CHAPTER THREE - COMMERCIAL PROPERTY POLICY FORMS

 

The Basic and Broad Forms are written on a Named Peril basis, whereas the Special Form is written on an Open Perils basis (similar to an all - risk).

The Basic Form permits coverage under causes of loss discussed below and the Broad Form adds four additional causes of loss

Each of the three forms may be broadened by Earthquake Form, discussed later.

COVERAGE’S

 

 

FIRE AND/OR LIGHTNING -

The policy covers both perils and loss by lightning is covered whether or not fire ensues.

The fire must be “hostile” in order for the loss to be covered as opposed to a “friendly fire”.

 

 

 

 

A friendly fire is one which is intentionally started and is confined entirely within the area for which it was intended (stove, fireplace, etc.).

 

A hostile fire is one, which escapes from its intended area.

As soon as (or if) a friendly fire escapes from the intended area or confined space, it becomes hostile.  Heat damage from a friendly fire is not considered as a hostile fire.

 

Proximate Cause  -  Covers loss by which fire is the proximate cause.  Proximate is defined as very close in space or time that creates a result without interference or intervention of any force or factor from an independent source.

 

 

 

ILLUSTRATION:

 

ILLUSTRATION:

 

Restaurant activity provides good illustrations of this principal.  If a stove fire causes enough heat to damage adjacent walls, it is considered a friendly fire and there is no coverage.  However, if grease in a pan on the stove catches fire, the fire is now considered hostile and damage would be covered.

 

 

EXPLOSION

 All explosion losses are covered with the exception of steam boilers, turbines, pipes, etc.  Any damage done because of bursting of water contained or steam boilers, etc., are not explosions.  Any explosion because of gases, gasoline, dry cleaning fluids, etc., will be covered.

 

Any explosion other than the kind specifically excluded can be covered, e.g., explosion of gases, gasoline, naphtha or other volatile explosion devices using compressed air, etc.

 

 

WINDSTORM OR HAIL PROVISIONS

Damage by windstorm or hail is covered under the Basic Form.  Damage caused by frost, cold weather, ice (other than hail), or snow is not covered.  Also, any interior damage caused by rain, snow, sand or dust is not covered unless the wind or hail creates actual damage to the roof or walls of the building; in which case the policy will pay for damage caused by these elements entering through openings made by the wind or hail.

Coverage against windstorm or hail may, be excluded from the policy and the premium therefore reduced.

 

SIGNS

Outdoor property, such as antennae, signs, trees and other landscaping, is not covered, although outdoor signs and antennae may be added for an additional premium.

 

 

 

SMOKE

Smoke causing sudden and accidental loss is covered, except when due to agricultural or industrial causes.

 

 

 

 

 

AIRCRAFT OR VEHICLES

 Loss or damage to the insured property as the result of physical contact with an aircraft or vehicle, or from falling objects from an airplane, is covered.  The policy excludes loss or damage caused by vehicles owned or operated by the Insured.

 

 

 

RIOT OR CIVIL COMMOTION

Coverage is provided under the Basic Form.  The term “riot” is defined by statute in the various states and should be researched as definitions can vary.

 

Civil Commotion is defined as “an uprising among a group of people which occasions a serious and prolonged disturbance and infraction of civil order, not attaining the status of war or armed insurrection.” 

 

 

VANDALISM

Damage by vandals or youth gangs would not be covered, but direct loss caused by striking employees on the premises is covered.  Looting at the time and place of riot or civil commotion is covered.

 

 

 

Theft loss caused by burglars is not covered, but damage to the buildings because of burglars would be covered, but contents or any property other than buildings is not excluded.  Also, if the building has been vacant for 60 consecutive days prior to the loss, there is no coverage under this provision (Can be deleted).

 

SPRINKLER LEAKAGE

Sprinkler Leakage covers loss caused by the leaking of or discharge of water or other substance used in the sprinkler system or from the collapse of a tank that is part of the system, or hydrants, standpipes and outlets supplied by the automatic sprinkler system.  Leakage due to condensation on the pipes is covered.  This can also be deleted with a decrease in premium.

 

SINKHOLE COLLAPSE

Loss of damage caused by land suddenly sinking or collapsing because of the action of water or limestone.  Filling the sinkhole, or the collapse or sinking of land into underground cavities, such as old mines, is not covered.

 

VOLCANIC ACTION

Losses due to volcanic activities such as the airborne blast or shock waves, the ensuing ash or other particulate matter, or lava flow, are covered.  It doesn’t pay for removing ash or other volcanic matter, and applies only to losses above ground; i.e. earthquake insurance would be necessary to cover any damage as the result of earth movement.

