(December 2008)

INTRODUCTION

The Insurance Services Office (ISO) Commercial Property Program Causes Of Loss Forms are designed to complete the coverage provided in the coverage form. The separate causes of loss forms allow insurance buyers to customize their coverage. After selecting the appropriate coverage, the buyer then selects a causes of loss form for each insured property. This gives the insured maximum flexibility in arranging its insurance coverage.

The Causes Of Loss Forms answer the question, "What must happen in order for coverage to apply?" The more causes of loss provided, the more expensive the policy. The three Causes Of Loss forms are:

• CP 10 10–Causes Of Loss–Basic Form
• CP 10 20–Causes Of Loss–Broad Form
• CP 10 30–Causes Of Loss–Special Form

The form used most often is CP 10 30–Causes Of Loss–Special Form. For this reason, this analysis builds on this form. The other two forms are analyzed at the end of this section, with emphasis on how they are different from
CP 10 30. Please refer to PF&M Section 130.6-2, ISO Commercial Property Causes Of Loss Comparison, for a quick reference of how these forms compare to one another.

Note: This analysis is based on the 06/07 edition of each form. Changes from the previous edition are in bold print.

CP 10 30–CAUSES OF LOSS–SPECIAL FORM

A. COVERED CAUSES OF LOSS

The policy declarations must indicate a causes of loss form for each item of covered property. If it is CP 10 30–Causes Of Loss–Special Form, coverage applies on the basis of risks of direct physical loss or damage The coverage provided by this form is extremely broad because any physical event that causes loss or damage to covered property is covered, unless modified elsewhere in the coverage form.

B. EXCLUSIONS

The form has three categories of exclusions, each having multiple subparts.

1. Broad Exclusions

The causes of loss indicated in this exclusion do not apply to loss or damage caused directly, indirectly or in any sequence in a chain of events that contribute to the loss. Exceptions to the chain of events condition are stated in the specific exclusion subpart. The lead wording emphasizes that coverage for any event analyzed in these exclusions does not apply even if the event is widespread.

Editorial note: ISO does not give a title to these exclusions. To assist in the analysis, we have included the title given to help identify the main intent of the exclusion.

a. Ordinance Or Law

Local governments develop ordinances and laws relating to construction, remodeling and repair of buildings. A building may be grandfathered, or granted an exception, as long as it remains standing. Once a substantial loss occurs and rebuilding, remodeling or repair is necessary, the grandfathered laws activate and come into play. This exclusion states that the coverage form does not apply to any costs associated with meeting such laws and ordinances.

This exclusion also states that coverage does not apply to the expense of removing undamaged portions of the building or to rebuild them. In addition, there is no coverage for the additional cost to rebuild at a different location due to ordinances or laws. Finally, it does not pay remodeling costs needed to bring the building up to current standards.

Example: Harvey's Hatchery started business operations in 1930, located on the family farm 15 miles from Little Town. Over the years, both Little Town and Harvey's Hatchery grew. As new subdivisions sprouted, the town limits expanded and new city ordinances were enacted. One of them prohibits livestock and other farm animals inside the city limits. Over Harvey's objection, the hatchery location was incorporated into the city. Harvey's continues to operate as it did in the past and tries to be a good neighbor but chicken droppings are an unpleasant intrusion on city life. The hatchery sustains a covered loss but only 60% of the building is destroyed, thanks to the fire department's quick response. However, the city inspector informs Harvey that he may not rebuild and he is unable to obtain the permit needed to rebuild the hatchery in the city limits.

Note: The 06/07 edition changed the wording slightly without any intent to change coverage. However, the outlining method is unconventional and could lead to disputes.

b. Earth Movement consists of five separate components:

(1) Earthquake includes any sinking, rising or shifting of the earth directly related to the earthquake.

(2) Landslide includes any sinking, rising or shifting of the earth directly related to the landslide.

(3) Mine Subsidence is a particular problem in the Midwest. This exclusion applies to only man-made mines and applies whether the mine is operating or not. Mine subsidence coverage is an option that may be purchased separately. In some states, mine subsidence coverage must be offered in certain counties. If coverage applies to property located in Illinois, Indiana, Kentucky, Pennsylvania or West Virginia, the laws in those states should be reviewed carefully to determine the way to handle this exposure.

(4) Sinkhole Collapse is covered but all other sinking, rising, shifting, erosion, contraction and expansion of the earth is excluded. Loss or damage caused by or resulting from water movement beneath the ground and poor soil conditions is also excluded.

Note: If any of the events described above cause or result in a fire or explosion, the insurance company pays for the ensuing loss or damage caused by the fire or explosion.

Example: An earthquake rocks Bardsville. While the buildings are virtually undamaged, the rigid gas lines break. A spark causes the escaping gas to explode and the explosion results in Sam's Hardware building burning to the ground, despite heroic efforts by the fire department to respond. This loss is covered because it results from a fire, even though the fire was a direct result of an earthquake.

(5) Volcanic eruption is not covered unless fire, breakage of building glass or volcanic action ensues. Volcanic action includes airborne blasts and shockwaves, as well as different types of dust, ash and similar material emitted by the volcano as well as lava flow. However, it does not include costs to remove dust, ash and similar material that do not directly damage covered property.

Note: Volcanic eruptions are unpredictable, cause widespread damage and usually occur over a period of days. An eruption that takes place over a period of 168 consecutive hours is treated as one occurrence. This is very important to an insured having a substantial deductible for this coverage. Instead of a number of deductibles applying to multiple events, only one deductible applies to each 168-hour period. Of course this also means that only one limit is available for all losses that occur within that same time period.

