms, etc. – is critical to maintaining safety and minimizing liability. Equipment in poor working order is an accident waiting to happen.
    Insurance Coverage: Occupant injuries will fall under your GL policy. If you have a pool or gym, make sure you have an umbrella policy, as GL policy limits may not fully cover a serious accident or injury. As a rule of thumb, the more amenities and therefore, the more risk, the more robust your umbrella policy needs to be.
    TIPS: Make sure lifeguards are at the pool during open hours, or post signs warning occupants they are swimming at their own risk. Similarly, let gym users know they are using the equipment at their own risk. Keeping the equipment in good working order will minimize accidents and injuries.

Contact HUB today to find out how you can transfer your building systems risk with the right insurance coverage.


1. https://www.zurichna.com/en/knowledge/articles/2018/02/a-cure-for-water-damage-to-your-property-planning-and-preparation