The Three Causes of Loss Forms: Basic, Broad, and Special

In the world of commercial property insurance, coverage is not determined solely by the property being insured. While the Building and Personal Property Coverage Form identifies what is covered, the Causes of Loss Form identifies how that property must be damaged for a claim to be paid. For the licensing exam, candidates must distinguish between the three primary forms: Basic, Broad, and Special.

These forms are modular components of a commercial property policy. Choosing the right form determines the scope of protection and the premium cost. This guide serves as a critical component of our complete Commercial exam guide, focusing specifically on the perils that trigger coverage. To test your knowledge on these specific forms, you can access practice Commercial questions here.

The Basic Causes of Loss Form is a "named perils" form. This means that if a peril is not specifically listed in the policy document, it is not covered. It is the most restrictive and generally the least expensive option. The Basic Form covers 11 specific perils:

• Fire: Intense combustion resulting in a flame or glow.
• Lightning: Naturally occurring electricity.
• Explosion: Including the explosion of gas or fuel within the furnace or flues.
• Windstorm or Hail: Excluding damage to the interior unless the exterior is first breached.
• Smoke: Sudden and accidental smoke, excluding smoke from agricultural smudging or industrial operations.
• Aircraft or Vehicles: Physical contact with aircraft or vehicles.
• Riot or Civil Commotion: Including looting during the event.
• Vandalism: Willful and malicious damage.
• Sprinkler Leakage: Leakage or discharge from an automatic sprinkler system.
• Sinkhole Collapse: Loss caused by the sudden sinking of land into subterranean voids created by water on limestone.
• Volcanic Action: Damage from airborne shockwaves, ash, or lava (does not include earthquake tremors).

The Broad Causes of Loss Form is also a "named perils" form. It includes all 11 perils found in the Basic Form, plus three additional perils and an additional coverage for Collapse. For exam purposes, remember the acronym F-W-W for the additions:

• Falling Objects: Damage to the exterior of the building; interior damage is only covered if the falling object first penetrates the roof or walls.
• Weight of Snow, Ice, or Sleet: Coverage for the structural collapse or damage caused by the heavy accumulation of frozen precipitation.
• Water Damage: Specifically, the 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.

It is important to note that the Broad Form's Collapse coverage is only triggered by specific causes, such as hidden decay, insect damage, or the weight of people/personal property, provided the building is actually in a state of collapse.

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

Key advantages of the Special Form include:

• Theft Coverage: This is a major distinction. Basic and Broad forms generally do not cover theft of property (other than looting during a riot), whereas the Special Form includes theft unless it is specifically limited (such as employee dishonesty).
• Shifting the Burden of Proof: In a named perils form, the insured must prove that a listed peril caused the loss. In an open perils form, the insurer must prove that an exclusion applies to deny the claim.
• Broader Water Damage: It covers more scenarios of accidental discharge than the Broad form.

Even the Special Form has limitations. There are several "General Exclusions" found in all three Causes of Loss forms. These are typically risks that are considered uninsurable by standard commercial property policies or require separate specialized coverage:

• Ordinance or Law: Costs associated with meeting new building codes during repair.
• Earth Movement: Including 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: Failure of power, communication, or water services occurring away from the premises.
• War and Military Action: Standard exclusion in almost all P&C policies.
• Water/Flood: Including flood, surface water, waves, and sewer backup.
• Fungus, Wet Rot, and Dry Rot: Generally excluded except for limited additional coverage amounts.