Example: Prime Real Estate Management owns two commercial strip centers and insures the buildings for a blanket limit of $6,000,000 on an agreed value basis. A volcanic erupts nearby and lava flow destroys one center and a fire caused by flaming debris destroys the other. Each has a value of $6,000,000. Since both losses are caused by the same occurrence, Prime Real Estate Management receives only $6,000,000 instead of $12,000,000.

c. Government Action

Coverage does not apply if the government seizes or destroys property, unless the property was seized or destroyed to prevent the spread of fire. However, coverage does apply if the action taken was to prevent the spread of fire.

Note: There is no coverage if the coverage form excludes this type of fire.

Example: An anarchist group declares its secession from the United States and establishes a separate country within the state of Indiana known as "Free To Live." The group is armed and takes over a small community by force. Since one of its tactics is to set fires, the government has no choice but to burn other structures in order to establish a fire stop. There is no coverage in this case since the government action was taken to thwart a military action.

d. Nuclear Hazard

There is no coverage for loss or damage caused by or resulting from any nuclear hazard, including nuclear reaction, radiation and contamination unless fire ensues. In that case, the loss or damage caused by the ensuing fire is covered.

e. Utility Services (06/07 changes)

Loss or damage due to utility failure is not covered if the failure occurs away from the described premises. Coverage also does not apply if the failure occurs on the insured premises if the source of the failure is equipment that supplies off premises utility service to the described premises. Utility failure includes loss of power, water, communication and other utility services, subject to their being provided to the premises by an outside source, including lack of capacity and supply reduction. Communication services include Internet, cellular, satellite and other access services. Power surge that occurs because of the power failure is not covered. If power failure or surge results in a covered cause of loss, coverage applies to the damage resulting from that covered cause of loss.

Note: This exclusion did not apply to business income and extra expense coverages in prior editions. It now applies to all coverage forms and the business income and extra expense special exclusion is eliminated.

Example: A fire occurs at the electric power plant and causes a blackout. Fred's Fine Food loses refrigeration and the food spoils. When looters discover that Fred's alarm system is not working, they break in and steal food items. The spoiled food is not covered. The loss due to theft is.

Example: A windstorm rips the satellite dish and its connecting lines from the hotel's roof. A number of scheduled meetings are cancelled because teleconferencing is not available. There is no coverage for the resulting loss of income from the cancelled meetings or extra expenses incurred.

Please refer to PF&M Section 131_c094, Fire And Casualty Insurance Power Failure Exclusion Was Not Ambiguous, Barred Coverage, in Court Cases, for a court decision on this subject. Please refer to PF&M Section 130.6-20, Utility Service Coverage, for a solution to this gap in coverage.

f. War And Military Action

This exclusion lists three specific warlike activities. War can be an undeclared or civil war, including insurrection, rebellion, revolution, usurped power or government action taken to respond to them. It also includes action taken by a military force of a warlike nature to hinder or defend against actual or threatened attacks.

Note: The words "terrorism" or "terrorist" do not appear in this exclusion.

g. Water

Loss or damage caused by the action of water outside the building is excluded. To further clarify this exclusion, it is broken down into four separate components, each of which defines exactly what is meant by water.

(1) Flood is not covered. Flood includes surface water, tides and tidal waves. The overflow of any body of water is also excluded. A body of water is a natural or man-made river, creek, ocean or lake. Spray from the water and wind-driven water is also not covered.

(2) Mudslide and mudflow occurs when a sudden large volume of water mixes with unstable soil conditions and is not covered.

(3) Sewers, drains and sumps can be overwhelmed by the volume of water coming into them and begin to back up or overflow. The loss or damage due to or resulting from such back up or overflow is not covered.

(4) Water saturated ground can create hydrostatic pressure against the surface or subsurface portions of a building. The loss or damage caused by or resulting from such water that enters through foundations, walls, floors, paved surfaces, basements, doors, windows and other openings of a building is not covered.

Note: Much like other exclusions, if fire or explosion occurs because of any action of water, coverage does apply for the loss or damage caused by the fire or explosion. In addition, if a sprinkler leakage loss occurs due to these actions of water, coverage applies to the damage caused by the sprinkler leakage.

Important Note: This exclusion is replaced by mandatory endorsement CP 10 32–Water Exclusion Endorsement beginning in January 2009 or as approved for use by state insurance departments and adopted by insurance companies. Please refer to PF&M Section 130.6-21, Water Exclusion Endorsement, for a complete analysis of this mandatory exclusion endorsement.

h. Fungus, Wet Rot, Dry Rot And Bacteria

Loss or damage caused by or resulting from the existence of fungus, mold, rot, bacteria and other growing organisms is not covered. However, if the existence of one of them causes a specified cause of loss to occur, coverage applies to the loss or damage caused by the specified cause of loss.

Note: This exclusion does not apply if the fungus, mold, rot, bacteria or similar organisms result from a fire or lightning loss or to coverage provided under Additional Coverage–Limited Coverage For Fungus, Wet Rot, Dry Rot And Bacteria.

Example: Millicent purchases a store but does not notice an unusual odor until about six months later. She hires a contractor who discovers mold behind ceiling tiles that is destroying the tiles. The tiles must be destroyed and the area disinfected. Her claim is denied.

Note: If a fire occurs and the tiles become moldy because of the water used to extinguish the fire, that mold loss is covered.

2. Limited Exclusions

There is no coverage for loss or damage caused by the following exclusions. Note that the lead language is not as strong or inclusive for these exclusions.

