130.6-1

BASIC, BROAD AND SPECIAL CAUSES OF LOSS FORMS ANALYSIS

(February 2007)

INTRODUCTION

The Commercial Property Program Causes of Loss Forms are designed to complete the coverage begun in the coverage part. The separate causes of loss forms allow insurance buyers to customize the commercial property coverage part or policy. After selecting the appropriate coverage part, the buyer can then select a causes of loss form for each property insured. This gives the insured maximum flexibility in arranging its insurance coverage.

The Causes of Loss Forms provide the answer to 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 most frequently used version is CP 10 30–Causes of Loss–Special Form. For this reason, this analysis builds on this form. The other two forms are discussed at the end of this section, with emphasis on how they differ from CP 10 30. Please refer to PF&M Section 130.6-2, Commercial Property Causes of Loss Comparison, for a snapshot view of how these forms compare to one another.

Note: This analysis is based on the 04/02 forms edition. Changes from the previous edition are in bold print.

CP 10 30–CAUSES OF LOSS–SPECIAL FORM

COVERED CAUSES OF LOSS

The policy declarations must show a causes of loss form for each item of property covered. If it is CP 10 30–Causes of Loss–Special Form, the coverage provided is for risks of direct physical loss. This approach is extremely broad because, if the coverage wording is not modified elsewhere in the policy, it means that any physical event causing loss or damage to property eligible for coverage is covered.

EXCLUSIONS

The form has only three exclusions but each has multiple subparts.

1. The causes of loss indicated in the first 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. If an exception to the chain of events condition applies, it is stated in the exclusion subpart. Additional wording emphasizes that coverage for these events does not apply to the widespread nature of an event does not affect coverage.

a. Ordinance or Law

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

In addition, coverage does not apply to the expense of removing undamaged portions of the building and does not pay for rebuilding those undamaged portions. It also does not apply to the additional cost of rebuilding at a different location due to ordinances or laws. Finally, it does not pay to remodel a structure in order to bring the building up to current standards.

Example: Harvey’s Hatchery started in 1930. It is located on the family farm 15 miles from Little Town. Over the years, Little Town grew, along with Harvey’s Hatchery. As subdivisions sprouted, new city ordinances were enacted. One of them prohibits livestock and other farm animals inside the city limits. Over Harvey’s objection, the area where the hatchery is located is incorporated into the city. Harvey’s continues to operate as it did in the past and tries to be a good neighbor. However, chicken droppings are an unpleasant intrusion on city life. The hatchery sustains a covered loss and, thanks to the fire department’s quick response, only 60% of the building is destroyed. Unfortunately, the city inspector informs Harvey that he may not rebuild. They cannot obtain the permit needed to rebuild the hatchery in the city limits. Unless ordinance and law coverage was purchased, using Form CP 04 05, Harvey receives a settlement from the insurance company for the 60% loss to the building and must then find new property and rebuild there.

b. Earth Movement consists of five separate components:

Earthquake includes any sinking, rising or shifting of the earth.
Landslide includes any sinking, rising or shifting of the earth.
Mine Subsidence is a particular problem in the Midwest. This exclusion applies to both man-made and natural mines. Coverage does not apply whether the mine is still operating or not. Mine subsidence coverage may be purchased separately. In some states, mine subsidence coverage must be offered in certain counties. If coverage applies on property located in Illinois, Indiana, Kentucky, Pennsylvania or West Virginia, the laws in those states should be reviewed carefully to determine how to deal with this exposure.
Sinkhole Collapse is covered but sinking of the earth is not. Any rising, shifting, erosion, contraction or expansion of earth is not covered. Water under the surface of the ground and poor soil conditions are also not covered.

An important exception to these exclusions is that if fire or explosion occurs as a result of any earth movement, coverage applies to the ensuing damage.

Example: An earthquake rocks Bardsville but there is little damage to the buildings. However, the rigid gas lines break. A spark causes an explosion and Sam’s Hardware burns to the ground due to the explosion and the inability of the fire department to respond. This loss is covered because it is due to a fire resulting from the earthquake.

