9.3 Causes of Loss Forms (Basic, Broad, Special)

Why a Separate Peril Form Exists

The BPP says what is insured; the Causes of Loss form says which perils are covered. ISO publishes three, and choosing among them is the single biggest driver of premium and of how a claim is adjusted. Candidates must know each form's number and scope cold.

The progression is cumulative: Broad includes everything in Basic, and Special is the broadest of all. Premium rises with breadth.

A useful memory hook for the Basic perils is the phrase fire-and-the-rest: fire, lightning, and explosion are the core, then the windstorm/hail and smoke perils, the impact perils (aircraft, vehicles, riot/civil commotion, vandalism), and finally sprinkler leakage, sinkhole collapse, and volcanic action. Broad adds the three structural perils — falling objects, weight of snow/ice/sleet, and collapse — plus accidental water discharge and building glass. Anything beyond that list requires Special.

Why does any business buy the narrower forms? Cost. A warehouse storing non-combustible, low-theft inventory may rationally choose Basic to cut premium, accepting that an unlisted peril is uninsured. The agent's job — and a frequent exam theme — is matching the breadth of perils to the exposure: high-theft retail needs Special, while a low-risk storage building can accept named-peril coverage.

The Burden-of-Proof Flip

This is the most-tested conceptual distinction. Under the named-peril Basic and Broad forms, the insured must prove the loss was caused by a peril listed in the form. Under the open-peril Special form, coverage is presumed and the insurer must prove the loss falls under an exclusion to deny it. Open peril shifts the burden of proof to the carrier — a major reason Special costs more.

Standard exclusions appear on all three forms (and especially matter under Special): flood, earthquake, war, nuclear hazard, ordinance or law, governmental action, wear and tear, and intentional acts.

Trap: A river overflowing and flooding a stockroom is flood — excluded under all three Causes of Loss forms; it requires a separate flood policy. By contrast, water that backs up from a burst interior pipe is the covered 'water damage' peril added by the Broad and Special forms.

Theft trap: Theft is covered only under the Special form (CP 10 30). Neither Basic nor Broad lists theft as a covered peril.

Three Causes-of-Loss Forms and the Burden Flip

Commercial property perils come from a separate causes-of-loss form attached to the BPP:

• Basic (CP 10 10) — named perils: fire, lightning, explosion, windstorm/hail, smoke, aircraft/vehicles, riot/civil commotion, vandalism, sprinkler leakage, sinkhole collapse, volcanic action.
• Broad (CP 10 20) — adds falling objects, weight of ice/snow/sleet, water damage (sudden discharge), and collapse as an additional coverage.
• Special (CP 10 30) — open-peril: covered unless excluded, shifting the burden of proof to the insurer and adding theft.

The burden flip is the most-tested distinction: named-peril forms make the insured prove the cause; the special form makes the insurer prove an exclusion.

Special-Form Exclusions and the Vacancy Tie-In

The Special Form still excludes ordinance or law, earth movement, governmental action, nuclear hazard, utility failure, war, water (flood/sewer backup/surface water), and certain "loss-condition" items (wear and tear, rust, mold, mechanical breakdown, dishonesty of the insured). Some carry ensuing-loss exceptions.

The vacancy provision ties in here: once a building is vacant beyond 60 consecutive days, the insurer will not pay for vandalism, sprinkler leakage, glass breakage, water damage, theft, or attempted theft, and reduces all other covered losses by 15%. "Vacant" for a tenant means it does not contain enough business personal property to conduct customary operations.

Coverage Triggers and the Vacancy Tie-In

The causes-of-loss choice interacts with the BPP vacancy provision. When a building is vacant beyond 60 consecutive days, the policy will not pay for vandalism, sprinkler leakage, building glass, water damage, or theft, and pays 15% less on other covered perils. This applies regardless of which causes-of-loss form is attached — a vacant building loses its broadest protections.

Worked numeric. A vacant-over-60-day building covered by the Special form suffers a $50,000 fire loss (fire is still covered, just reduced). Payment = $50,000 × (1 − 0.15) = $42,500, before any deductible.

Finally, remember that an earthquake or flood can be bought back through endorsement (CP 10 40 earthquake; a separate NFIP or DIC policy for flood) — they are never automatically inside Basic, Broad, or Special.

Special-Form Exclusions Worth Knowing

Because the Special form covers everything not excluded, the exclusion list is the coverage map. Beyond the broad exclusions (flood, earthquake, war, nuclear, ordinance/law, governmental action), the Special form adds exclusions for wear and tear, rust and corrosion, hidden decay, insect or vermin damage, settling/cracking, and faulty workmanship or design. These reflect that the policy insures fortuitous (sudden, accidental) loss, not gradual deterioration or maintenance the owner should have handled.

Several exclusions are subject to an ensuing-loss exception: if an excluded cause leads to a covered peril, the resulting damage is paid. For example, faulty wiring is excluded, but if that wiring causes a fire, the fire damage is covered because fire is not excluded. Spotting the ensuing covered peril inside an otherwise-excluded chain of events is a recurring Special-form exam pattern.