Commercial Property Insurance

There are three causes of loss forms:

* Causes of Loss Form (CP 10 10) *Broad Causes of Loss Form (CP 10 20) *Special Causes of Loss Form (CP 10 30)

The Spoilage endorsement offers two optional coverages:

*Breakdown or Contamination Coverage - covers spoilage caused by the failure of the refrigeration, cooling, or humidity control equipment or damage from contaminated refrigerant. *Power Outage Coverage - is very broad, coverage applies to any interruption of power on or off premises.

Business income coverage is added to a standard commercial property policy through either of the two business income coverage forms:

*Business income and extra expense coverage form *Business income coverage form without extra expense

Commercial Property Policy

An insurance policy for businesses and other organizations that insures against damage to their buildings and contents due to a covered cause of loss, such as a fire. The policy may also cover loss of income or increase in expenses that results from the property damage (PD).

Legal Liability Coverage Form

A commercial property coverage form (CP 00 40) that provides legal liability coverage on buildings or personal property of others in the insured's care, custody, or control.

Water Damage (Broad Form Only)

It covers the cost to remove and replace portions of a structure to repair the leaky appliance or system. It does not cover the cost of repairs to the appliance or system.

Ordinance or Law (CP 04 05)

Municipal ordinances may require a building that has been damaged to some specified extent (typically, 50 percent) to be demolished and rebuilt in compliance with current building codes. The ordinance or law exclusion does not cover the demolition and reconstruction of the undamaged portion of a covered building. It also does not cover the increased cost to rebuild in compliance with current codes, except for the $10,000 of coverage granted in the increased cost of construction coverage extension.

Governmental Action

No coverage applies when a governmental entity seizes property or orders that it be destroyed.

Collapse Additional Coverage

broad and special causes of loss forms (CP 10 20 and CP 10 30) for collapse of a building and collapse of personal property within a building due to specified causes (such as weight of snow, ice, or rain). There is no coverage for collapse due to design error, or to collapse due to faulty workmanship or materials if the collapse occurs after construction is complete.

Neglect to Preserve Property from Further Damage

The policy does not cover loss resulting from the insured's failure to take reasonable measures to protect property from further damage from a loss.

The Causes of Loss—Basic Form (CP 10 10) and the Causes of Loss—Broad Form (CP 10 20) provide named perils coverage.

These basic and broad forms are nearly identical, but the broad form covers four perils that are not covered under the basic form.

self-contained policy

is a single document, such as a workers compensation policy, that contains all agreements between the insurer and the insured.

Fixture

is an item that has been physically attached to land or a building or structure in a manner that indicates an intent that it remain part of the land or structure. (E.g heating, ventilation, and air-conditioning system; light sconces; signs attached to a building; a flagpole set into a sidewalk; and light poles in a parking lot)

Volcanic Action

is caused by lava flow, ash, dust, and airborne volcanic blast or shock waves. The form excludes the cost of removing ash, dust, or particles from otherwise undamaged property.

Weight of Snow, Ice, or Sleet (Broad Form Only)

is covered except for property in the open. Damage to personal property outside of buildings or structures is excluded.

Special Causes of Loss Form (CP 10 30)

provides what is commonly referred to as "all risks" coverage: coverage for loss from all causes not specifically excluded.

Nuclear Hazard Exclusion

eliminates coverage for nuclear reaction, radiation, or radioactive contamination. However, ensuing fire loss is covered.

Sprinkler Leakage

unwanted discharge from an automatic fire extinguishing system. Coverage applies to leakage and sudden discharge of water from the system caused by accident or malfunction.

Limited Coverage for Fungus, Wet or Dry Rot, and Bacteria

All three causes of loss forms limit the coverage provided for mold (a type of fungus).

Condominium Association Coverage Form

Commercial Property coverage form that covers the buildings in a condominium complex. Does not cover condominium owner's personal property.

War and Military Action

Excludes loss from war, revolution, insurrection or similar actions. It does not apply to terrorism, which is excluded separately unless endorsed by insured.

increased cost of construction

Increased costs incurred to comply with ordinances or laws regulating construction or repair of buildings or establishing zoning or land use requirements, up to $10,000 for each damaged building insured on a replacement cost basis. Coverage applies only to costs related to damaged property. Coverage for demolition or increased cost of construction of undamaged portions of the property must be added by endorsement.

Business income coverage

Insurance covering loss of income suffered by a business when damage to its premises by a covered cause of loss causes a slowdown or suspension of its operations during the time required to repair or replace the damaged property.

preservation of property

Loss to covered property that must be moved to another location to protect it from a covered cause of loss. Coverage applies during the move and for up to 30 days at the new location.

personal effects and property of others

Loss to personal effects of the insured and the insured's employees, and to personal property of others, up to $2,500 at each location. No coverage for theft.

