9.2 Commercial Causes of Loss Forms (Basic, Broad, Special)

9.2 Commercial Causes of Loss Forms (Basic, Broad, Special)

In the ISO commercial property portfolio, the Causes of Loss Form dictates which perils trigger coverage under the Building and Personal Property Coverage Form (CP 00 10). The insurer and insured select one of three standard forms depending on risk profile and premium considerations: Basic (CP 10 10), Broad (CP 10 20), or Special (CP 10 30).

For a claims adjuster, determining coverage requires analyzing the peril definitions, evaluating the legal allocation of the burden of proof, enforcing anti-concurrent causation language, applying theft sublimits, and assessing policy conditions such as the 60-day vacancy rule.

1. Overview of Causes of Loss Forms & Legal Burden of Proof

The fundamental distinction among the three forms lies in whether coverage is structured on a named perils basis or an open perils (all-risk) basis:

+-----------------------------------------------------------------------------------+
|                         CAUSES OF LOSS FORM COMPARISON                            |
+------------------+---------------------+-------------------+----------------------+
| Form             | Form Designation    | Coverage Basis    | Burden of Proof      |
+------------------+---------------------+-------------------+----------------------+
| Basic Form       | CP 10 10            | 11 Named Perils   | On Insured to prove  |
|                  |                     |                   | a listed peril acted |
+------------------+---------------------+-------------------+----------------------+
| Broad Form       | CP 10 20            | 14 Named Perils   | On Insured to prove  |
|                  |                     | + Collapse        | a listed peril acted |
+------------------+---------------------+-------------------+----------------------+
| Special Form     | CP 10 30            | Open Perils       | On Insurer to prove  |
|                  |                     | (All Direct Loss) | an exclusion applies |
+------------------+---------------------+-------------------+----------------------+

The Shift in the Legal Burden of Proof

• Named Perils (Basic & Broad): The policyholder bears the initial legal burden to demonstrate that the direct physical loss was proximately caused by one of the specific perils enumerated in the form.
• Open Perils (Special): The policyholder only needs to prove that a direct physical loss occurred to covered property during the policy period. The burden then shifts completely to the insurer to prove that the loss was caused by an excluded peril or falls within a specific policy limitation.

2. Peril Breakdown: Basic Form (CP 10 10) vs. Broad Form (CP 10 20)

The 11 Basic Form Perils (CP 10 10)

1. Fire: Hostile fires (fires outside their intended container or location).
2. Lightning: Naturally occurring electrical discharges from the atmosphere.
3. Explosion: Includes furnace explosion and gas explosion; strictly excludes steam boiler or steam pipe explosions (which require Equipment Breakdown coverage).
4. Windstorm or Hail: Damage to exterior structure. Interior damage rule: Damage to the interior of the building or personal property inside is covered only if the wind or hail first damages the roof or walls, creating an opening through which rain, snow, sleet, or dust enters.
5. Smoke: Sudden and accidental smoke damage; excludes smoke from agricultural smudging or industrial operations.
6. Aircraft or Vehicles: Direct physical contact by aircraft, spacecraft, or vehicles. Excludes damage caused by vehicles owned or operated by the named insured.
7. Riot or Civil Commotion: Includes acts of striking employees and looting during a riot.
8. Vandalism: Willful and malicious damage to property. Crucial limitation: Excludes theft, although building damage caused by the breaking in or exiting of burglars is covered.
9. Sprinkler Leakage: Leakage or discharge of water or other substance from an automatic sprinkler system, including collapse of a sprinkler storage tank.
10. Sinkhole Collapse: Settlement or collapse of land into subterranean cavities created by the action of water on limestone or dolomite rock formations. Excludes the cost of filling the sinkhole and the value of the land.
11. Volcanic Action: Direct physical damage from volcanic blast, airborne shock waves, ash, dust, particulate matter, or lava flow. The 168-Hour Rule: All volcanic eruptions that occur within a 168-hour period (7 days) are treated as a single occurrence.