Volcanic eruption is not covered except if fire, breakage of building glass or volcanic action ensues. Volcanic action includes airborne blasts and shockwaves, the different types of dust, ash and similar material emitted by the volcano and lava flow. However, it does not include the cost of removing dust, ash and similar material if it does not cause direct physical loss or damage to insured property.

Volcanoes are very messy and usually erupt over a period of days. Any such event that takes place over a period of 168 hours is treated as one occurrence. This is very important to the insured with a substantial deductible for this coverage. Instead of multiple deductibles applying to multiple events, only one deductible applies to the 168-hour period for which only one limit is available.

Example: Prime Real Estate Management owns two commercial strip centers and covers them with a blanket limit of $6,000,000 on an agreed value basis. A volcanic eruption occurs nearby, lava flow destroys one center and fire caused by flaming debris destroys the other. Each center is valued at $6,000,000. Both losses are due to the same occurrence. Instead of receiving $12,000,000, Prime Real Estate Management receives only $6,000,000.

c. Government Action

Coverage does not apply if the government seizes property or destroys property, unless the property was seized and destroyed to prevent the spread of fire, provided fire is a covered cause of loss.

d. Nuclear Hazard

There is no coverage for anything involving any nuclear hazard. Nuclear reactions, radiation and contamination are not covered unless fire ensues, and then only for the loss or damage caused by the fire.

e. Utility Services

Loss or damage due to utility failure or interruption is not covered if the failure occurs away from the described premises. However, if the failure of the utility causes a covered cause of loss on the insured premises, coverage applies for that covered cause of loss.

Example: In December, a fire occurs at the electric power plant and causes a blackout. Fred's Fine Food loses refrigeration and the food spoils. In addition, the pipes freeze and burst and cause considerable water damage. The spoiled food is not covered but the water damage is covered.

Please refer to PF&M Section 131_094, Fire and Casualty Insurance Power Failure Exclusion Was Not Ambiguous, Barred Coverage, in Court Cases for a court decision on this issue. Also, please refer to PF&M 130.6-20, Utility Service Coverage, as it applies to the Commercial Property Form and CP 04 17–Utility Services–Direct Damage for a solution to the gap in coverage.

f. War and Military Action

This exclusion lists three specific types of activity considered to be war. Note that the words terrorist or terrorism are not listed. War can be undeclared or a civil war. It is important to review a dictionary definition to determine who can declare war. If an action does constitute a war, coverage does not apply. In addition, any action involving the military and or military agents is not covered. Finally, rebellions, revolution, usurped power, insurrection and the government response to them are not covered.

g. Water

Damage caused by the action of water outside the building is not covered. To clarify this further, this exclusion is broken into four subparts, each of which defines exactly what is meant by water.

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 river, creek, ocean or lake, whether natural or manmade. In addition, spray from the water and wind-driven water is not covered.
Mudslide and mudflow can occur when a sudden large volume of water mixes with unstable soil conditions. Neither of these conditions is covered.
Sewers, drains and sumps can be overwhelmed by the volume of water coming into them and begin to backup or overflow. The loss or damage due to or resulting from the backup or overflow is not covered.
Water saturated ground can create pressure against the surface or subsurface portions of a building. This subpart excludes loss or damage from water that enters through foundations, walls, floors, paved surfaces, basements, doors, windows and other openings of a building.

In the same manner as found in some other exclusions, if fire or explosion occurs because of the action of water, coverage does apply for the damage caused by the fire or explosion. In addition, if a sprinkler leakage loss occurs due to the action of water, coverage does apply for the damage caused by the sprinkler leakage.

h. Fungus, wet rot, dry rot and bacteria (04/02 addition)

Losses caused by the existence of fungus, mold, rot, bacteria and other growing organisms are not covered. However, if a specified cause of loss occurs because of their existence, coverage does apply for the loss or damage caused by the specified cause of loss.

This exclusion does not apply if the fungus, mold, rot, bacteria or similar organisms result from a fire or lightning loss or is covered under the Additional Coverage–Limited Coverage for Fungus, Wet Rot, Dry Rot and Bacteria.