Direct Damage

Physical damage to property, as distinguished from time element loss, such as business interruption or extra expense, that results from the inability to use the damaged property.

Reporting Form Coverage

Property insurance that allows an insured with fluctuating inventory values to establish a limit of insurance adequate to cover the highest possible exposed value but to pay a premium based on the actual values exposed

Smoke

Smoke damage that accompanies a fire is covered under the fire cause of loss. The smoke peril covers smoke that occurs without a fire. However, smoke from agricultural smudging (where smoke is used to prevent frost or insect damage to growing plants) or industrial operations is excluded.

Building and Personal Property Coverage Form (CP 00 10)

The basic direct damage coverage form

Flood Coverage (CP 10 65)

The endorsement defines a flood as a general, temporary, partial or complete submersion of normally dry land due to Overflowing inland or tidal water; Unusual or rapid accumulation or runoff of surface water; or Mudslide or mudflow caused by the unusual or rapid accumulation or runoff of surface water.

Artificially Generated Electrical Current

There is no coverage for damage to electrical equipment caused by artificially generated electrical current, such as might occur from electrical shorts and electric arcing. Damage from an ensuing fire is covered.

Utility Services Interruption

There is no coverage for loss caused by utility service failure that occurs away from the insured premises. However, resulting damage from a covered cause of loss is covered. So, if utility service failure causes a fire or an explosion that damages the property, the loss is covered.

Additional Coverage: Collapse (Broad Form Only)

addresses the collapse of a building and the personal property inside, if the collapse resulted from a covered peril.

Falling Objects (Broad Form Only)

applies to damage to buildings or structures and the personal property inside, if the roof or walls are first damaged by the falling object.

Causes of Loss Forms

describe the causes of loss to property that the policy covers. They also state any limitations or exclusions in coverage.

Coverage Forms

describe the insured property. They also describe any coverage limitations or exclusions from coverage

Commercial Property Coverage Forms

do not list their covered perils. Instead, they describe them in separate causes of loss forms.

Riot and Civil Commotion

it includes labor strikes and looting in connection with a riot or civil commotion.

Personal property of others includes:

property that the insured leases from others property lent to the insured property of visitors property of employees

Jodi's real estate office leases a photocopy machine from an office equipment supplier. Which coverage in Jodi's building and personal property coverage form would apply if the machine is damaged by a covered peril?

personal property of others (If a limit for this coverage is shown in the policy declarations, the personal property of others coverage in the policy covers damage to personal property that the insured leases.)

Salvage Value

the amount for which an asset can be sold at the end of its useful life

3 Essential Parts of a Commercial Property Policy

*Cover Page *Common Policy Conditions *Common Declarations

Commercial Property Conditions

(CP 00 90) form applies only to ISO commercial property policies and is usually attached to them. Its conditions concern:

Several separate forms must be combined to make up a complete commercial policy. An ISO standard commercial property policy is composed of:

*declarations page(s) *a common policy conditions form *a commercial property conditions form *one or more coverage form(s) *one or more causes of loss form(s) *endorsements (where applicable)

The amount of business income loss is determined by:

*the net income of the business before the loss *the probable net income of the business had there been no loss *the expenses needed to resume operations at the same level of service as before the loss *other relevant documents and information

Builders Risk Coverage Ends Whenever:

*the policy expires or is canceled *the property is accepted by the purchaser *the insured's interest in the property ends *the insured abandons construction with no intention to complete it or 90 days after project completion *60 days have passed since the building was first occupied, in whole or in part, or put to its intended use

Vandalism

Vandalism is willful and malicious damage to property. Loss due to theft is excluded, except for building damage caused by the entry or exit of burglars.

Commercial Property Conditions Covers:

*concealment, misrepresentation, and fraud *control of property *insurance under two or more coverages *legal action against the insurer *liberalization *no benefit to bailee *other insurance *policy period and coverage territory *transfer of rights of recovery

One group of excluded causes of loss found in the special form and the basic and broad forms, consists of:

*water *earth movement *fungus, wet rot, dry rot, and bacteria *ordinance or law *governmental action *nuclear hazard *war and military action *utility services

valuable papers and records

Loss to valuable papers and records, including the cost to research and restore information contained in valuable papers and records damaged by a covered cause of loss, up to $2,500 (unless the declarations show a higher limit).

nonowned detached trailers

used in the insured's business and in the insured's care, custody, and control, up to $5,000 (unless the declarations show a higher limit).