NOTE:      All damage sustained within a 72 hour period is considered as one loss.  Any damage sustained after a 72 hour period is considered a new loss subject to the limits and deductible applicable to each.

 

EXCLUSIONS

 

War, Insurrection, Military Action, Rebellion - The policy does not cover losses due to war, insurrection or military events, including any action used to resist enemy attack.

 

 

Governmental Authority - The policy does not cover losses due to seizure or detention of property by any governmental authority except when for the purpose of fighting or resisting the spread of fire.

 

 

Power Failure - There is no coverage for losses caused by loss of power from a utility service away from the premises.  Coverage can be purchased for an additional premium.

 

 

 

Nuclear Hazards - Nuclear reaction or radiation or radioactive contamination regardless of the cause, is excluded, but any resulting fire damage would be covered.

 

 

 

 

Building Ordinance - Any losses as the result of any building ordinance is not covered.

 

 

ILLUSTRATION:

ILLUSTRATION:

 

Earth Movement - Any earth movement, other than sinkhole coverage described above, including earthquake, landslide, mine collapse, etc., would be covered.  Earthquake insurance may be separately purchased.  Fire caused by earth movement would be covered.

 

 

 

Water Losses - Losses by flood, surface water, tide, or spray, or water that enters through a sewer or drain, or seepage through foundations or walls, floors or paved surfaces, are not covered.  If such leakage results in fire or explosion or sprinkler leakage, the policy will pay for the resulting loss or damage.  There is no coverage for mudslide or mudflow.

 

Electrical Apparatus Clause - If damages are suffered to electrical appliances or wiring because of electrical injury from artificial causes, losses are not covered.  If fire damage follows, the fire damage is covered, and damage to such equipment because of lightning is covered.

 

 

Explosion of Steam Boilers - If the steam boiler, pipe, turbine or engine is owned or operated or controlled by the insured, any resulting explosion of this equipment is not covered under the policy.

 

 

 

Mechanical Breakdown  -  Mechanical breakdown
is not covered.

 

 

Vacancy - Losses that occur in a building which has been vacant for more than 60 consecutive days before a loss is not covered under the policy.  For purposes of this provision, property is considered to be vacant when it does not contain enough business personal property to conduction normal business operations.  If the building is vacant, there also is no coverage for losses due to vandalism, theft, attempted theft, sprinkler leakage, or building glass breakage.  For other losses which occur under these conditions, the Company will pay only 85% of the amount of the loss.  Buildings under construction are not considered vacant.

 

 

 

 

 

COMMERCIAL PROPERTY POLICY - BROAD FORM

The second of the three forms under which the Commercial Property Policy is written is the Broad Form.

COVERAGE’S

 

The Broad Form policy covers all the causes of loss (perils) insured by the Basic Form (discussed directly above) and is identical with that policy on coverage afforded by the causes of loss listed above.

In addition, the Broad Form adds coverage on the following causes of loss:

 

Glass breakage - While the Basic Form covers damage to glass which is part of a building when caused by the perils insured under that policy (except for vandalism), the Broad Form insures against breakage of glass (which is part of a structure) from any cause.  The maximum payable in any one occurrence is $500 with no more than $100 on any single plate, pane, multi-pane insulating unit, radiant or solar heating panel, jalousie, louver or shutter.

 

Neon Signs - Specifically excluded from coverage is neon tubing attached to the building.  It should also be noted that there is no coverage for damage to glass objects, which are contained in a building but are not part of the structure.

 

Falling Objects - While the Basic Form covers damage to insured property by vehicle or aircraft making physical contact with the property, or by objects falling therefrom, the Broad Form covers any damage by falling object except to personal property, in the open, or to property within a building, unless the falling object has first damaged the wall or roof of the structure.

 

 

Weight of Snow, Ice or Sleet - The Broad Form covers loss to insured property by snow, ice or sleet except to gutters and down - spouts or to any property outside of the building.

 

 

 

Water Damage  - Policy covers loss due to the accidental discharge of water or steam resulting from the breaking or cracking of any vessel containing water or steam.

If the policy covers a building or structure, it will also pay the cost of tearing out and replacing any part of the structure in order to repair the damage to the system or appliance.

 

There is no coverage for losses which are caused by continuous leakage or seepage which occurs over a period of 14 days or more to losses caused by freezing unless the Insured has done his best to maintain the heat in the building, or has drained the water system if the heat is not maintained.

