Commercial Property: Basic, Broad, and Special Loss Forms

When adjusting commercial property claims, the first step is often identifying which Cause of Loss Form is attached to the policy. These forms define what perils (causes of damage) are covered and what are excluded. For the complete Claims Adjuster exam guide, you must understand the distinction between named perils and open perils.

Standard Commercial Property policies are generally modular, meaning they consist of a Declarations page, Common Policy Conditions, Commercial Property Conditions, a Building and Personal Property Coverage Form, and finally, one of the three standard Causes of Loss forms: Basic, Broad, or Special.

The Basic Form is a named peril form. In a named peril policy, the burden of proof is on the insured to show that the damage was caused by one of the specifically listed perils. If a peril is not listed, coverage does not apply.

The Basic Form typically covers the following 11 perils:

• Fire: Damage from intense heat or flame.
• Lightning: Naturally occurring electricity.
• Explosion: Includes furnace explosions.
• 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 an aircraft or vehicle.
• Riot or Civil Commotion: Includes damage during an uprising or demonstration.
• Vandalism: Willful and malicious destruction of property.
• Sprinkler Leakage: Accidental discharge from an automatic sprinkler system.
• Sinkhole Collapse: Earth sinking into underground empty spaces created by water on limestone.
• Volcanic Action: Damage from ash, dust, or shockwaves (not including earthquake or land tremors).

The Broad Form is also a named peril form. It includes all 11 perils found in the Basic Form, plus three additional perils and a specific coverage extension for Collapse.

The additional Broad Form perils are:

• Falling Objects: Damage to the exterior; interior coverage requires an exterior breach.
• Weight of Snow, Ice, or Sleet: Damage to the building or property inside caused by the weight on the roof.
• Water Damage: 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 system (not including flood).

Additionally, the Broad Form provides Additional Coverage for Collapse, which covers the abrupt falling down or caving in of a building if caused by specific factors like hidden decay, insect damage, or weight of people/personal property.

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

Key characteristics of the Special Form include:

• Burden of Proof: Because it is an open-peril form, the burden of proof shifts to the insurer. If the insurer wants to deny a claim, they must prove that an exclusion applies.
• Theft: The Special Form is the only one of the three that includes coverage for theft (subject to certain limitations and exclusions).
• Property in Transit: Often includes limited coverage for property being transported by the insured.

To master these concepts for your license, you should practice with practice Claims Adjuster questions focusing on the shifting burden of proof.

Regardless of which form is used, there are several standard exclusions that apply to almost all commercial property policies. These are critical for the exam as they often form the basis of trick questions.

• Ordinance or Law: Loss caused by the enforcement of building codes.
• Earth Movement: Includes earthquakes, landslides, and mine subsidence.
• Governmental Action: Seizure or destruction of property by government authority.
• Nuclear Hazard: Damage from nuclear reaction or radiation.
• Utility Services: Loss caused by the failure of power, communication, or water services occurring off-premises.
• War and Military Action: Self-explanatory exclusions for conflict-related damage.
• Water: Specifically refers to flood, surface water, waves, and sewer backup.