Water Damage Coverage is subject to several exclusions:

*Discharge or leakage from a sump system *Discharge of water from roof drains, gutters, or downspouts *Loss from continuous or repeated seepage or leakage of water occurring over 14 or more days *Loss from humidity, moisture, or vapor occurring over 14 or more days *Loss caused by freezing is covered if a reasonable attempt is made to maintain adequate heat in the building, or if the system is drained and the water supply shut off

Additional Causes of Loss Covered Only by Broad Cause of Loss Form:

*Falling Objects *Weight of snow, ice, or sleet *Water damage (from certain causes) Collapse (for certain causes)

Causes of Loss Covered by Both Basic and Broad Causes of Loss Form:

*Fire *Lightening *Windstorm or Hail *Smoke *Aircraft or Vehicles *Vandalism *Riot or Civil Commotion *Sprinkler Leakage *Sinkhole Collapse *Volcanic Action *Limited coverage for fungus, wet rot, dry rot, and bacteria

The special form has two distinct advantages over the basic and broad forms:

*It covers most types of theft. The basic and broad causes of loss forms only cover looting in connection with a riot. *An insurer is less likely to deny coverage. With an open perils policy, the burden is on the insurer to show that coverage does not apply to a loss. With a named perils policy, the burden is on the insured to show that a loss arose from a cause of loss specifically insured against in the policy.

A second group of exclude causes of loss are:

*artificially generated current *boiler explosion *mechanical breakdown *neglect to preserve property from further damage *water damage (basic form only)

The commercial property coverage forms consist of:

*building and personal property coverage form *condominium association coverage form *condominium commercial unit-owners coverage form *builders risk coverage form *business income and extra expense coverage forms *legal liability coverage form

The building and personal property coverage form addresses three categories of covered property:

*building property *business personal property of the insured *personal property of others

outdoor property

consisting of trees, shrubs, plants, detached signs, fences, and antennas, up to $1,000. A sublimit of $250 each applies to trees, shrubs, and plants. Covered perils are limited to fire, lightning, explosion, riot and civil commotion, and aircraft.

modular policy

contains a matched set of components designed around one basic component, the common conditions form, which includes definitions, conditions, and other provisions that apply to and coordinate with all other documents to form the complete policy.

Condominium Commercial Unit-Owners Coverage Form

coverage form that may only be purchased by owners of commercial condominiums; covers the condominium's contents, including business personal property and the personal property of others

Monoline

covers only one "line" or type of insurance (e.g workers compensation)

Earth Movement Exclusion

prevents coverage for any type of earth movement. Ensuing fire losses are covered.

property off-premises

Loss to property at a fair, exposition, or trade show; property stored at a location leased after the policy takes effect; and property temporarily away from the insured premises at a location that the insured does not own, lease, or operate, up to $10,000.

Water Exclusion

exclusion is essentially a flood exclusion. Any resulting fire, explosion, or sprinkler leakage is covered.

The Common Policy Conditions form applies to all commercial policy forms. Its conditions pertain to:

*cancellation *changes *examination of the insured's books and records *inspections and surveys *premiums *transfer of rights and duties under the policy

Hostile Fires

A fire that becomes uncontrollable or expands outside its intended boundaries. For example, a fire set intentionally to burn brush becomes hostile if it spreads to other property; likewise, a fire that becomes much hotter than it is supposed to be or that cannot be extinguished is hostile even if it never spreads from the location where it was intentionally kindled.

Builders Risk Coverage Form

A form that covers buildings in the course of construction, including additions or alterations to existing buildings.

Coinsurance Provision

A property insurance provision that penalizes the insured's loss recovery if the limit of insurance purchased by the insured is not at least equal to a specified percentage (commonly 80 percent) of the value of the insured property

Underinsurance

A situation resulting from a failure to carry enough coverage on the value of a property, especially when there are coinsurance implications.

Concurrent Causation

A situation where there are 2 causes resulting in a loss and 1 of the causes is excluded while the other cause is not excluded. Unless the policy specifies otherwise, the loss is covered. Example: a policy that excludes earth movement will still pay a loss due to for or explosion that ensues directly from the earth movement.

Boiler Explosion

Both named perils forms and the open perils form exclude damage from explosion of boilers and other steam equipment, though they cover damage from an ensuing fire or combustion explosion. They also cover damage from a boiler explosion if the insured is a tenant in a building where the explosion occurs.

