Commercial Property: Causes of Loss Forms

In commercial property insurance, the policy structure typically separates the "what is covered" (the coverage form) from the "how it is damaged" (the causes of loss form). For an independent adjuster, understanding the nuances between the three primary causes of loss forms is critical for determining whether a claim is payable. These forms are attached to the Commercial Property Building and Personal Property Coverage Form to define the perils insured against.

There are three standard ISO (Insurance Services Office) causes of loss forms: Basic, Broad, and Special. While the Basic and Broad forms are "named peril" forms, the Special form is an "open peril" form. Mastery of these distinctions is a core requirement for the complete Independent Adjuster exam guide.

The Basic Form is the most restrictive of the three. It covers loss or damage resulting from 11 specifically named perils. If a loss occurs and the peril is not on this list, there is no coverage. As an adjuster, when working with a Basic Form, the first step is to identify if the event matches one of these definitions:

• Fire: Resulting from ignition.
• Lightning: Naturally occurring electricity.
• Explosion: Including furnace explosions.
• Windstorm or Hail: Excluding damage to the interior unless the exterior is breached first.
• Smoke: Sudden and accidental smoke damage (excluding industrial operations).
• Aircraft or Vehicles: Physical contact with the property.
• Riot or Civil Commotion: Including employee strikes.
• Vandalism: Willful and malicious destruction.
• Sprinkler Leakage: Leakage or discharge from an automatic sprinkler system.
• Sinkhole Collapse: Direct loss caused by the sudden sinking of land into subterranean voids.
• Volcanic Action: Airborne shockwaves, ash, and lava flow (excludes earthquake/tremors).

The Broad Form includes all 11 perils found in the Basic Form, plus three additional perils and a specific additional coverage for Collapse. This form bridges the gap between the minimal coverage of the Basic Form and the comprehensive nature of the Special Form.

The three additional perils are:

• Falling Objects: Damage to the exterior of the building; interior damage is only covered if the falling object first breaches the roof or walls.
• Weight of Snow, Ice, or Sleet: Coverage for the structural collapse or damage caused by the weight of winter precipitation.
• 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 on Collapse: The Broad Form includes collapse as an "Additional Coverage," but it is strictly defined. It typically covers collapse caused by hidden decay, hidden insect damage, weight of people or personal property, or weight of rain that collects on a roof.

The Special Form is the most widely used in commercial insurance. Instead of listing what is covered, it states that it covers "risk of direct physical loss" unless the loss is specifically excluded. This provides much broader protection because it covers unusual or "freak" accidents that don't fit into the named peril categories.

Key advantages of the Special Form include:

• Theft: Unlike Basic and Broad, the Special Form includes coverage for theft of building materials and business personal property (though specific sub-limits and exclusions for "mysterious disappearance" apply).
• Friendly Fire: Coverage for smoke or heat damage from a fire that stays within its intended container (like a fireplace), which is often excluded in the other forms.
• Water Damage: Broader coverage for water damage, including the cost to tear out and replace parts of the building to repair the system that caused the leak.

Regardless of which form is used, certain exclusions are almost universal across commercial property insurance. These are often referred to as the "General Exclusions" or "Concurrent Causation" exclusions. Adjusters must be familiar with these to ensure they do not incorrectly approve a claim caused by an excluded event.

• Ordinance or Law: Costs associated with meeting new building codes during a repair.
• Earth Movement: Including earthquakes, landslides, and earth sinking (except for the specific sinkhole peril in Basic/Broad).
• Governmental Action: Seizure or destruction of property by government authority.
• Utility Services: Failure of power, communication, or water supply if the failure originates away from the premises.
• War and Military Action: Self-explanatory.
• Water: Flood, surface water, waves, tides, and backup of sewers or drains.
• Fungus, Wet Rot, and Dry Rot: Usually limited to a small sub-limit if covered at all.