Key Takeaways
- There are THREE causes of loss forms: BASIC (11 named perils), BROAD (13 named perils), and SPECIAL (open peril/all-risk for buildings and BPP).
- The SPECIAL form provides the BROADEST coverage—it covers all risks EXCEPT those specifically excluded, making exclusions the key exam focus.
- All three forms EXCLUDE flood, earthquake, war, nuclear hazard, government action, and ordinance/law (unless endorsed).
- The SPECIAL form adds coverage for weight of snow/ice/sleet and collapse (limited) that BROAD and BASIC do not include.
- THEFT is covered under BROAD and SPECIAL forms but NOT under the BASIC form—a common exam question!
Causes of Loss Forms
Overview
Commercial property coverage requires BOTH a coverage form (BPP) AND a causes of loss form. The causes of loss form determines which perils are covered.
Critical Concept: The BPP form tells you WHAT is covered. The Causes of Loss form tells you WHEN (which perils trigger coverage).
Three Causes of Loss Forms
Basic Form: 11 Named Perils
The Basic Form covers losses caused ONLY by these specific perils:
| # | Peril | Key Details |
|---|---|---|
| 1 | Fire | Includes hostile fires (not friendly fires) |
| 2 | Lightning | Direct strike or resulting fire |
| 3 | Explosion | Excludes steam boiler explosion (separate coverage) |
| 4 | Windstorm or Hail | Excludes interior damage unless opening made by peril |
| 5 | Smoke | Must be sudden and accidental |
| 6 | Aircraft or Vehicles | Self-propelled vehicles or aircraft |
| 7 | Riot or Civil Commotion | Includes looting during riot |
| 8 | Vandalism | Willful destruction; building must not be vacant 60+ days |
| 9 | Sprinkler Leakage | Leakage from automatic fire protection system |
| 10 | Sinkhole Collapse | Sudden sinking of ground into underground void |
| 11 | Volcanic Action | Airborne blast, ash, lava flow; excludes earthquake |
Broad Form: 13 Named Perils
The Broad Form includes ALL 11 Basic perils PLUS:
| # | Additional Peril | Key Details |
|---|---|---|
| 12 | Falling Objects | Only exterior damage unless exterior first penetrated |
| 13 | Weight of Snow, Ice, or Sleet | Damage to personal property inside building |
| + | Water Damage | Sudden/accidental from plumbing, HVAC, appliances |
| + | Collapse | From specified causes (hidden decay, insect damage, etc.) |
Note: The Broad Form also adds limited coverage for breakage of building glass.
Special Form: Open Peril (All-Risk)
The Special Form takes a fundamentally different approach:
"Covered unless specifically excluded"
Instead of listing covered perils, the Special Form covers all risks of direct physical loss except those specifically excluded.
Special Form Exclusions
The Special Form excludes these perils (unless endorsed):
Standard Exclusions (All Forms)
| Exclusion | Rationale |
|---|---|
| Ordinance or Law | Building code upgrade costs |
| Earth Movement | Earthquake, landslide, sinkhole |
| Government Action | Seizure, destruction by authority |
| Nuclear Hazard | Radiation, nuclear reaction |
| Utility Services | Off-premises utility failure |
| War and Military Action | Declared/undeclared war |
| Water | Flood, surface water, sewer backup |
Additional Special Form Exclusions
| Exclusion | Key Details |
|---|---|
| Fungus, Wet Rot, Dry Rot | Limited coverage available |
| Virus or Bacteria | Specifically excluded |
| Wear and Tear | Gradual deterioration |
| Rust, Corrosion, Decay | Maintenance issues |
| Smog | Gradual pollution |
| Mechanical Breakdown | Equipment failure (separate coverage) |
| Settling, Cracking, Shrinking | Building defects |
| Animals | Nesting, infestation damage |
| Voluntary Parting | Trick, fraud, false pretense |
| Rain/Snow to Interior | Unless opening made by covered peril |
| Planning, Design, or Faulty Work | Poor workmanship |
Comparison Chart
| Feature | Basic | Broad | Special |
|---|---|---|---|
| Coverage Approach | Named perils | Named perils | All-risk |
| Number of Perils | 11 | 13+ | All except excluded |
| Fire | ✓ | ✓ | ✓ |
| Lightning | ✓ | ✓ | ✓ |
| Windstorm/Hail | ✓ | ✓ | ✓ |
| Theft | ✗ | ✓ | ✓ |
| Falling Objects | ✗ | ✓ | ✓ |
| Water Damage | ✗ | ✓ | ✓ |
| Weight of Snow | ✗ | ✓ | ✓ |
| Glass Breakage | ✗ | ✓ | ✓ |
| Accidental Discharge | ✗ | ✗ | ✓ |
| Flood | ✗ | ✗ | ✗ |
| Earthquake | ✗ | ✗ | ✗ |
| Premium Level | Lowest | Medium | Highest |
Collapse Coverage
Collapse is treated specially across all forms:
Broad and Special Forms cover collapse caused by:
- Fire, lightning, explosion, windstorm, hail
- Weight of people or personal property
- Weight of rain on roof
- Hidden decay
- Hidden insect or vermin damage
- Use of defective material or methods (if hidden)
NOT Covered: Settling, cracking, shrinkage, bulging, or expansion.
Key Exam Points
- Theft: NOT covered by Basic; IS covered by Broad and Special
- Flood: NEVER covered by any form (requires separate policy)
- Earthquake: NEVER covered by any form (requires endorsement)
- Water Damage: NOT the same as flood—plumbing/HVAC leaks ARE covered by Broad/Special
- Vacancy: Coverage limited if building vacant 60+ consecutive days
Which Causes of Loss form would cover theft of business personal property?
Under the Special Causes of Loss form, which of the following perils is specifically EXCLUDED?
A pipe bursts inside a commercial building, causing water damage to inventory. Which Causes of Loss form(s) would cover this loss?
7.4 Business Income Coverage
Continue learning