Editorial note: ISO does not give a title to these exclusions. To assist in the analysis, we have included the title given to help identify the main intent of the exclusion.

a. Artificially Generated Energy

Coverage does not apply if electrical, magnetic or electromagnetic energy generated artificially causes damage, interferes with, disturbs or disrupts:

• Networks, devices, systems, wires or appliances of an electrical or electronic nature, or
• Cellular or satellite devices, appliances, systems or networks

Examples of artificially generated energy include electrical current, charges produced by a magnetic field, electromagnetic and microwaves, among others, but this listing is not inclusive. However, loss or damage caused by a resulting fire is covered.

Note: Open-ended exclusions like this have been largely ineffective when interpreted by the courts. They maintain that it is the insurance company's responsibility to be precise in its language since they author the form.

b. Delay, Loss Of Use Or Loss Of Market

Delay, loss of use and loss of market are all consequential losses resulting from the occurrence of a covered cause of loss that causes loss or damage to covered property and are excluded.

c. Agricultural Smudging And Industrial Operations

Agricultural smudging operations produce significant amounts of smoke in order to protect crops from freezing. Loss or damage caused by it, gas or vapor is excluded. In addition, smoke, vapor or gas produced by industrial operations that cause loss or damage is also excluded.

Example: A freeze warning is in effect, so Lenny sets out his smudge pots to protect his orange grove. A strong wind blows the smoke into the restaurant Lenny operates for tourists. The damage from the smoke is not covered.

d. Miscellaneous Losses

This exclusion has seven subparts. Most of the causes of loss listed are simply costs associated with doing business and are not losses.

(1) Wear and tear is simply caused by aging and everyday use and is not covered.

Note: Wear and tear is damage, diminishment in value or erosion due to long or hard use or exposure, including breakdown over time and eventually becoming unusable because of previous use. This includes the tendency of property to pull apart or break down into pieces because of forces applied to it.

(2) There is no coverage for rust, fungus and other hidden or latent defects, including any feature of the property that causes it to destroy itself.

(3) Smog is not covered.

Note: Smog is fog that has become mixed with and polluted with smoke.

(4) All buildings, and some personal property, may shrink, expand, crack or settle. This is normal and should be expected. Accommodations for them should be made in building construction and design and with respect to storage of personal property. For this reason, losses from these causes are not covered.

(5) Insects, birds, rodents and other animals may cause considerable damage to buildings. As a result, loss or damage caused by nesting, infestation and any waste products or secretions is not covered.

Example: Perry notices an unusual shimmering substance on the side of the church. He touches the amber liquid and realizes it is honey. He notices the amount increases almost daily and notifies the trustees. They bring in a contractor who investigates and finds a beehive in one of the walls of the church. The contractor brings in a beekeeper to remove the bees. The beekeeper removes part of the interior wall to remove the hive, repair the damaged wood and seal the entry. None of this is a covered loss because they all result from an insect infestation.

(6) Machines regularly break down because of use. For this reason, mechanical breakdown is not covered. Rupture and bursting caused by centrifugal force is also considered mechanical breakdown and is also excluded. The exception to this exclusion is that coverage does apply to the damage caused if the mechanical breakdown results in elevator collision. This damage includes damage to the shaft, any property damaged by the elevator and the elevator itself.

(7) Exclusions (1) through (6) above apply primarily to buildings. This exclusion applies to Business Personal Property. Coverage does not apply to loss or damage caused by or resulting from atmospheric dampness or dryness, temperature extremes, any changes in temperature or from scratching or marring. Since the insured should expect and anticipate these causes of property damage, they are not covered causes of loss.

If any of the above causes of loss in (1) through (7) above results in either a specified cause of loss or breakage of building glass, the loss or damage caused by the specified cause of loss or glass breakage is covered.

Example: Susie's Fancy Finery is a tenant on the first floor of a three-story building. The upper floors are sealed off and not used. Unknown to the building's owner or Susie, birds nest in the attic and also find their way into the chimney. The chimney's opening at the top leads directly into Susie's shop. One day nearly a dozen birds enter the shop, panic and careen into objects and windows in their attempt to escape. The birds crack and break the windows before escaping. Coverage does not apply to the damage caused by the infestation but does apply to the broken glass.

e. Explosion Of Owned Or Operated Steam Boilers

This exclusion applies only to explosions of steam boilers, pipes, engines or turbines the named insured owns, leases or operates. This means that most building tenants are not subject to this exclusion.

There are two exceptions:

• If the explosion causes a fire or combustion explosion, the resulting damage is covered.
• If gases or fuel within the furnace, flues or combustible gas passage explode, the resulting damage is covered.

f. Continuous Water Seepage

Loss or damage due to water that leaks or seeps over a period of 14 days or more, including any humidity, moisture or vapor present, is not covered. This means that water leaking internally is covered unless allowed to run unchecked and unnoticed for more than 14 days.

g. Freezing Liquids

Loss or damage caused by water, other liquids, powder or molten material due to freezing is not covered. However, this exclusion does not apply if the insured either maintains heat in the building or drains or shuts off the supply. It also does not apply to fire protection devices.

Note: This exclusion requires that the insured take care of maintenance issues that are not the responsibility of insurance. The insurance company has the right to expect the insured to act in a responsible manner towards its property even in cases where insurance coverage does apply.

h. Internal Dishonest Acts

Coverage does not apply to dishonest or criminal acts by the insured, partners, members of a limited liability company (LLC), officers of a corporation, managers, employees or anyone else entrusted with property. This exclusion applies whether these parties act alone, in collusion with others, during business hours or after hours. Note: The insured should purchase employee dishonesty coverage to apply to these acts.

Note: Coverage applies if employees, including leased employees, destroy property. However, this exception does not extend to theft.

