Commercial Property: Causes of Loss Forms

In the world of commercial insurance, the policy structure is modular. A standard Commercial Property Policy (CPP) consists of several components, including the Declarations page, Common Policy Conditions, the Commercial Property Coverage Form (such as Building and Personal Property), and the Causes of Loss Form. For an adjuster, the Causes of Loss form is the most critical document for determining whether a specific event triggers coverage.

There are three primary Causes of Loss forms used in the industry: Basic, Broad, and Special. The first two are "named peril" forms, while the third is an "open peril" form. Understanding the nuances between these forms is a fundamental requirement for the complete Independent Adjuster exam guide and your daily practice in the field.

The Basic Form is the most restrictive of the three. It is a named peril form, meaning that if a peril is not specifically listed in the policy, coverage does not apply. The burden of proof rests on the insured to show that the damage was caused by one of the following 11 listed perils:

• Fire: Intense combustion resulting in a flame or glow.
• Lightning: Naturally occurring electricity.
• Explosion: Includes furnace explosions, but generally excludes steam boiler explosions (which require Boiler and Machinery coverage).
• Windstorm or Hail: Excludes damage to the interior unless the exterior sustains an opening first.
• Smoke: Must be sudden and accidental; excludes smoke from agricultural smudging or industrial operations.
• Aircraft or Vehicles: Physical contact with the property.
• Riot or Civil Commotion: Includes looting during the event.
• Vandalism: Willful and malicious destruction.
• Sprinkler Leakage: Leakage or discharge from an automatic sprinkler system.
• Sinkhole Collapse: Settlement resulting from subterranean voids created by water on limestone or dolomite.
• Volcanic Action: Airborne blast, ash, or lava flow (excludes earthquake/tremors).

The Broad Form is also a named peril form, but it expands upon the Basic Form by adding three specific perils and an additional coverage extension. As an adjuster, you must recognize that the Broad Form still requires the insured to prove the cause of loss falls within the definitions.

The three additional perils in the Broad Form are:

• Falling Objects: Covers damage to the exterior of the building and the interior contents (if the exterior is breached first).
• Weight of Snow, Ice, or Sleet: Covers structural damage and contents damage resulting from the weight of frozen precipitation.
• Water Damage: Specifically refers to the "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." Note that this does not cover flood or gradual seepage.

The Broad Form also includes Collapse as an additional coverage, which applies if the collapse is caused by specific perils like hidden decay, insect damage, or weight of people/property.

The Special Form is the most common form used in commercial property today. Unlike Basic and Broad, it is an Open Peril form (formerly known as "All-Risk"). Instead of listing what is covered, the Special Form covers all causes of direct physical loss unless the cause is specifically excluded.

One of the most important distinctions for the exam is the Burden of Proof. In a Special Form claim, the insurer must prove that an exclusion applies to deny the claim. If they cannot find an applicable exclusion, the loss is covered. This form automatically includes theft of covered property, which is a significant advantage over the Basic and Broad forms where theft is generally not a named peril.

For more practice on identifying covered losses, check out our practice Independent Adjuster questions.

Regardless of which form is used, there are several "Standard Exclusions" that apply across the board. Adjusters must be vigilant in identifying these during the investigation phase:

• Ordinance or Law: Costs associated with complying with 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: Loss caused by the failure of power or other utility services supplied to the premises if the failure occurs away from the premises.
• War and Military Action: Standard exclusion in almost all P&C policies.
• Water: This includes flood, surface water, waves, and sewer backup.
• Fungus, Wet Rot, and Dry Rot: Usually subject to a very small sub-limit or excluded entirely unless resulting from a covered fire/lightning loss.