Peak Season Limit of Insurance (CP 12 30)

Businesses that increase sales and inventory at a certain time the year causes their need for inventory to fluctuate from season to season. The peak season endorsement avoids over insuring during the insureds slack season by establishing a higher limit for only the period of time specified in the endorsement. (E.g. Xmas Toy Industry)

debris removal

Cost of removal of covered property damaged by a covered cause of loss, up to 25 percent of the amount of the direct damage loss, plus the amount of the deductible; plus $25,000 if the combined loss from property damage and debris removal exhausts the limit of insurance.

electronic data

Cost of replacing or restoring electronic data destroyed or corrupted by a covered cause of loss, including a computer virus, up to an annual aggregate limit of $2,500.

pollutant cleanup and removal

Cost to remove from land or water at the insured premises, up to $10,000, if the release of the pollutants is caused by a covered cause of loss.

Fire and Lightning

Coverage applies only to hostile fires.

Commercial Lines

Insurance lines used to cover commercial risks. Examples include commercial general liability (CGL), workers compensation, and commercial property insurance.

Improvements and Betterments

Permanent additions or changes made to a building by a lessee at his or her own expense that may not legally be removed. Property policies vary as to whether tenants' improvements and betterments are covered under the building category or under the contents category, so care must be taken to assign these values to the proper category of covered property.

Indemnity

Restoration to the victim of a loss up to the amount of the loss.

fire department service charges

Service charges imposed by a fire department called to protect property from a covered cause of loss, up to $1,000.

Water Damage Exclusions (Basic Form Only)

The basic form does not cover water damage unless it results from a covered cause of loss or from sprinkler leakage. The basic form has two more exclusions not present in the broad form: Rupture of water pipes (other than those in an automatic fire extinguishing system), unless the rupture of the pipes is caused by a covered cause of loss, such as fire. Discharge of water or steam from a system or appliance (other than an automatic fire extinguishing system), unless a covered cause of loss has damaged the system or appliance. Even so, there is no coverage for loss from continuous seepage or leakage of water, humidity, moisture, or vapor occurring for 14 or more days.

Mechanical Breakdown

There is no coverage for mechanical breakdown. However, coverage applies if the loss arises from a covered cause.

Basic Causes of Loss Form (CP 10 10)

This form provides coverage for the following named perils: fire, lightning, explosion, smoke, windstorm, hail, riot, civil commotion, aircraft, vehicles, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action.

Aircraft or Vehicles

This peril involves damage to insured property caused by contact with an aircraft or vehicle, an object falling from an aircraft, or an object thrown up by a vehicle. However, there is no coverage for damage caused by a vehicle that the insured owns or operates.

Explosion

This peril is a combustion explosion of gases or fuel within a furnace, flues, or passages of a fired vessel (such as a furnace). However, it excludes damage from the use of safety valves on pressurized equipment.

Sinkhole Collapse

This peril is covered in all three of the commercial property causes of loss forms. It is not covered by the basic homeowners policy, but coverage may be added by endorsement.

Extra Expense Coverage

Time element property insurance that pays for expenses in excess of normal operating expenses that an organization incurs to continue operations while its property is being repaired or replaced after having been damaged by a covered cause of loss.

Extra Expense Coverage

Time element property insurance that pays for expenses in excess of normal operating expenses that an organization incurs to continue operations while its property is being repaired or replaced after having been damaged by a covered cause of loss. Extra expense coverage can be purchased in addition to or instead of business income coverage, depending on the needs of the organization.

Darnell manufactures building components at a constant rate. When sales are slow, the finished-goods inventory increases, and vice versa. Sales depend on the current construction market. Therefore, the policy covering Darnell's fluctuating inventory should include:

a value reporting form (The reporting form coverage available with the value reporting form can be useful to a business with unpredictable, fluctuating property values at risk.)

The building and personal property coverage form does not cover:

accounts, bills, currency, food stamps, money, notes, and securities (lottery tickets held for sale are not securities) animals, except as stock while inside buildings, and animals owned by others and boarded by the insured automobiles held for sale bridges, roads, walks, patios, and other paved surfaces bulkheads, pilings, piers, wharves, or docks retaining walls that are not part of a building foundations of buildings, structures, and machinery if below the lowest basement floor or the surface of the ground underground pipes, flues, or drains land, water, growing crops, and lawns cost of grading, excavation, or filling vehicles or self-propelled machines, including watercraft, and aircraft, that are licensed for use on public roads or operated principally away from the insured premises, except:vehicles and self-propelled machines manufactured, processed, warehoused by the insured (other than autos), or held for sale by the insuredrowboats or canoes out of water at the insured premises trailers (to the extent they are covered by the nonowned detached trailers coverage extension) personal property while airborne or waterborne electronic data that is not prepackaged software that the insured is selling, except as provided under the electronic data additional coverage valuable papers and records (other than electronic data), except as provided by the valuable papers and records coverage extension crops, fences, antennas (including satellite dishes), and trees, shrubs, or plants, other than the insured's stock, that is outside of buildings, except as provided in the outdoor property coverage extension property that is being illegally transported or traded property insured under another policy Coverage for property that has been excluded may be added by endorsement. Otherwise, the property may be insured under another policy.

