Commercial Property Causes of Loss and Exclusions

Commercial Property Causes of Loss and Exclusions

Basic and broad forms name perils, while the special form begins with direct physical loss subject to exclusions. Apply the selected cause form and applicable California law before deciding whether damaged property is covered.

Causes of Loss Forms: Basic, Broad, and Special

To establish peril coverage, the CP 00 10 must be paired with one of three ISO Causes of Loss forms:

1. Causes of Loss — Basic Form (CP 10 10)

The Basic Form is a named perils contract covering 11 specific causes of loss:

1. Fire
2. Lightning
3. Explosion (includes eligible gas/fuel explosion; apply the limitations on steam boilers/pipes/engines owned, leased or operated by the insured)
4. Windstorm or Hail (excludes interior damage from rain, snow, or sand unless wind or hail first damages the exterior roof or walls, creating an opening)
5. Smoke (sudden and accidental; excludes smoke from agricultural smudging or industrial operations)
6. Aircraft or Vehicles (excludes damage caused by vehicles owned or operated by the named insured)
7. Riot or Civil Commotion (includes employee strike damage)
8. Vandalism (willful and malicious damage; excludes theft, though building damage caused by burglars breaking in is covered)
9. Sprinkler Leakage (leakage or discharge from an automatic sprinkler system)
10. Sinkhole Collapse (sudden settlement or collapse of land into subterranean cavities created by water on limestone; excludes value of land)
11. Volcanic Action (airborne blast, shock waves, ash, dust, or lava flow; excludes earthquake, tremors, or volcanic eruption earth movement)

2. Causes of Loss — Broad Form (CP 10 20)

The Broad Form covers all 11 Basic perils plus three additional named perils: 12. Falling Objects (excludes damage to property in the open; interior contents are covered only if the falling object first breaches the exterior roof or walls) 13. Weight of Snow, Ice, or Sleet (covers structural collapse or damage to building and personal property inside; excludes gutters, downspouts, and fences) 14. Water Damage (accidental discharge or leakage of water or steam as the direct result of the breaking apart or cracking of any part of a plumbing, heating, air conditioning, or refrigerating system located on the premises; excludes flood, sewer backup, continuous seepage, or sump pump failure)

• Collapse Additional Coverage: Broad form adds coverage for abrupt structural collapse caused by specified perils, hidden decay or hidden insect/vermin damage (subject to prior-knowledge conditions), weight of people or personal property, weight of rain on a roof, or defective construction materials/methods during qualifying construction. Apply the abrupt-collapse definition and each cause’s timing restrictions; mere settling or a standing building at risk of falling is not automatically collapse.

3. Causes of Loss — Special Form (CP 10 30)

The Special Form provides open peril (formerly referred to as "all-risks") coverage. It covers direct physical loss unless the cause is explicitly excluded or limited in the policy. The insured first establishes the applicable coverage grant, property, period and direct physical loss. The insurer bears the burden of proving an exclusion; not every element of an open-peril claim is the insurer’s burden.

Inherent Theft Coverage & Dollar Sub-Limits

Unlike the Basic and Broad forms, the Special Form automatically includes coverage for theft. However, to prevent adverse selection and catastrophic claims on portable high-value items, CP 10 30 imposes mandatory theft dollar limitations per occurrence:

• Furs and fur garments: $2,500 total limit.
• Jewelry, watches, precious stones, pearls, gold, silver, and platinum: $2,500 total limit (does not apply to jewelry valued under $100 per item).
• Patterns, dies, molds, and forms: $2,500 total limit.
• Stamps, tickets, and lottery tickets held for sale: $250 total limit.

Major Exclusions Under CP 10 30

Even under the open peril Special Form, critical perils are excluded:

• Ordinance or Law: Cost of complying with building codes during reconstruction.
• Earth Movement: Earthquake, landslide, mudslide, mine subsidence, earth sinking/rising/shifting as described, with the stated sinkhole-collapse exception.
• Governmental Action: Seizure or destruction of property by governmental order.
• Nuclear Hazard, War, and Military Action.
• Utility Services: Failure of power, communication, water, or sewage off-premises.
• Water: Flood, surface water, waves, tidal water, overflow of bodies of water, sewer or drain backup, and subterranean water pressure against foundations.
• Fungus, Wet Rot, Dry Rot, and Bacteria: Apply the form’s limited additional coverage for qualifying causes and its applicable $15,000 annual limitation; this is not a grant for every fungus loss.
• Wear and Tear, Rust, Corrosion, Smog, Settling, Cracking, Expansion, or Inherent Vice.
• Mechanical Breakdown: Centrifugal explosion, electrical arcing (requires Equipment Breakdown coverage).
• Voluntary Parting: Surrendering property to someone due to fraud, false pretenses, or trickery.
• Inventory Shortage / Unexplained Disappearance: Shortages discovered only upon taking inventory or unexplained loss of stock are strictly excluded.

---

Peril Comparison Matrix

---

Adjuster Practice Tips & Exam Traps

• Property of others versus bailee liability: Personal Property of Others is first-party property coverage for customer goods in the insured's care, custody, or control. Adjusters must not confuse this with third-party liability insurance. Payment is for the owner’s account under the property form; covered direct damage does not necessarily require bailee negligence.
• Exam Trap: Outdoor Property Windstorm Exclusion: Consider whether a snapped tree or crushed fence caused by a severe windstorm is covered under the BPP Outdoor Property extension. It is $0; the extension covers only fire, lightning, explosion, riot, and aircraft.
• Exam Trap: Mystery Disappearance / Inventory Shrinkage: When an insured conducts an annual physical inventory audit and finds a $25,000 discrepancy between computer records and physical stock, the discrepancy alone does not establish a covered theft; apply the inventory-shortage/unexplained-disappearance limitation. Independent evidence of a specific covered event requires its own analysis.

Applying exclusions and additional grants

An exclusion is read with its exceptions and ensuing-loss wording. Excluded wear to a pipe and resulting covered damage to other property are different components; payment for resulting damage does not automatically pay to replace the worn pipe. Debris removal responds to specified debris from a covered loss under its limit conditions. Preservation-of-property coverage concerns covered property moved to protect it from a covered cause for the stated period; it is not general off-premises coverage for business convenience.

A fire-department service-charge grant addresses eligible liability for that charge, while pollutant cleanup concerns its limited land/water expense and reporting conditions. These grants do not convert all contamination or code-upgrade costs into covered building loss. Identify the grant, cause, expense, limit and deadline before calculating payment.

California efficient-proximate-cause law requires identifying the predominant cause that set the loss in motion, rather than merely selecting the last event. CIC § 530 and controlling decisions matter when covered and excluded causes combine. An anticoncurrent-causation phrase should not be applied as a universal shortcut overriding California law. Record the causal sequence and obtain coverage review where competing causes or wording create a material question. A repair estimate establishes amounts; it does not establish which cause is legally predominant.