Example: Millicent purchases a store. Six months later she notices an unusual odor. She hires a contractor who discovers mold behind ceiling tiles that is destroying the tiles. The tiles must be destroyed and the area disinfected. She turns in a claim and the claim is denied. However, if a fire occurs and the tiles are moldy because of the water used to extinguish the fire, that mold loss is covered.

2. There is no coverage for loss or damage caused by the following group of exclusions:

a. There is no coverage if electricity, other than lightning, damages electrical devices unless a fire ensues. In that case, coverage applies only for the loss or damage caused by the fire.
b. Loss of use or loss of market.
c. Smoke, vapor or gas caused by agricultural smudging or industrial operations. However, other types of smoke damage are covered.

Example: Lenny’s Laundry must shut down and cleaned after a short circuit in a dryer causes smoke to fill the building. This cleanup cost is covered.

d. Wear and Tear. This exclusion has seven subparts. Most of the items in these subparts should be viewed as simply costs associated with doing business and not as losses.

Wear and tear. Loss simply caused by aging and everyday use is not covered.
Rust, fungus and other hidden or latent defects, including any feature of the property that causes it to destroy itself, is not covered.
Smog is not covered.
All buildings, and some personal property, are subject to shrinking, expanding, cracking and settling. These events should be expected and accommodations made in building construction and design and with respect to storage of personal property. As a result, losses from these causes are not covered.
Insects, birds, rodents and other animals cause considerable damage to buildings. The loss or damage caused by nesting or infestation is not covered. This includes the various waste products or secretions left by these animals.

Example: One day, 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 of it increasing every day and notifies the trustees. The trustees bring in a contractor who investigates and finds a beehive in the walls of the church. The contractor brings in a beekeeper to remove the bees. The beekeeper must remove part of the interior wall to remove the hives, repair the damaged wood and seal the bee’s entrance point. None of these services are covered losses because all result from an insect infestation.

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 applies 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.
The exclusions above apply mainly to buildings. The final 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 these causes of property damage should be anticipated and expected by the insured, they are not covered causes of loss.

If any cause of loss referred to 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 and not used. Unknown to the building’s owner or Susie, birds are nesting in the attic and also find their way into the chimney. The chimney has an opening at the top that 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 they escape. Coverage does not apply to the damage caused by the infestation but does apply to the glass breakage damage.

e. Steam boiler, steam pipe, steam engine or steam turbine explosions are not covered if owned or operated by the insured or in the insured's care, custody or control. This means coverage to the insured's property does apply if the damage is due to explosion of one of these objects owned by another party. If the insured owns or operates any of these items, the only coverage available is for loss or damage due to fire or an explosion caused by combustion.
f. Loss or damage due to water that leaks or seeps over a period of 14 days or more is not covered. In addition to water, any humidity, moisture or vapor present over a period of 14 days or more is not covered (04/02 addition). This means that water leaking internally is covered unless allowed to run unchecked and unnoticed for more than 14 days.
g. Damage caused by water, other liquids, powder or molten material is not covered if the damage is due to freezing. This exclusion does not apply if the insured either maintained heat in the building or drained and shut off the supply. It also does not apply to fire protection devices.

This exclusion requires the insured to 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 toward their property even in cases where insurance coverage is provided.

h. 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 to whom property is entrusted. This exclusion applies whether these parties act alone, in collusion with others, during business hours or after hours. The Insured should purchase employee dishonesty coverage to apply to these acts.

It is important to note that coverage applies if employees, including leased employees, destroy property. However, this coverage does not apply 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 and then burn the plant down to hide their tracks but are captured three days later. If the plans are not interrupted, the fire loss is covered but the theft of payroll is not. That loss is covered by employee dishonesty coverage.

i. There is no coverage if the insured, or someone the insured trusts with its property, is tricked into giving it away.
j. Personal property in the open is not covered for loss or damage caused by or resulting from rain, snow, ice or sleet.
k. Collapse is initially completely excluded. However, some coverage is added back in the Additional Coverage for Collapse section located elsewhere in the form.
l. Pollutant damage is not covered, unless the damage 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 but not the pollutant damage leading up to it. Loss or damage to glass caused by chemicals applied to the glass is covered.

