4.3 Commercial Property Insurance Forms

4.3 Commercial Property Insurance Forms

Commercial property insurance protects business owners against physical damage to commercial structures, business personal property, contents of others, and financial loss from business interruption. Adjusters must understand the structural framework of the Commercial Package Policy (CPP), the Building and Personal Property Coverage Form (BPP), Causes of Loss forms, and builders risk coverages.

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Commercial Package Policy (CPP) Structure

A Commercial Package Policy (CPP) allows commercial enterprises to consolidate multiple insurance coverages into a single modular policy package. A valid CPP must contain at least two commercial coverage parts (e.g., Commercial Property and Commercial General Liability).

Common Policy Components

• Common Policy Declarations: Specifies the named insured, policy term, business description, premium breakdown, and list of attached coverage parts.
• Common Policy Conditions: Mandatory terms applying to all coverage parts in the policy:
  • Cancellation: First named insured may cancel at any time. The insurer must provide 10 days' written notice for non-payment of premium (or 30+ days for other reasons under South Carolina law).
  • Changes: Policy terms can only be amended by written endorsement issued by the insurer.
  • Examination of Books and Records: The insurer reserves the right to audit the insured’s financial books and records during the policy period and for up to three years afterward.
  • Inspections and Surveys: The insurer has the right (but not the duty) to inspect premises and recommend safety changes.

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Building and Personal Property Coverage Form (BPP - ISO CP 00 10)

The BPP is the flagship commercial property form. It contains three distinct categories of covered property:

1. Building Coverage

Covers the commercial building(s) described on the declarations page, including:

• Completed additions and structural extensions
• Permanently installed machinery, equipment, and fixtures
• Outdoor fixtures (e.g., light poles, permanently mounted signs)
• Personal property owned by the insured used to maintain or service the building (e.g., fire extinguishers, floor scrubbers, lawnmowers)
• Materials, equipment, and supplies on or within 100 feet of the premises intended for construction or renovation

2. Business Personal Property (BPP)

Covers commercial contents owned by the business and used in operations, provided the property is located in or on the building, or in the open/in a vehicle within 100 feet of the described premises:

• Office furniture, fixtures, and computer hardware
• Machinery and operational equipment
• Stock and merchandise inventory held for sale
• All other personal property owned by the insured and used in the business
• Tenant’s Improvements and Betterments: Fixtures, alterations, or structural additions made to a leased building at the tenant’s expense that cannot legally be removed

3. Personal Property of Others

Covers property belonging to customers or third parties while in the care, custody, or control of the insured, located on the premises or within 100 feet of the described building. Standard baseline limit is $2,500 per location (can be increased).

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BPP Causes of Loss Forms

Commercial property coverage triggers are established by selecting one of three Causes of Loss forms:

Cause of Loss Forms Progression:
Basic Form (CP 10 10) ---> Broad Form (CP 10 20) ---> Special Form (CP 10 30)
(11 Named Perils)          (14 Perils + Collapse)       (Open Perils / All-Risk)

1. Basic Form (CP 10 10)

Named perils form covering 11 specific perils:

1. Fire
2. Lightning
3. Explosion
4. Windstorm or Hail
5. Smoke
6. Aircraft or Vehicles
7. Riot or Civil Commotion
8. Vandalism
9. Sprinkler Leakage
10. Sinkhole Collapse
11. Volcanic Action

2. Broad Form (CP 10 20)

Covers all 11 Basic perils plus three additional broad perils:

• Falling Objects
• Weight of Snow, Ice, or Sleet
• Water Damage (accidental discharge or leakage of water or steam from plumbing or HVAC systems)
• Includes limited coverage for structural Collapse caused by broad perils, hidden decay, or insect damage.

3. Special Form (CP 10 30)

Provides Open Perils ("All-Risk") coverage. It covers all direct physical loss unless specifically excluded.

• Burden of Proof: Under Special Form, the burden of proof shifts to the insurer to demonstrate that a loss was caused by an excluded peril.
• Major Exclusions: Flood/surface water, earth movement, power failure off-premises, ordinance of law, wear and tear, employee dishonesty/theft, voluntary parting, and continuous water seepage.

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Business Income & Extra Expense Coverage (CP 00 30)

When a physical loss forces a commercial enterprise to suspend operations, direct property insurance pays for structural repairs, while Business Income and Extra Expense insurance replaces lost financial revenue.

Business Income Coverage

Indemnifies the insured for the actual loss of Business Income sustained due to necessary suspension of operations during the Period of Restoration. Business income is defined as: $\text{Business Income} = \text{Net Profit (or Loss) Before Taxes} + \text{Continuing Operating Expenses (including payroll)}$

Extra Expense Coverage

Covers extraordinary expenses incurred during the period of restoration that would not have been incurred absent the loss, provided they minimize or avoid business suspension (e.g., renting temporary operating quarters, lease of emergency equipment, expedited shipping fees).

Period of Restoration Rules

• Business Income Trigger: Begins 72 hours after the direct physical loss occurs.
• Extra Expense Trigger: Begins immediately (0 hours) after physical loss.
• Termination: Ends on the date when the damaged property should be repaired, rebuilt, or replaced with reasonable speed and similar quality, or when business resumes at a new permanent location.

Coinsurance in Business Income

The insured selects a coinsurance percentage (50%, 60%, 70%, 80%, 90%, 100%) matching estimated net income + operating expenses for 12 months. If the selected limit is inadequate at the time of loss, a coinsurance penalty is applied to the claim payment.

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Builders Risk Coverage

Builders Risk insurance covers buildings and structures during the course of construction, including materials, supplies, and equipment at the job site or in transit to it.

• Covered Property: The building under construction, foundations, fixtures, machinery and equipment that become part of the building, and building materials stored on site or within 100 feet.
• Covered Perils: Typically written on a Special (open perils) form (e.g., CP 00 20), excluding earthquake, flood, water below ground, war, nuclear, and government action.
• Reporting Form: Long-term projects often use a reporting form in which the insured reports monthly values at risk and pays premium on the average value, matching coverage to the rising value as construction progresses.
• Soft Costs: Optional coverage for delayed-opening expenses, interest, and extra financing costs caused by a covered loss that delays completion.
• Termination: Coverage typically terminates 60–90 days after construction is completed or the building is occupied, whichever occurs first.