Example: Sheila and Fred are long time employees of Frankel Egg Farm but decide they've had enough of the company. They steal the payroll, burn down the plant to conceal their tracks and are captured three days later. The fire loss is covered but the theft of payroll is not.

Note: The theft loss could be covered under employee dishonesty coverage.

i. Voluntary Parting

There is no coverage if the insured, or someone the insured entrusts property to, is tricked or deceived into giving it away.

j. Rain, Snow, Ice Or Sleet

There is no coverage for loss or damage to personal property in the open caused by or resulting from rain, snow, ice or sleet.

k. Collapse (06/07 change)

Collapse is initially totally excluded and limited coverage is then added back in Section D. as Additional Coverage–Collapse. The 06/07 edition better defines exactly what collapse is excluded.

Collapse is excluded. The following property conditions are also excluded since they could be considered in imminent state of collapse:

(1) Any type of sudden caving in or simply falling down

(2) When the structural integrity of the building is lost or compromised. The evidence of this could be parts of the property simply separating from the rest of the building or the building appearing to be in danger of caving in or simply falling down.

(3) Cracking, sagging, expansion, settling, shrinking, bulging or bending as they relate to the items above.

This exclusion has three exceptions.

• Loss or damage caused by a covered cause of loss is covered even if the covered cause of loss results from an excluded collapse.
• Loss or damage caused by coverage provided in Section D., Additional Coverage–Collapse is covered.
• Collapse caused by specified causes of loss, breakage of building glass, weight of rain on a roof or weight of people or personal property is covered.

l. Pollutant Damage

Loss or damage due to any defined pollutant is not covered unless its release is caused by a specified cause of loss. In addition, if pollutant damage results in the occurrence of a specified cause of loss, coverage applies for the loss or damage caused by the specified cause of loss. However, coverage does not apply to pollutant damage leading up to the occurrence of a specified cause of loss. Loss or damage to glass caused by chemicals applied to the glass is covered.

Example: A strong windstorm damages an outbuilding at Mayfield Nursery. The weed killer stored in the building is expelled, covers and kills most of the growing stock and the standing stock. Since the spread of the weed killer pollutant was due to a specified cause of loss, the loss of the stock is covered. While waiting for the outbuilding to be rebuilt, Mayfield receives a new shipment of fertilizer. It stores the fertilizer shipment in another outbuilding but places it too close to a heat source, resulting in a fire that burns the building down. Coverage applies to this loss because the pollutant resulted in a covered cause of loss.

m. Neglect

There is no coverage if the insured does not use all reasonable means to save and preserve property from further damage at and after the time of loss.

Example: The Mayfield family is exhausted after the two losses described above and decides to just walk away and take a week's vacation. Thieves notice the unlocked doors and unattended supplies. Since the Mayfields failed to preserve property, coverage does not apply to the theft loss of the supplies.

3. Anti-Concurrent Causation Exclusions

The subparts of this exclusion are sometimes referred to as the anti-concurrent causation exclusions. These exclusions are unique in that, if a loss is covered as a covered cause of loss, with the exception of these exclusions, it is still covered. On the other hand, if the loss would have been excluded anyway, it is still excluded. The three subparts of this exclusion are:

a. Weather Conditions

Loss or damage due to weather conditions is excluded if related to any item in part of exclusion 1. to cause a loss.

Example: Heavy rains cause creeks to rise well above flood stage. The subsequent flooding damages businesses. While the proximate cause of loss is a condition of the weather, since flood is excluded under exclusion 1, the weather exclusion applies and the flooding damage is not covered.

b. Acts Or Decisions

Governmental entities and related groups make decisions and take actions that not only affect others but may also cause loss or damage. Acts or decisions that result in loss or damage are excluded.

Example: The dams along the river are getting old but the U.S. Corps of Engineers decides it is too expensive to replace them. The heavy spring rains cause the dams to fail and many homes and businesses are flooded. Since flood is an excluded cause of loss, the loss or damage due to the decision and actions by the Engineers is also excluded.

c. Design Flaws

Loss or damage due to faulty, inadequate or defective planning, design, materials and maintenance is excluded, regardless of whether the flaws occurred on or away from the designated premises.

Example: Mainline Construction Company prepares the land for an industrial park. Severe drought, followed by drenching rains, causes the newly constructed buildings to shift and slide down the slope. It is later determined that the ground preparation was inappropriate for the slope involved. This loss is not covered because landslide is not a covered cause of loss.

4. Special Exclusions

These three exclusions apply only to Business Income, Leasehold Interest and Legal Liability.

a. The following additional exclusions apply to the Business Income (And Extra Expense) Coverage Form, Business Income (Without Extra Expense) Coverage Form and Extra Expense Coverage Form:

Note: The utility service exclusion [previously item (1)] is removed. The utility service exclusion 1.e. is rewritten so that it applies to both direct damage and time element and a separate exclusion is no longer needed (06/07 change).

(1) Loss due to damage to finished stock, or the amount of time needed to replace finished stock, is not covered.

Note: Since this is a time-related incident, it does not apply to Extra Expense.

(2) There is no coverage for any loss that results from physical loss or damage to radio or television antennas, including satellite dishes.

(3) Coverage does not apply to any increase of loss due to:

• Interference by strikers or others that delays rebuilding

• Suspension, lapse or cancellation of a license, lease or contract. However, if the lapse or cancellation is a result of the loss, coverage applies during the period of restoration.

Example: Rudy's Bar has a fire and is being rebuilt. During the fire investigation, the police discover some irregularities that cast a shadow on Rudy's reputation. As a result, his liquor license is suspended. Rudy fights the suspension. The fire repairs are complete but the license is not renewed. The period of restoration ends when the building is complete, even though Rudy is still unable to re-open due to his suspended license.