The Broad Form (CP 10 20): 3 Additional Perils + Collapse

The Broad Form covers all 11 Basic perils plus: 12. Falling Objects: Excludes damage to the falling object itself. Interior contents are covered only if the falling object first breaches the exterior roof or walls. 13. Weight of Snow, Ice, or Sleet: Structural collapse or damage from snow/ice weight. Excludes damage to outdoor property, gutters, downspouts, and fences. 14. Water Damage (Accidental Discharge): Accidental discharge or leakage of water or steam as the direct result of the breaking apart or cracking of a plumbing, heating, air conditioning, or other appliance system on the premises. - What is covered: The resulting water damage to building and personal property, plus the cost of tearing out and replacing any part of the building to repair the damaged system. - What is NOT covered: The cost to repair or replace the pipe or appliance that ruptured; continuous or repeated seepage occurring over 14 days or more; flood; or sewer backup.

Broad Form Additional Coverage: Collapse

Covers the abrupt falling down or caving in of a building or any part of a building, rendering it uninhabitable, provided the collapse is caused by:

• Any of the Broad Form named perils.
• Hidden decay (unknown to the insured prior to collapse).
• Hidden insect or vermin damage.
• Weight of people or personal property.
• Weight of rain collecting on a roof.
• Use of defective materials or construction methods, if the collapse occurs during the course of construction, renovation, or repair.

3. Causes of Loss - Special Form (CP 10 30) & Theft Limitations

The Special Form (CP 10 30) provides the broadest protection by insuring against direct physical loss unless the loss is specifically excluded or limited in the form.

Inclusion of Theft

Unlike Basic and Broad forms, the Special Form automatically covers theft of covered property. However, theft coverage is subject to specific exclusions and statutory dollar sublimits:

• Theft Exclusions:
  • Employee Dishonesty: Theft, embezzlement, or criminal acts committed by the insured, partners, employees, directors, or authorized representatives (covered under Commercial Crime insurance).
  • Voluntary Parting: Giving up possession of property induced by fraudulent schemes, trick, device, or false pretenses.
  • Unexplained Disappearance: Inventory shortages, loss revealed only upon taking physical inventory, or mysterious disappearance.
  • Theft of Building Materials: Theft of building materials and supplies not yet attached to the building (unless held for sale).

Special Form Theft Sublimits

To prevent adverse selection and catastrophic exposure to high-value, easily portable property, the Special Form imposes strict sublimits per occurrence for theft:

4. General Exclusions & The Anti-Concurrent Causation (ACC) Doctrine

All commercial property causes of loss forms contain a core set of statutory and contractual exclusions. The most critical legal mechanism governing these exclusions is the Anti-Concurrent Causation (ACC) clause.

The Anti-Concurrent Causation (ACC) Prefatory Clause

The introductory language of Section B of the Causes of Loss forms states:

"We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss."

If an excluded peril subject to ACC language contributes in any degree to a loss—even if a covered peril (such as hurricane wind) also contributed before, during, or after—the portion of damage attributable to the excluded peril is strictly barred from coverage.

+-----------------------------------------------------------------------------------+
|              THE 8 ANTI-CONCURRENT CAUSATION (ACC) EXCLUSIONS                     |
+----------------------------+------------------------------------------------------+
| 1. Ordinance or Law        | Enforcement of building codes requiring demolition, |
|                            | increased repair costs, or debris cleanup.           |
+----------------------------+------------------------------------------------------+
| 2. Earth Movement          | Earthquake, landslide, mine subsidence, volcanic     |
|                            | tremors (CP 10 40 endorsement available).            |
+----------------------------+------------------------------------------------------+
| 3. Governmental Action     | Lawful seizure or destruction by government order    |
|                            | (Exception: Fire spread prevention destruction).     |
+----------------------------+------------------------------------------------------+
| 4. Nuclear Hazard          | Nuclear reaction, radiation, or radioactive fallout. |
+----------------------------+------------------------------------------------------+
| 5. Utility Services        | Off-premises failure of power, water, gas, or tele-  |
|                            | communications (CP 04 17 endorsement available).     |
+----------------------------+------------------------------------------------------+
| 6. War & Military Action   | War, civil war, insurrection, warlike operations.    |
+----------------------------+------------------------------------------------------+
| 7. Water (Flood & Seepage) | Flood, surface water, storm surge, sewer/drain back- |
|                            | up, subterranean hydrostatic water pressure.         |
+----------------------------+------------------------------------------------------+
| 8. Fungus, Rot & Bacteria  | Mold, mildew, wet/dry rot (limited $15,000 aggregate |
|                            | available if resulting from covered peril).          |
+----------------------------+------------------------------------------------------+