Example: Windstorm damages an outbuilding at Mayfield Nursery. The weed killers stored in the building blow out, cover and kill most of the growing stock and the standing stock. Since the spread of the pollutants 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. Mayfield stores the fertilizer in another outbuilding but this time places it too close to a heat source. The combination of the two starts a fire that burns the building down. Since the pollutant resulted in a covered cause of loss, coverage applies to this loss.

m. There is no coverage if the insured neglects to 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. They decide to just walk way and take a week’s vacation. Thieves notice the unlocked doors and unattended supplies. Since the Mayfield family neglected their duty to preserve property, coverage does not apply to the theft loss of the supplies.

3. The subparts of this exclusion are sometimes referred to as the 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. However, this only applies if the weather contributed to a cause or event excluded in the first set of exclusions above.

Example: Heavy rains cause creeks to rise well above flood stage. The flooding damages businesses. Although the proximate cause is the weather condition, since flood is an excluded cause of loss, the weather exclusion applies and there is no coverage.

b. Governmental entities and related groups can make decisions and take actions that not only affect others but also cause loss or damage. The acts and decisions that cause loss or damage are excluded.

Example: The dams along the river are getting old but the 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. This subpart has four separate elements but basically excludes any type of faulty, inadequate or defective planning, design, materials and maintenance.

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

4. Special exclusions

The exclusions in this section only apply to certain coverage forms. The three exclusions are for Business Income, Leasehold Interest and Legal Liability.

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

Loss or damage due to failure of power or other utility services is not covered, if the failure occurs away from the covered building. However, if the failure causes or results in a covered cause of loss, the resulting loss is covered.

One important word is "outside." Failure of power inside the insured building is not covered. Another important word is "building." This exclusion uses building instead of premises. This means that if the power outage in one building is due to a problem at another building on the same premises, there is no coverage.

The 04 02 edition includes an additional part to this exclusion. Failure includes not only total failure but also lack of capacity and reduction of supply.

Loss due to damage of finished stock, or the amount of time to replace finished stock, is not covered. Since this is a time-related incident, it does not apply to Extra Expense.

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

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, then 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 and 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.

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

Any consequential loss is not covered.

b. When the Leasehold Interest Coverage form is included, the Causes of Loss Form changes in two ways:

The Ordinance or Law exclusion does not apply; and
There is no coverage if the insured cancels a lease, if a license is suspended, lapses or is cancelled or for any other consequential loss.

c. When the Legal Liability Coverage form is included, the Causes of Loss form changes substantially. This is because the Legal Liability Coverage is more liability coverage than property coverage.

Five exclusions are removed and do not apply. These are the exclusions for Ordinance or Law, Governmental Action, Nuclear Hazard, Utility Services and War and Military action.
Two liability related exclusions are added:

Contractual Liability

There is no coverage for protection provided under a contract, except for an agreement to assume liability for building damage due to attempted break-in. The assumption of such liability 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.

COVERAGE RESTRICTIONS AND LIMITATIONS

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

1. The insurance company does not pay for loss or damage to property as described and limited, including related or consequential loss:

Steam boilers, steam pipes, steam engines or steam turbines are not covered if the loss is caused by or results from a condition inside the equipment. However, coverage does apply if the loss or damage is caused by an explosion of gases or fuel inside the furnace of a fired vessel or within the flue through which combustible gases flow.
Any water heating device, including hot water boilers, is not covered if the loss is due to a condition inside the equipment, unless an explosion occurs.
The interior of a building and personal property inside that building is not covered for loss or damage caused by rain, snow, sleet, ice, sand, or dust, 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 or due to the thawing of snow, sleet or ice on the building causes the loss.

Note: Remember that leaving doors and windows open limits a loss that is otherwise covered!

Building materials awaiting installation in a building are not covered for loss due to theft unless they are building materials held for sale. This limitation does not apply to either of the business income forms or the extra expense form.
Any property loss that can be proven only by a shortage based on an inventory. This 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. Since there is nothing to physically indicate what actually happened, there is no coverage.
Coverage does not apply if a loss occurs because property was transferred to another person based solely on unauthorized instructions.

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

Note: The 04 02 edition eliminates the limitation on Valuable Papers. This is not to provide coverage but because the coverage has been significantly changed in the coverage form.