(4) There is no coverage under Extra Expense coverage if a license, lease or contract is suspended, lapsed or cancelled beyond the period of restoration.

(5) Any consequential loss is not covered.

b. Leasehold Interest Coverage Form

The causes of loss form changes in two ways when Leasehold Interest Coverage is provided.

(1) The Ordinance Or Law exclusion does not apply.

(2) There is no coverage if the insured cancels a lease, if a license is suspended, lapses or is cancelled, or for any consequential loss.

c. Legal Liability Coverage Form

Since the Legal Liability coverage form is more of a liability coverage form than a property coverage form, there are a number of changes to the causes of loss form.

(1) Five exclusions are removed and do not apply. They are exclusions 1.a. Ordinance Or Law, 1.c. Governmental Action, 1.d. Nuclear Hazard, 1.e. Utility Services and 1.f. War And Military Action.

(2) Two liability-related exclusions are added:

• Contractual Liability

There is no coverage for liability the named insured assumes under a contract. The only exception is a lease agreement in which liability for building damage due to attempted break-in is assumed. This agreement must be made prior to any accident and the coverage form must apply to the building in question.

• Nuclear Hazard

There is no coverage for suits brought due to any damages or expenses relating to nuclear reaction, radiation, or contamination.

5. Additional Exclusion (06 07 addition)

A new exclusion added applies only to merchandise, goods or other products. It is added to exclude loss or damage to such property because of a production error or omission.

Loss Or Damage To Products

There is no coverage for loss or damage to merchandise, goods or other products caused by any party's error or omission. These errors or omissions are excluded beginning with planning or testing through repair and maintenance. This exclusion also applies to errors or omission made at locations where work is outsourced. It applies to any compromising of the product in form, substance or quality.

Note: The one exception is if such an error or omission results in the occurrence of a covered cause of loss. In that case, coverage applies to only the loss or damage from the covered cause of loss.

Example: Maybell designs jewelry and contracts with an Asian manufacturer to produce jewelry based on its designs and manufacturing specifications. The first shipment that arrives is tested and the results indicate an unacceptable amount of lead. Maybell cannot sell the product in the United States and the Asian manufacturer does not return phone calls. Maybell presents a claim to the insurance company because the items are useless to them. Because of this exclusion (and others), the claim is denied.

C. LIMITATIONS

Now that what is covered and what is excluded has been analyzed, four coverage limitations must be reviewed. Each of the four has multiple subparts.

1. Broad Limitation

Loss or damage to any property described and limited in this section is excluded. Losses that are a consequence of loss to such property are also excluded.

a. Steam Boilers, Steam Pipes, Steam Engines Or Steam Turbines

There is no coverage if a loss is caused by or results from a condition or an event that occurs inside covered steam boilers, steam pipes, steam engines or steam turbines. However, coverage does apply if the loss or damage is caused by an explosion of gases or fuel inside the furnace or within a flue or other passage.

b. Water Heating Devices

Loss or damage caused by or resulting from a condition or an event that occurs inside a covered water-heating device, including hot water boiler, is not covered. However, coverage applies if the loss is due to an explosion.

c. Interior Of Any Building And Personal Property

Rain, snow, sleet, ice, sand, or dust damage to the interior of a building and personal property inside that building is excluded unless the roof or walls of the building are first damaged by a covered cause of loss through which the rain, snow, sleet, ice, sand or dust enters. Coverage also applies if the thawing of snow, sleet or ice on the building causes the loss.

Note: Leaving doors and windows open limits a loss that may otherwise be covered!

d. Building Materials Awaiting Installation In A Building

There is no coverage for loss due to theft of building materials awaiting installation in a building. However, theft coverage does apply to building materials being held for sale.

Note: This limitation does not apply to the builders risk coverage form, business income coverage forms or the extra expense coverage form.

e. Inventory Shortage

Any missing property loss that can be proven only by a shortage based on an inventory is not covered. This is because it really means there is no actual knowledge that something was taken. The loss could be due to a mathematical or computation error, employee theft or a break-in. There is no coverage if there is nothing to physically suggest what actually happened.

f. Unauthorized Instructions

Coverage does not apply if a loss occurs because property was given to another person or sent to another place based solely on unauthorized instructions.

2. Coverage Limited To Specified Causes Of Loss

The insurance company does not pay for loss or damage to any of the following property unless caused by a specified cause of loss or breakage of building glass:

a. Animals

Coverage applies only if their death or destruction is necessary. This means that veterinarian bills or expenses incurred to save the animal are not covered.

b. Fragile objects if they are broken. This includes statuary, marbles, chinaware and porcelains. However, glass and containers of property held for sale are not excluded.

c. Builders' machinery, tools and equipment owned by or entrusted to the named insured that qualifies as covered property is excluded but coverage applies to the same property located on or within 100 feet of the described premises.

Note: This limitation does not apply to the builders' risk, business income or extra expense coverage forms.

3. Limited Theft Coverage For Specific Types of Property

The following categories have special limitations on the total limit available in each occurrence for theft losses. Coverage applies for all other causes of loss, subject to the standard exclusions and the limit of insurance for covered property indicated on the declarations:

• Furs, fur garments and fur-trimmed garments are subject to a $2,500 theft limit.
• Jewelry, watches, watch movements, jewels, pearls, gold, and similar items are subject to a $2,500 theft limit.

Note: This limitation does not apply to jewelry and watches valued at less than $100 each.

• Patterns, dies, molds and forms are subject to a $2,500 theft limit.
• Stamps, tickets, letters of credit and lottery tickets held for sale are subject to a $250 theft limit.

