Commercial Property: Basic, Broad, and Special Forms

In the world of commercial property insurance, the policy is typically constructed using several components: the Declarations, the Common Policy Conditions, the Commercial Property Conditions, one or more Coverage Forms (such as Building and Personal Property), and a Cause of Loss Form.

The Cause of Loss form is critical because it dictates exactly what events (perils) are covered. Without a Cause of Loss form, the policy identifies what property is insured, but not how it must be damaged to trigger coverage. For the complete TX General exam guide, candidates must distinguish between the three primary ISO (Insurance Services Office) forms: Basic, Broad, and Special.

The Basic Form is a named peril form. This means that if a peril is not specifically listed in the policy, there is no coverage. It provides the narrowest scope of protection among the three forms. To successfully pass practice TX General questions, you must memorize the 11 covered perils:

• Fire: Hostile fire only.
• Lightning: Naturally occurring electricity.
• Explosion: Includes furnace explosions.
• Windstorm or Hail: Excludes damage to the interior unless the exterior is breached first.
• Smoke: Sudden and accidental smoke; excludes industrial or agricultural smoke.
• Aircraft or Vehicles: Physical contact only; excludes vehicles owned by the insured.
• Riot or Civil Commotion: Includes looting.
• Vandalism: Willful and malicious destruction; excludes glass or theft.
• Sprinkler Leakage: Leakage or discharge from an automatic sprinkler system.
• Sinkhole Collapse: Earth sinking into underground empty spaces created by water on limestone.
• Volcanic Action: Airborne blast, ash, and lava flow (excludes earthquake/tremors).

The Broad Form is also a named peril form, but it expands upon the Basic Form. It includes all 11 perils found in the Basic Form, plus three additional named perils and one specific additional coverage.

The three additional perils are:

• Falling Objects: Damage to the exterior is required before interior damage is covered.
• Weight of Snow, Ice, or Sleet: Coverage for the collapse of a roof or damage to the structure.
• Water Damage: Accidental discharge or leakage of water or steam as the direct result of the breaking apart or cracking of a plumbing, heating, or air conditioning system.

Note: The Broad Form also includes Collapse as an additional coverage, provided the collapse is caused by specific hidden factors like decay, insect damage, or the weight of people/personal property.

The Special Form is the most common form used in modern commercial insurance. Unlike the Basic and Broad forms, it is an Open Peril (formerly called "All-Risk") form. It does not list covered perils; instead, it covers all direct physical loss unless the loss is specifically excluded.

This shifts the burden of proof. Under the Basic and Broad forms, the policyholder must prove that a listed peril caused the damage. Under the Special Form, the insurance company must prove that an exclusion applies to deny the claim.

Common exclusions in the Special Form include:

• Wear and tear, rust, or corrosion.
• Smog, pollutants, and mechanical breakdown.
• Settling, cracking, shrinking, or expansion.
• Damage by insects, birds, rodents, or other animals.
• Dishonest acts by employees.