Loss or damage to animals is not covered unless the animals are killed or must be destroyed due to an injury caused by one of the specified cause of loss or breakage of building glass. This means that veterinarian bills or expenses incurred to save the animal are not covered.
Breakage of fragile articles that includes statuary, marbles, chinaware and porcelains is not covered. This limitation does not apply to glass or containers holding property held for sale.
Builders’ machinery, tools and equipment owned by or entrusted to the insured that qualifies as covered property is excluded. However, this limitation does not apply if the property is located on or within 100 feet of the described premises. This limitation does not apply to business income or extra expense coverage forms.

3. The following categories have special limitations on the total limit of loss. It is a per occurrence limit and applies only to theft loss. All other causes of loss are covered, subject to the standard exclusions and the limit of insurance for the covered property:

Furs, fur garments and fur-trimmed garments are covered, subject to a limit of $2,500.
Jewelry, watches, watch movements, jewels, pearls, gold, and similar items are covered, subject to a limit of $2,500. This limitation does not apply to jewelry and watches valued at less than $100 each.
Patterns, dies, molds and forms are covered, subject to a limit of $2,500.
Stamps, tickets, letters of credit and lottery tickets held for sale are covered, subject to a limit of $250.

Note: Remember that these are limitations, not special coverage extensions. As a result, the limits are not additions to the limit of insurance that applies. The good news is that these limitations do not apply to either of the business income or extra expense coverage forms.

4. The insurance company does not pay the cost to repair a defect in a system or appliance from which water, other liquids, powder or molten material escapes, except for automatic sprinkler or fire extinguishing systems. The fire extinguishing system is only covered if the damage results in a discharge from the automatic protection system or the damage is caused directly by freezing. This limitation does not apply to either of the business income or extra expense coverage forms.

ADDITIONAL COVERAGE–COLLAPSE

This additional coverage is necessary since collapse is specifically excluded in the coverage form. At one time, policy forms provided collapse coverage. However, broad legal interpretations forced the coverage to be rewritten as a named or designated cause of loss.

1. With respect to buildings:

An abrupt falling down or caving in of a building or of part of the building is collapse, if the building cannot be occupied for its intended purpose.
If a building is in danger of falling down or caving in, it is not considered to be in a state of collapse.
If part of a building is standing, even if it has separated from another part of the building, it is not treated as being in a state of collapse.
If a building is standing but shows evidence that it may collapse due to bulging, sagging, cracking, bending, leaning, settling, shrinkage or expansion, it is not in a state of collapse.

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 an inspector was called to evaluate the situation. After the inspector left, the building was condemned. 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 131_090, Policy Is Ambiguous About Collapse, in Court Cases, for a court case that encouraged adding the wording above to clarify when a building is in a state of collapse and when it is not.

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 specified cause of loss or breakage of building glass as insured by this coverage part.
Hidden decay, as long as the insured was not aware of the hidden decay prior to the collapse.
Hidden insect or vermin damage, but only if the insured was not aware of the hidden insect or vermin damage prior to the collapse.
Weight of people or personal property.
Weight of rain that collects on a roof.
Coverage applies if a collapse occurs during construction that is caused by the use of defective material or methods in construction, remodeling or renovation. If it occurs after the construction, remodeling or renovation is finished, the collapse must be due to one of the causes listed immediately above.

3. The following property is covered but is treated differently from building and personal property:

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; and
Roadways, walks and paved surfaces.

Coverage applies if collapse involving any of this property is due to a specified cause of loss or breakage of building glass. However, if any of these items of property collapse because of one of the causes of loss listed above, coverage applies only if:

A building insured under the coverage form collapsed and caused the loss; and
The item is treated as covered property under the coverage form. Many of the items of property are listed as property not covered but may have been added using Form CP 14 10.

4. Under certain circumstances, personal property sometimes collapses but the building does not. In that case, the loss is covered only if:

The collapse was due to a cause of loss listed above under this additional coverage;
The personal property is in a building; and
The personal property is not one of the items listed above in this additional coverage.

Coverage does not apply if the personal property collapses and the only damage to it is marring and scratching. Any cracking, bulging, sagging, leaning, settling, expansion and shrinkage of personal property is not treated as collapse.