Note: These are limitations, not special coverage extensions. As a result, the limits are not in addition to the limit of insurance that applies. These limitations do not apply to either of the business income or extra expense coverage forms.

4. Defect In Systems Or Appliances

There is no coverage for the cost to repair a defect in a system or appliance from which water, other liquids, powder or molten material escapes. However, fire-extinguishing systems are covered if the damage results in a discharge from the automatic protection system or the damage is caused directly by freezing.

Note: This limitation does not apply to either of the business income or extra expense coverage forms.

D. ADDITIONAL COVERAGE–COLLAPSE

This additional coverage is completely rewritten in the 06/07 edition. The language and coverage intent has not changed but the explanations are clearer.

This additional coverage is necessary since the coverage form specifically excludes collapse. At one time, coverage forms provided collapse coverage. However, broad legal interpretations forced the coverage to be rewritten and for coverage to apply on a named or designated causes of loss basis. Collapse coverage applies to sudden collapse. The following points describe and limit what is considered collapse:

1. As used in this coverage form, sudden collapse requires the two following actions. The first must cause the second.

• The building or part of the building must abruptly fall down or cave in.
• The building or part of the building cannot be used for its intended purpose.

2. The insurance company pays for direct physical loss or damage to covered property caused by collapse of a building or any part of a building to which coverage applies, or that contains covered property insured by the coverage form, if the collapse is caused by any of the following:

a. Hidden decay, as long as the insured was not aware of the hidden decay prior to the collapse.

b. Hidden insect or vermin damage, but only if the insured was not aware of the hidden insect or vermin damage prior to the collapse.

c. Defective construction material or construction methods but only if the collapse occurs while the building is being built, remodeled or renovated.

d. Defective construction material or construction methods but only If the collapse occurs after the building is built, remodeled or renovated, provided the one of the following contributed to the collapse:

• Items a. or b. of this paragraph
• A specified cause of loss
• Weight of people or personal property
• Weight of rain that collects on a roof

3. The following situations are not covered as collapse:

• A building or any part of a building in danger of falling down or caving in
• A part of a building that remains standing, even if it has separated from another part of the building
• A building or part of a building that is standing but showing evidence that it may collapse due to bulging, sagging, cracking, bending, leaning, settling, shrinkage or expansion

Example: The Good Shepherd Church was built 90 years ago in a small rural area next to the main road. It is now in the suburbs of a town along a major highway. The church never moved but the town grew out to it. During choir practice one evening, a few tiles in the sanctuary ceiling loosened and fell. The next day, a building inspector called to evaluate the situation condemned the building. Over the years, the building shifted on its foundation and is now in imminent danger of collapse. Collapse coverage does not apply to this situation.

Please refer to PF&M Section 131_c090, Policy Is Ambiguous About Collapse, in Court Cases, for a court case that encouraged adding the language above to make it clear when a building is and is not in a state of collapse.

4. The following property is covered only if it is considered covered property, the loss or damage is due to the collapse of a covered building and the collapse is caused by items 2.a through 2d above:

• Outdoor radio or television antennas
• Awnings, gutters and downspouts
• Yard fixtures
• Outdoor swimming pools
• Fences
• Pier, wharves and docks
• Beach or diving platforms or appurtenances
• Retaining walls
• Roadways, walks and paved surfaces

5. If personal property falls down suddenly but the building in which it is located does not, coverage applies only if:

• The collapse was due to a cause of loss listed in 2(a) through 2(d) above
• The personal property is in a building
• The personal property is not one of the types listed in 4. above

Coverage does not apply if the only damage is caused by or results from marring or scratching.

6. Cracking, bulging, sagging, leaning, settling, expansion and shrinkage of personal property is not considered collapse. The personal property must suddenly either fall down or cave in for coverage to apply.

7. This additional coverage does not increase the limit of insurance.

8. Whenever the term "covered causes of loss" is used, this Additional Coverage–Collapse is included but only as described above.

E. ADDITIONAL COVERAGE–LIMITED COVERAGE FOR FUNGUS, WET ROT, DRY ROT AND BACTERIA

Collapse as a covered cause of loss was removed and added back in as an additional coverage. In the same manner, fungus coverage as a covered cause of loss is also removed and then added back in. The methods used are similar. However, the coverage available is significantly different.

1. This coverage applies only if the cause of loss is one of the specified causes of loss, other than fire or lightning, or flood if flood coverage is provided. In addition, the insured must have taken all reasonable steps to prevent further damage to the property after the loss.

Example: Smoke filled a small store and the employees removed all of the personal property to keep it from being damaged by smoke. They went home at the end of the day without putting the property back inside. The next morning, they put the property back in the store without inspecting it. A week later, most of the property that had been removed had mold and mildew because it had been exposed to moisture during the night it was left outside. A claim was filed and then denied because reasonable care had not been taken to protect the property from further damage.

2. Loss or damage includes not only direct damage to the property but also removal of the fungus, wet or dry rot or bacteria. This is in addition to the cost to tear out and replace walls and other parts of the building to gain access to the problem area. It also includes the necessary testing to verify that the property is clean and the situation mitigated.

3. The $15,000 limit of insurance for this coverage is unique because it applies on a policy year aggregate basis. Regardless of the number of locations and occurrences, the limit for the policy year is $15,000. Once the limit is exhausted, no additional limit is available.

Example: Max's Jewelry has 15 retail locations. A covered mold loss occurs at store number five and the total claim paid amounts to $13,000. A month later, a mildew loss occurs at store number 10. The total amount claimed is $9,000 but only $2,000 is paid because that is all that remains of the aggregate amount for the policy period.