Special Form Specific Non-ACC Exclusions

In addition to the 8 ACC exclusions, the Special Form excludes losses resulting from:

• Wear and tear, gradual deterioration, rust, corrosion, decay, or latent defects.
• Smog, industrial smoke, and agricultural smudging.
• Settling, cracking, shrinking, or expansion of foundations, walls, floors, or roofs.
• Nesting, infestation, or discharge of waste products by insects, birds, or rodents.
• Mechanical breakdown (including centrifugal force rupture).
• Continuous or repeated seepage or leakage of water occurring over a period of 14 days or more.
• Weather Conditions: If weather contributes to an excluded peril (e.g., heavy rain causing a flood).
• Faulty, Inadequate, or Defective Planning, Zoning, Design, Workmanship, or Maintenance: Ensuing Loss Exception: If a covered peril (such as fire) ensues from faulty workmanship, the resulting fire damage is covered, but the cost to correct the faulty workmanship itself is excluded.

5. Commercial Vacancy Condition & Claims Adjuster Scenarios

The 60-Day Commercial Vacancy Condition

Under the standard Commercial Property Conditions, a building is considered vacant unless at least 31% of its total square footage is rented to a tenant and used to conduct customary operations, or used by the building owner to conduct customary operations. Buildings under active construction or renovation are not considered vacant.

If a building remains vacant for more than 60 consecutive days immediately preceding a loss:

1. Complete Coverage Suspension (0% Paid): The insurer will NOT pay for any loss caused by Vandalism, Sprinkler Leakage (unless protected against freezing), Building Glass Breakage, Water Damage, or Theft / Attempted Theft.
2. 15% Penalty on All Other Perils: For any other covered peril (e.g., Fire, Lightning, Windstorm, Hail, Explosion), the amount payable is reduced by 15%.

+-----------------------------------------------------------------------------------+
|             IMPACT OF 60+ CONSECUTIVE DAYS OF COMMERCIAL VACANCY                  |
+-------------------------------------------------+---------------------------------+
| Perils Completely Excluded (100% Denial)        | - Vandalism                     |
|                                                 | - Theft or Attempted Theft      |
|                                                 | - Sprinkler Leakage             |
|                                                 | - Building Glass Breakage       |
|                                                 | - Water Damage                  |
+-------------------------------------------------+---------------------------------+
| All Other Covered Perils (Fire, Wind, Hail, etc)| Payout REDUCED by 15%           |
+-------------------------------------------------+---------------------------------+

Claims Adjuster Field Scenario: Concurrent Causation & Theft Sublimits

Scenario: A coastal boutique clothing store in Wilmington, NC, is insured under a CP 00 10 with Special Form (CP 10 30). Limit on BPP = $200,000; Deductible = $2,500. During a major hurricane, high winds tear off a roof section, allowing torrential rain to enter. Concurrently, a 6-foot ocean storm surge floods the ground floor. After the storm, looters break into the store and steal designer fur coats valued at $18,000, high-end watches valued at $12,000, and standard clothing inventory valued at $30,000.

Adjuster Coverage Determination:

1. Wind-Driven Rain vs. Storm Surge (Water Exclusion / ACC):
   • Damage to second-floor inventory caused by rain entering through the wind-damaged roof opening is COVERED (Windstorm peril breached exterior structure).
   • Damage to first-floor fixtures and inventory caused by storm surge / tidal wave is EXCLUDED under the Water ACC exclusion, despite occurring during the hurricane.
2. Looting & Theft Adjustment:
   • Theft of standard clothing inventory ($30,000) is COVERED in full (subject to overall BPP limit).
   • Theft of designer fur coats ($18,000 value) is capped at the $2,500 Fur Sublimit.
   • Theft of high-end watches ($12,000 value) is capped at the $2,500 Jewelry/Watch Sublimit.
   • Total payable for stolen merchandise: $30,000 + $2,500 + $2,500 = $35,000 (less deductible).