Commercial Property: Basic, Broad, and Special Loss Forms

In commercial property insurance, the policy structure typically includes several components: declarations, common policy conditions, commercial property conditions, and the Causes of Loss Form. The Causes of Loss form is critical because it dictates exactly which perils (events that cause damage) are covered under the policy. For a claims adjuster, identifying which form is attached to the policy is the first step in determining whether a loss is compensable.

There are three primary forms used in the industry: Basic, Broad, and Special. While the Basic and Broad forms operate on a "named peril" basis, the Special form operates on an "open peril" basis. Understanding the nuances between these forms is a fundamental requirement for the complete Claims Adjuster exam guide and daily field operations.

The Basic Causes of Loss form is the most restrictive of the three. It is a named peril form, meaning that for coverage to apply, the loss must be caused by one of the specific perils listed in the document. If a peril is not listed, there is no coverage.

The standard Basic form typically covers the following 11 perils:

• Fire: Damage from combustion.
• Lightning: Naturally occurring electricity.
• Explosion: Including furnace explosion (with specific exceptions).
• Windstorm or Hail: Damage to the exterior; interior damage is only covered if the exterior is breached first.
• Smoke: Must be sudden and accidental.
• Aircraft or Vehicles: Physical contact with the property.
• Riot or Civil Commotion: Includes looting during the event.
• Vandalism: Willful and malicious destruction.
• Sprinkler Leakage: Accidental discharge from an automatic system.
• Sinkhole Collapse: Sudden sinking of land into subterranean voids created by water on limestone.
• Volcanic Action: Damage from lava, ash, and airborne shockwaves (excludes earthquake/tremors).

The Broad Causes of Loss form is also a named peril form, but it expands upon the protections offered by the Basic form. It includes all 11 perils found in the Basic form plus several additional causes of loss that frequently affect commercial properties.

The "Broad-only" perils include:

• Falling Objects: Coverage for damage to the exterior; interior coverage requires an exterior breach.
• Weight of Snow, Ice, or Sleet: Coverage for structural collapse due to the weight of frozen precipitation.
• Water Damage: Accidental discharge or leakage of water or steam resulting from the breaking apart or cracking of a plumbing, heating, or air conditioning system.

Additionally, the Broad form includes a specific Additional Coverage for Collapse. This coverage applies only if the collapse is caused by specific factors like hidden decay, hidden insect damage, weight of people or personal property, or use of defective materials in construction.

The Special Causes of Loss form is the most common form used in modern commercial insurance. Unlike the Basic and Broad forms, it is an open peril form (formerly called "all-risk"). Instead of listing what is covered, the Special form states that it covers all direct physical loss unless the cause of loss is specifically excluded.

For adjusters, the Special form shifts the burden of proof. Under Basic and Broad forms, the policyholder must prove that a named peril caused the damage. Under the Special form, the insurer must prove that an exclusion applies to deny the claim. Common exclusions in the Special form include:

• Earth movement (earthquakes, landslides).
• Flood and surface water.
• Wear and tear or gradual deterioration.
• Mechanical breakdown.
• Governmental action (seizure of property).
• Dishonest acts by employees.

One significant advantage of the Special form is that it provides coverage for theft of covered property, which is generally absent from the Basic and Broad forms.