newly acquired property

emporary coverage for loss to buildings under construction at scheduled locations and newly acquired buildings at other locations, up to $250,000 per building; temporary coverage for loss to personal property at newly acquired premises, and newly acquired personal property at scheduled locations, up to $100,000 per building. Coverage ends 30 days after acquisition or start of construction, when values are reported, or when the policy expires, whichever happens first.

Windstorm and Hail

excludes damage by frost, cold weather, snow, ice, or sleet, even if wind-driven. It also excludes damage to a building's interior or its contents caused by rain, snow, sand, or dust unless the roof or exterior walls are first damaged by wind or hail.

Business Personal Property

includes property located at the insured premises. It also includes property in the open or in a vehicle within 100 feet of the premises. This covers furniture, fixtures, machinery, equipment, and stock as well as the insured's personal property used in the business.

The special form excludes coverage for:

nuclear hazard war and military action governmental seizure or destruction of property building ordinance enforcement off-premises utility service interruption earth movement water (flood, mudslide, seepage, and sewer backup) delay, loss of use, and loss of market smoke, vapor, or gas from agricultural or industrial operations wear and tear; rust, corrosion, fungus, decay, deterioration, hidden or latent defect; smog; settling, cracking, shrinking, or expansion; nesting, infestation, or release of secretions by insects, birds, rodents, or animals dampness, dryness, changes or extremes of temperature, and marring or scratching, all with respect to personal property only damage to electrical devices by artificially generated electric current (and under the 2007 form, damage by artificially generated electrical, magnetic, or electromagnetic energy; disturbance of any electrical or electronic wire, device, appliance, system, or networks; and any device, appliance, system, or network utilizing cellular or satellite technology) mechanical breakdown boiler explosion loss to steam and hot water equipment from any condition within the equipment seepage or leakage of water, or the presence of moisture or humidity, occurring for 14 or more days rain, snow, ice, or sleet damage to personal property in the open weight of snow, ice, or sleet on gutters and downspouts damage to building interiors by rain, snow, sleet, ice, sand, or dust unless the roof or walls are first damaged, except damage by thawing of snow, ice, or sleet leakage from equipment caused by freezing, unless certain precautions have been taken collapse, except when resulting from specified causes of loss; hidden decay, insect, or vermin damage; weight of people or personal property or rain that collects on a roof; and faulty workmanship or materials if loss occurs during construction or renovation release of pollutants except when resulting from specified causes of loss employee dishonesty voluntary parting with property and unauthorized transfer of property missing property when the only evidence of loss is inventory shortage theft of building materials and supplies not yet attached to buildings loss from fungus, wet or dry rot, and bacteria (unless resulting from fire or lightning), except as provided in the $15,000 fungus additional coverage provision loss from causes other than fire, explosion, etc., to valuable papers and records; animals; builder's machinery, tools, and equipment off premises; and breakage of fragile articles theft loss sublimits apply to furs; jewelry; patterns, dies, and molds; and stamps, tickets, and letters of credit

Package Policies

policy that provides two or more different coverages. It usually provides both general liability insurance and property insurance, often accompanied by other coverages.

Spoilage Coverage (CP 04 40)

protects businesses that process, store, or sell perishable items such as food, medicine, or flowers that are preserved under controlled conditions

Broad Causes of Loss Form (CP 10 20)

provides named perils coverage for the perils insured against in the basic causes of loss form (fire, lightning, explosion, smoke, windstorm, hail, riot, civil commotion, aircraft, vehicles, vandalism, sprinkler leakage, sinkhole collapse, volcanic action), PLUS: falling objects; weight of snow, ice, or sleet; water damage (in the form of leakage from appliances); and collapse from specified causes

The amount of extra expense loss is determined by:

the amount of expense that exceeds the usual operating expenses the salvage value of property bought for temporary use expenses that reduce the business income loss

Value Reporting Form (CP 13 10)

the insured pays a provisional premium when the policy term begins and submits daily, weekly, monthly, or quarterly reports of actual property values to the insurer. The insurer then calculates a final premium at the end of the policy period based on the average of the actual values that were reported. This allows an insured with fluctuating values to establish an insurance limit high enough to cover the highest possible exposed value, but pay a premium based on actual values.