15.2 Basic, Broad, and Special Causes of Loss

15.2 Basic, Broad, and Special Causes of Loss

Quick Answer: The BPP is only half the property grant. A causes of loss form must attach. Basic is a named-perils list: fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action. Broad adds falling objects, weight of snow, ice, or sleet, and water damage from plumbing or HVAC—not flood. Special is open perils (risks of direct physical loss) subject to exclusions. Flood, earth movement, ordinance or law, steam-boiler explosion, dishonest acts, and mysterious disappearance stay out. An ensuing-loss exception can still pay fire that follows an excluded cause. Special is not “everything.”

Section 15.1 told you what the BPP will consider. This section tells you why it broke. AINS items will pair a coverage classification with a cause-of-loss question. A bolted press that burns is a Building fire claim. The same press that rusts from a slow leak over months is a different analysis. The workplace skill is to name the causes of loss form on the declarations before you promise payment.

ISO publishes three commercial property causes-of-loss forms. Carriers file ISO or independently file look-alikes. State amendatory endorsements change wording. The exam tests program architecture, not one company's brochure name for “all risk.”

Named perils versus open perils

Named-perils coverage pays only if a listed cause damaged the property. The insured has the burden to show that a listed peril happened. Basic and Broad are named-perils forms.

Open-perils (special form; historically marketed as all-risks) covers direct physical loss to covered property unless an exclusion applies. The insurer has the burden to prove the exclusion. That burden shift is the exam point. It is not a flood policy, not an earthquake policy, and not a maintenance contract for wear and tear.

Basic Causes of Loss

Memorize the Basic list the way you memorized HO named perils. If the stem says Basic, do not upgrade it.

Two Basic traps sit on almost every commercial-property exam:

Sprinkler leakage is not flood. A head fails, a pipe freezes and splits, or a tank collapses, and water from the sprinkler system soaks stock. That is Basic. A creek, storm surge, surface water, or a municipal water main in the street is water / flood, excluded on Basic, Broad, and Special unless a flood endorsement or a separate flood policy responds.

Vehicles does not mean “the insured's auto policy already paid.” A third-party delivery truck leaves the street and goes through the storefront. Physical contact of a vehicle with the described property is a Basic named peril. The form does not require the vehicle to be owned by the insured—in fact, Basic and Broad typically do not treat vehicles the named insured owns or operates in the course of the business as this peril. Own-vehicle impact is a Special-form conversation, not a reason to deny a stranger's truck through the glass.

Vandalism is malicious damage. A thief who steals stock without malicious breakage is not a vandalism claim on Basic. Theft of covered property is the classic reason insureds buy Special.

Broad Causes of Loss

Broad is Basic plus three important named perils, plus a collapse additional coverage that Basic does not give you in the same way.

1. Falling objects — damage from an object falling onto the building or onto property inside after the roof or wall is first damaged. Property in the open is a narrower story.
2. Weight of snow, ice, or sleet — collapse or other damage from the weight of winter accumulation on the structure. It is not flood. It is not a sewer backup.
3. Water damage — accidental discharge or leakage of water or steam from a plumbing system, heating or air-conditioning system, or household appliance. A supply line bursts. A water heater ruptures. That is Broad. It is not flood, not surface water, not waves, and typically not water that backs up from a sewer, drain, or sump as a named Broad grant.

Broad also addresses sudden tearing apart of a steam or hot-water heating system, freezing of a system if the insured has maintained heat or drained the system, and accidental damage from artificially generated electrical current to some property—still with tight wording. Do not treat Broad as Special with a friendlier name.

If the only water on the floor came from a sprinkler head, you did not need Broad; sprinkler leakage is already Basic. If the only water came from a river, Broad does not save you.

Special Causes of Loss

Special covers risks of direct physical loss unless the form excludes them. Theft of stock, a vehicle of unknown origin scarring the loading dock, and many “no named peril fits” losses are why risk managers buy Special. Then the exclusion list does the real work.

Important Special exclusions and limitations the exam expects you to name:

• Ordinance or law — extra cost to demolish or rebuild to code, except the thin increased-cost-of-construction additional coverage on the BPP. Buy the ordinance-or-law endorsement when the building is old and the code is new.
• Earth movement — earthquake, landslide, mine subsidence, earth sinking. Fire that ensues after earthquake can still be covered.
• Water — flood, surface water, waves, tides, mudslide, water that backs up or overflows from sewers, drains, or sumps, and water under the ground surface pressing on foundations. Sprinkler leakage and some accidental plumbing discharges are not this exclusion.
• Governmental action, nuclear hazard, war, and utility services — off-premises power failure is not a property peril; damage from a covered cause at the premises is a different question.
• Steam boilers, steam pipes, steam engines, and steam turbines the insured owns, leases, or operates — explosion of that equipment is equipment breakdown, not commercial property Special.
• Dishonest or criminal acts by the named insured, partners, members, managers, or employees — employee theft is a crime form. A stranger's burglary of stock can be a Special theft loss; the bookkeeper's six-month skim is not.
• Voluntary parting by trick, false pretense, or a fraudulent scheme, and unauthorized transfer of property.
• Mysterious disappearance, shortage disclosed on taking inventory, and unexplained loss — Special is not a replacement for inventory control.
• Wear and tear, rust, corrosion, decay, hidden or latent defect, mechanical breakdown, nesting or infestation, and similar maintenance losses.
• Weather to the interior — rain, snow, sleet, ice, sand, or dust that enters the building is generally not covered unless the building is first damaged by a covered cause of loss that creates an opening. An open window during a shower is not a windstorm claim. A roof peeled by a tornado, then rain, is.
• Collapse, except as the form's collapse additional coverage restores specified causes.

Ensuing-loss exceptions — and why Special is still not everything

ISO commercial property uses ensuing-loss logic on several exclusions. Earth movement is excluded. If earth movement ruptures a gas line and fire follows, the fire damage can still be covered. Flood is excluded. If flood causes an electrical short and fire follows, the fire can still be covered. The excluded cause does not poison every later covered cause.

That exception is not a back door to the exclusion. The mud on the first floor is still flood. The cracked foundation is still earth movement. Only the ensuing covered cause—classically fire or explosion—re-enters the grant.

Why Special is not “everything”:

• Open perils still run into a long exclusion list.
• Property Not Covered on the BPP still applies. Special does not insure money, land, or autos held for sale.
• Flood and earth movement need their own products or endorsements.
• Ordinance or law is a rebuild-to-code problem, not a Special-form bonus.
• Boiler explosion and employee dishonesty are other coverage parts.
• Inventory shortage is not a property claim.

Walk every stem in three questions: Is the item covered property? Is the cause a covered cause of loss on this form? Does an exclusion, limitation, or Property Not Covered entry take it back? Section 15.3 then asks what happens to earnings while that property is down.