Common Exclusions in Commercial Property Policies

In the world of commercial property insurance, understanding what is covered is only half the battle. For a public adjuster, the real challenge lies in identifying what is not covered. Most modern commercial policies utilize the "Special Form" (ISO CP 10 30), which provides coverage on an "open perils" basis. This means everything is covered unless it is specifically listed as an exclusion.

For those preparing for the complete Public Adjuster exam guide, mastering these exclusions is critical because they form the basis of most claim denials and partial settlements. Exclusions are generally categorized into those subject to "Anti-Concurrent Causation" (ACC) language and those that are not. ACC language states that if an excluded peril contributes to a loss, the loss is excluded regardless of any other cause contributing concurrently or in any sequence to the loss.

There are several categories of exclusions that are almost universal in standard commercial property policies. These are often referred to as the "big" exclusions because they involve catastrophic risks that insurers are unwilling to cover without specific separate policies or high-cost endorsements.

• Ordinance or Law: This excludes the increased cost of construction or loss of value caused by the enforcement of any ordinance or law regulating the construction, use, or repair of any property. While the fire damage itself is covered, the extra money needed to bring the building up to current electrical codes is not, unless an endorsement is purchased.
• Earth Movement: This includes earthquakes, landslides, mine subsidence, and volcanic eruption. It is important to note that if earth movement results in a fire or explosion, the resulting damage from fire or explosion is usually covered.
• Water: This is a broad exclusion covering flood, surface water, waves, tides, tidal water, and the overflow of any body of water. It also typically excludes water that backs up from sewers or drains and underground water that seeps through foundations.
• Power Failure: The failure of power or other utility services supplied to the described premises, if the failure occurs away from the premises. However, if the power failure results in a covered peril (like a fire), that resulting damage is covered.

Beyond catastrophic events, insurers exclude losses that are considered part of the cost of doing business or lack of proper maintenance. These exclusions ensure that the insurance policy does not become a "maintenance contract."

• Wear and Tear: Gradual deterioration of the property over time is never covered. This includes rust, corrosion, decay, and hidden or latent defects.
• Mechanical Breakdown: The sudden failure of machinery or equipment (like an HVAC compressor seizing) is excluded. This is usually covered under a separate Boiler and Machinery (Equipment Breakdown) policy.
• Inherent Vice: This refers to a quality within the property itself that causes it to damage or destroy itself. For example, the natural tendency of certain agricultural products to spontaneously combust or the tendency of fur to shed.
• Pollution: Most policies exclude the discharge, dispersal, seepage, migration, or release of pollutants unless the release is caused by a "specified cause of loss" (like fire or lightning).

For adjusters, the distinction between a "sudden and accidental" event and a "long-term maintenance issue" is a frequent point of contention. Practicing with practice Public Adjuster questions can help you learn to spot these nuances in exam scenarios.

There are several other exclusions that often appear on the Public Adjuster exam. These include:

• Dishonesty: Criminal or dishonest acts by the insured, partners, employees, or anyone with an interest in the property.
• False Pretense: Voluntary parting with property if induced to do so by any fraudulent scheme, trick, or device.
• Neglect: Failure of the insured to use all reasonable means to save and preserve property from further damage at and after the time of loss.
• Steam Boiler Explosion: While fire damage from an explosion is covered, the explosion of steam boilers, steam pipes, or steam engines owned or operated by the insured is excluded.