4. The $15,000 limit does not increase the limit of insurance. For example, if the limit is $100,000 and it is used to cover a direct damage claim, nothing remains to apply to any fungus, dry or wet rot or bacteria loss.

5. This Additional Coverage amount does not affect the coverage provided by Additional Coverage Extension–Water Damage, Other Liquids, Powder Or Molten Material Damage or Additional Coverage–Collapse.

6. If business income and/or extra expense coverage is provided, this extension provides coverage in two different situations. If the direct damage loss caused by a specified cause does not result in a business income or extra expense loss but the fungus, wet rot, dry rot and bacteria does, coverage applies for 30 days. In addition, if the specified cause of loss direct damage loss results in a business income or extra expense loss, this extension provides coverage for 30 more days for the delay or extension of the down time due to the wet rot, dry rot, fungus or bacteria.

F. ADDITIONAL COVERAGE EXTENSIONS

Three coverage extensions broaden the coverage provided under CP 10 30–Causes Of Loss–Special Form.

1. Property In Transit

This extension applies to the named insured's covered personal property.

a. Covered personal property in transit in or on a motor vehicle the named insured owns, leases or operates is covered. This extension applies only if the property is not in a salesperson's care, custody or control and is more than 100 feet away from the premises.

b. The loss or damage must be caused by one of the following causes of loss:

• Fire, lightning, explosion, windstorm, hail, riot, civil commotion or vandalism
• Upset, overturn or collision with an object or another vehicle. Striking the roadbed is not considered collision.
• Theft of an entire bale, case or product. Visible signs or evidence of forced entry must be present and the vehicle must have been securely locked.

c. This additional limit of insurance under this Additional Coverage Extension is $5,000. It is not subject to coinsurance.

2. Water Damage, Other Liquids, Powder Or Molten Material Damage

If any of these substances leaks and causes direct physical loss or damage, the insurance company pays the cost of tearing out and replacing any part of the building or structure, whether damaged or undamaged prior to the tearing out, to repair the damage to the leaking system or appliance.

Note: This does not increase the limit of insurance but is still important because coverage does not usually apply to undamaged property.

Example: Cecil at Cecil's Farm Supply notices water damage to his stock. He searches for the source of the leak and discovers a trickle of water coming from the bottom of a wall. He calls a plumber to come out, investigate the source of the leak and repair it. The plumber finally finds the leaky pipe after having to remove quite a bit of dry wall to do so but is successful in repairing the pipe. Cecil pays the cost of the plumber's services but the insurance company pays the expense to replace the dry wall.

3. Glass

The cost of installing temporary plates of glass or boards to cover window opening following a covered glass loss is covered. Coverage also applies for the expense of removing obstructions to repair or replace damaged covered glass. This extended coverage does not include the cost to remove or replace window displays.

Note: This is not an additional limit of insurance.

G. DEFINITIONS

1. Fungus includes almost any type of fungus, mold or mildew but also includes mycotoxins, spores, scents and by-products produced by fungus.

2. Specified Causes Of Loss means fire, lightning, explosion, windstorm, hail, smoke, aircraft, vehicles, riot, civil commotion, vandalism, leakage from fire extinguishing equipment, volcanic action, and weight of snow, ice or sleet. In addition, three additional causes of loss are also considered specified causes of loss and require additional explanation:

• Sinkhole collapse is the sudden sinking or collapse of land into spaces created by water acting on dolomite or limestone. The coverage provided does not include the cost of filling the sinkhole nor does it cover any sinking or collapse into man-made underground spaces.
• Falling objects coverage does not apply to loss or damage to personal property left in the open or to loss or damage to the interior of a building or to personal property inside the building unless the falling object first damages the roof or an outer wall.

Example: The chandelier hanging in the dining room falls and lands on the top of the dining room table. There is no coverage for either the chandelier or the dining room table.

• Water damage caused by or resulting from the accidental discharge or leakage of water or steam due to the breaking apart or cracking of part of a system or appliance is covered. However, this coverage does not apply to sump systems.

COMPARISON: CP 10 30 TO CP 10 10 AND CP 10 20

The main difference between these forms is that CP 10 10–Causes Of Loss–Basic Form and CP 10 20–Causes Of Loss–Broad Form cover losses on a designated or named causes of loss basis. CP 10 30–Causes Of Loss–Special Form covers on a risks of direct physical damage basis. With CP 10 10 and CP 10 20, the insured must find coverage in one of the listed causes of loss. With CP 10 30, the insurance company must review the exclusions to determine that a particular loss is not covered. While CP 10 30 has more exclusions in order to explain what is not covered, the covered causes of loss sections of CP 10 10 and CP 10 20 are longer.

CP 10 10–CAUSES OF LOSS–BASIC FORM

CP 10 10–Causes of Loss–Basic Form covers 11 causes of loss. CP 10 30 also covers these causes of loss but does not list them specifically.

A. COVERED CAUSES OF LOSS

1. Fire

2. Lightning

3. Explosion but excluding explosion caused by a pressure device rupturing or bursting or caused by the expansion or swelling of any contents due to the action of water

4. Windstorm or hail, except for frost or cold weather, ice, snow or sleet, whether accompanied by wind or not and interior damage caused by wind or rain entering through an opening not created by the wind or rain

5. Smoke damage is covered. However, smoke damage from agricultural smudging or industrial operations is not.

6. Physical damage caused by contact with aircraft or vehicles. This means that the aircraft or vehicle or their parts must cause the damage. Sonic boom, also known as shock wave, is not covered.