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

ADDITIONAL COVERAGE–LIMITED COVERAGE FOR FUNGUS, WET ROT, DRY ROT AND BACTERIA (04/02 ADDITION)

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

The coverage only applies if the cause of loss is one of the specified causes, 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 took all of the personal property outside to avoid smoke damage. The employees then left work at quitting time without putting the personal property back in the store. The next morning, the property was picked up and placed back in the store without inspecting it. A week later, mold and mildew were found on most of the items because of their exposure to moisture during the night. A claim was filed and subsequently denied because reasonable care had not been taken to protect the property from further damage.

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 in order to get to the problem. It also includes the necessary testing to verify that the property is clean and the situation mitigated.

The limit of insurance for this coverage is unique. It is $15,000 per policy year. This means that, 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 Jewelers 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 the amount remaining of the aggregate amount for the policy period.

The $15,000 limit does not increase the limit of insurance. In other words, if the limit is $100,000, and that limit is used to cover a direct damage claim, no limit remains to apply to any fungus, dry or wet rot or bacteria loss.

If business income and/or extra expense coverage is provided, this extension provides coverage in two different situations. If the specified cause of loss direct damage loss 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 30 additional days of coverage for the delays or extension of the down time due to the wet rot, dry rot, fungus and bacteria.

ADDITIONAL COVERAGE EXTENSIONS

Three extensions enhance the coverage provided by CP 10 30–Causes of Loss–Special Form.

1. Property in Transit

This extension applies to personal property treated as covered property in the form.

Personal property in a motor vehicle owned, leased or operated by the insured is covered while in transit. This is provided that it is not property in the care, custody or control of a salesperson and that it is more than 100 feet away from the premises.
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.
Collision with an object or another vehicle, upset or overturn. Striking the roadbed is considered collision.
Theft of an entire bale, case or product. Visible evidence of forced entry must be present and the vehicle must have been securely locked.

This extension provides an additional limit of insurance of $5,000.

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

If leakage of any of these substances 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, to repair the damage to the leaking system or appliance. This does not increase the limit of insurance but is still a valuable coverage 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 leakage and discovers water flowing from the bottom of a wall. Cecil calls a plumber to check out and repair the problem. The plumber finds the leaky pipe but only after destroying much dry wall in the process. The plumber repairs the pipe. Cecil is responsible for the expense of the plumber's services but the insurance company pays the expense to replace the dry wall.

3. Glass

This pays for the expense of temporary plates of glass or to board up window openings if there is a delay in repairing the damaged area after a covered cause of loss occurs. It also pays the expense of removing obstructions in order to repair or replace glass. However, this coverage does not include the cost to remove or replace window displays.

Note: This is not an additional limit of insurance.

DEFINITIONS

The last section of CP 10 30–Causes of Loss–Special Form is reserved for Definitions. The 04 02 edition includes an additional definition to this section, for a total of two.

Fungus is the new definition. It includes almost any type of fungus, mold or mildew but also includes mycotoxins, spores, scents and by-products produced by fungus.
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 into spaces created by water on limestone or dolomite. The coverage provided does not include the cost of filling the sinkhole nor does it cover any sinking or collapse into man-made underground areas.
Falling objects are covered. However, this does not include loss or damage to personal property left in the open or to the interior of a building or to personal property in the building unless the roof or an outer wall is first damaged by the falling object.

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 is covered. This means the accidental discharge or leakage of water or steam due to the breaking apart or cracking of part of a system or appliance. However, this does not include the sump system.

COMPARISON OF 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 provide coverage based on designated or named causes of loss instead of CP 10 30–Causes of Loss–Special Form approach of risks of direct physical damage. 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. Whereas CP 10 30 lists more exclusions for the purpose of clarifying 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. These causes are also covered in CP 10 30 but are not specifically listed.