7. Riot or civil commotion, including acts of striking employees and looting by rioters during civil commotion

8. Vandalism but excluding loss caused by or resulting from theft

9. Sprinkler leakage damage is covered. If the covered property is building, coverage applies for the repair or replacement of damaged parts due to the leakage or due to freezing. This is in addition to the cost to tear out and repair parts of the building in order to repair leakage from the sprinkler system.

Note: A definition of what is considered an automatic sprinkler system is provided. This definition is not included in CP 10 30.

10. Sinkhole collapse is covered but coverage does not apply to or include the costs to fill the sinkhole. Coverage also does not apply to sinking or collapse of land into man-made mines and underground spaces.

11. Volcanic Action is covered in the same manner and as defined in CP 10 30 under the Earth Movement Exclusion.

B. EXCLUSIONS

This section in CP 10 10 is considerably shorter than in CP 10 30 because the causes of loss are defined. It has two exclusions compared to three exclusions in CP 10 30. CP 10 10 does not have the anti-concurrent causation exclusions found in CP 10 30 because it specifically states the types of losses covered.

1. Broad Exclusions

These exclusions are identical to those in CP 10 30. Both forms exclude Ordinance Or Law, Earth Movement, Governmental Action, Nuclear Hazard, Utility Services, War And Military Action, Water And Fungus, Wet Rot, Dry Rot And Bacteria.

2. Limited Exclusions 

This exclusions section has only six subparts compared to 13 in CP 10 30 but this does not mean that CP 10 10 provides broader coverage. It simply means that fewer exclusions are needed because the coverage is much narrower to begin with. Since the highlighted items are in both CP 10 10 and CP 10 30, it is not necessary to restate them. Item e. is similar to an exclusion in
CP 10 30 but is slightly different. The insurance company does not pay for any loss or damage caused by or resulting from:

a. Artificially Generated Energy (06/07 change)

b. Rupture or bursting of water pipes, other than sprinkler systems, unless caused by a covered cause of loss

Note: It is always to the insurance company's advantage to have the sprinkler system operating properly.

c. Continuous Water Seepage

d. Explosion Of Owned Or Operated Steam Boilers

e. Mechanical Breakdown and loss or damage caused by rupture or bursting caused by centrifugal force is excluded. Machines break down on a regular basis because of use. The exception to this exclusion is that coverage does apply to the damage caused when the mechanical breakdown results in a covered cause of loss.

f. Neglect

3. The Special Exclusions are identical in both forms.

C. ADDITIONAL COVERAGE

CP 10 10 has only one Additional Coverage. Limited Coverage For Fungus, Wet Rot, Dry Rot And Bacteria is identical to CP 10 30.

Note: CP 10 10 does not cover collapse.

D. LIMITATION

CP 10 30 has a number of limitations but CP 10 10 has only one. It states that the insurance company only pays for loss of animals if they are killed or must be destroyed. Veterinarian bills are not paid.

Note: This limitation is identical to the one in CP 10 30.

E. DEFINITIONS

Fungus is the only term defined and its definition is identical to the definition in CP 10 30.

CP 10 20–CAUSES OF LOSS–BROAD FORM

CP 10 20–Causes Of Loss–Broad Form covers 14 causes of loss. CP 10 30 also covers these causes of loss but does not list them specifically.

A. COVERED CAUSES OF LOSS

CP 10 20 provides broader coverage than CP 10 10 but not as broad as CP 10 30 because it also lists only the covered causes of loss. It includes 14 covered causes of loss compared to 11 in CP 10 10. The first 11 in CP 10 20 are identical to the first 11 in
CP 10 10. The three additional covered causes of loss are:

12. Falling Objects but coverage on personal property applies only to property in the building. It does not apply to property in the open. However, coverage does not apply until and unless the falling object first damages an outside wall or the roof of the building.

Example: A falling object strikes a covered warehouse and the impact causes a lamp to fall off a table. The insured files a claim for the loss. The adjuster denies the loss after noticing that the object, an old tree limb, did not first cause any damage to the warehouse.

13. Weight Of Snow, Ice Or Sleet that causes damage is covered unless the personal property damaged is outside a covered building.

Note: Previous editions also excluded damage to gutters or downspouts.

14. Water Damage, consisting of accidental discharge of water or steam due to a plumbing, air conditioning, heating or other system or appliance breaking apart or cracking is covered. This is subject to certain conditions identical to those in CP 10 30.

B. EXCLUSIONS

This section is virtually identical to the same section in CP 10 10. The only difference is that CP 10 20 does not exclude the rupture or bursting of water pipes or any leakage or discharge.

C. ADDITIONAL COVERAGE–COLLAPSE

This coverage is similar to the coverage provided in CP 10 30. The only difference is that CP 10 30 states that specified causes of loss apply while CP 10 20 lists the covered causes of loss that apply.

D. ADDITIONAL COVERAGE–LIMITED COVERAGE FOR FUNGUS, WET ROT, DRY ROT AND BACTERIA

This coverage is similar to the coverage provided in CP 10 30. The only difference is that CP 10 20 lists the causes of loss instead of the reference to the specified causes of loss in CP 10 30.

E. LIMITATION

This section of CP 10 20 is identical to the same section in CP 10 10.

F. DEFINITIONS

Fungus is the only term defined and its definition is identical to the definition in both CP 10 10 and CP 10 30.

CONCLUSION

Of the three causes of loss forms, CP 10 30 is the broadest and should be viewed as the first choice for most insureds. However, an alternative must be used from time to time. A good understanding of each form allows the agent to provide sound advice to the insured enabling it to make an informed selection. Please refer to PF&M Section 130.6-2, ISO Commercial Property Causes Of Loss Comparison, for a quick reference chart of these three causes of loss forms.