A. Covered Causes of Loss

1. Fire
2. Lightning
3. Explosion as defined but not explosion caused by a pressure device rupturing or bursting or expansion or swelling of any contents due to the action of water.
4. Windstorm or hail is covered except for frost or cold weather, ice, snow or sleet, whether accompanied by wind or not and interior damage by wind or rain through an opening not created by the wind or rain.
5. Smoke. This does not include smoke from agricultural smudging or industrial operations.
6. Physical damage or contact caused by aircraft or vehicles. This means that the aircraft or vehicle or parts of the aircraft or vehicle 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 as defined is covered but loss caused by or resulting from theft is not covered.
9. Sprinkler Leakage damage is covered. If building is the covered property, 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 the leakage from the sprinkler system.
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 cavities.
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 much shorter than in CP 10 30 because the causes of loss are defined. It includes only two exclusions compared to three exclusions in CP 10 30. The exclusion related to concurrent causation is not needed in CP 10 10 because it defines the types of losses covered.

1. Exclusions in this section of CP 10 10 are identical to the same section in CP 10 30. Both 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 (04/02 addition).

2. Exclusions in this section of CP 10 10 consist of only six subparts compared to 13 subparts in the same section of CP 10 30. This does not mean that CP 10 10 provides more complete coverage. It means not as many exclusions are needed because the coverage is much more limited to begin with. The insurance company does not pay for any loss or damage caused by or resulting from:

a. Artificially generated electrical current that disturbs electrical devices, appliances or wires. This includes electric arcing. However, if the artificially generated electrical current causes a fire, the insurance provided pays for the loss or damage caused by the fire.
b. Rupture or bursting of water pipes, other than sprinkler systems, unless caused by a covered cause of loss. It is always to the insurance company’s advantage to have the sprinkler system operating correctly.
c. Leakage or discharge of water or steam from systems or appliances containing water or steam. This exclusion does not apply to sprinkler systems or in cases where the appliance or system is damaged by a covered cause of loss. Even in cases where coverage applies, coverage ends once the flow, leakage, humidity, moisture or vapor occurs continuously for 14 or more consecutive days.
d. Explosion of boilers, steam pipes, steam engines or steam turbines owned, leased or controlled by the insured. However, if a fire or combustion explosion occurs, coverage applies to the loss or damage caused by the fire or combustion explosion.
e. Mechanical breakdown, including rupture or bursting due to centrifugal force. However, if the breakdown, rupture or bursting results in a covered cause of loss, the loss or damage resulting from the covered cause of loss is covered.
f. Failure of the insured to do everything possible to protect covered property and keep it from further damage during and after the time that a loss occurs.

3. The Special Exclusions in CP 10 10 and CP 10 30 are identical.

C. Additional Coverage

CP 10 10 includes only one additional coverage. Limited Coverage For Fungus, Wet Rot, Dry Rot and Bacteria is provided in the same manner as in CP 10 30.

Note: CP 10 10 itself does not cover collapse.

D. Limitations

CP 10 30 has a number of limitations but CP 10 10 has only one. That limitation states that the only payment for loss of animals is for those that are killed or that must be destroyed. This is the same limitation as found in CP 10 30.

E. Definitions

Fungus is the only defined term 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. These causes are also covered in CP 10 30 but are not specifically listed.

A. Covered Causes of Loss

CP 10 20 provides more coverage than CP 10 10 but is still more limited than CP 10 30 because it also lists only the covered causes of loss. It includes 14 covered causes of loss compared to the 11 in CP 10 10. The first 11 in CP 10 20 are the same as the first 11 in CP 10 10. The additional three covered causes of loss are:

12. Falling Objects but coverage on personal property applies only to property in the building and not to property in the open. However, coverage does not apply until and unless the falling object 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 cause any damage to the warehouse.

13. Weight of Snow, Ice or Sleet causing damage is covered unless the personal property damaged is outside a covered building. Before this change, coverage to damaged gutters or downspouts was also excluded.
14. Water Damage consisting of accidental discharge of water or steam due to a breaking apart or cracking of plumbing, air conditioning, heating or other system or appliance is covered. This is subject to certain conditions that are 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 the rupture or bursting of water pipes exclusion and any leakage or discharge is covered in CP 10 20.

C. Additional Coverage–Collapse

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

E. Limitation

The limitation section of the CP 10 20 is identical to the CP 10 10.

F. Definitions

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

CONCLUSION

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