While the policy pays for the loss caused by the leakage, it will not be liable for the cost of repairs or replacement of the system itself.

 

 

Additional Coverage - Collapse  -  The Broad Form policy will pay for direct physical loss caused by the collapse of a building or a part thereof but only if the collapse is caused by one of the perils insured under the Broad Form coverage part:

 

ILLUSTRATION:

 

 

 

COMMERCIAL PROPERTY POLICY - SPECIAL FORM

COVERAGES

The difference between the Special Form and the Basic/Broad Forms  - each of which spells out the specific perils assumed under the policy, the Special Form covers “risks of physical loss” excluding only causes of loss which are specially enumerated in the policy, or which provides only restricted coverage as stated in the policy provisions.

 

 

Theft - The policy provides coverage against theft of most personal property, but may be excluded by endorsement.

 

 

Thawing of Ice or Snow - The Special Form covers loss to the interior of the building when caused by the melting or thawing of ice or snow.

 

 

 

Collapse - As an additional coverage, The Special Form provides protection against collapse, as described in the Broad Form.

 

 

 

Property In Transit - Personal property located more than 100 feet from the Insured’s premises and while being transported by motor vehicles owned, leased or operated by the Insured, is covered.  It does not cover any property in the care or custody of or under the control of any salespersons of the Insured.

 

 

 

 

EXCLUSIONS

The Special Form is subject to all the exclusions which are part of the Basic Form with some variations or additions.

The policy does not address causes of loss, but covers “Risk of Physical Loss”, with specific exclusions of:

• wear and tear,
• rust, corrosion, fungus, decay, deterioration, loss due to inherent defect or inherent vice,
• smog, release or discharge or contaminants or pollutants,
• settling, cracking, shrinking or expansion,
• insects, birds, rodents or other animals,
• mechanical breakdown, rupture or bursting caused by centrifugal force.

 

Personal property covered under the Special Form excludes marring, scratching, and damage by water, rain, snow, ice or sleet.

Glass Breakage is covered if the loss or damage would be covered under the Broad Form.

Dishonest Acts of Insured, Employees and Others - The Special Form excludes losses by dishonest acts of the Insured, his partners, employees directors, trustees or authorized representatives or anyone who is entrusted with the property.  However, destructive acts by employees are covered.

Theft - The Special Form covers most types of personal property by theft but can be excluded by endorsement with an appropriate reduction in premium.

Weather Conditions - The Special Form excludes losses due to any weather condition contributing to a loss which is excluded by the underlying policy provisions.

Acts or Decisions - The policy also doesn’t cover any losses that may be due to the failure of any person, organization or government body to act or any decisions they may render.

Faulty Design, Planning, Etc. - The Special Form does not provide coverage for losses arising from faulty, inadequate or defective planning or design, workmanship, repair, construction, grading or compaction; or due to maintenance or materials used in repair or construction.

Voluntary Surrender of Property - The Special Form does not cover losses that arise because the insured, or anyone to whom he has entrusted the property, gives up the property and the act of giving was induced by a fraudulent scheme, or under fraudulent or illegal pretense.

ILLUSTRATION:

 

 

LIMITATIONS:

The Special Form contains limitations on the following losses:

Hot Water Boiler - Damage to hot water heating equipment resulting from any condition of or stemming from the equipment, except if due to explosion.

Rain, Snow, Sleet, Ice, Sand or Dust - Coverage is not provided for any damage by rain, snow, sleet, ice, sand or dust to the interior of any building unless the building is first damaged by a covered cause of loss, allowing rain, snow, ice, sleet, sand or dust to enter through the damaged property, or through the ice, sleet or snow thawing.  Specifically excluded is damage to gutters and downspouts by the weight of ice, snow or sleet.

Missing Property - There is no coverage for loss by theft of certain building materials, and there is no coverage for missing property with no explanation, or “disappearing” property.

 

PROPERTY NOT COVERED

 

Certain types of property are excluded from coverage under the policy, or are restricted in coverage.

 

Unless caused by the “specified causes of loss” or by glass breakage, the policy, will not pay for loss or damage to:

 

 

Valuable papers and records, such as books of account, manuscripts, abstracts, drawings, card index systems, film, tape, disc, drum, cell or other data processing, recording or storage media and other records.

 

 

Animals, and then only if they are killed or their destruction made necessary.

 

 

 

 

 

 

Builders’ machinery, tools and equipment owned by the Insured or entrusted to him, except for such property held for sale by the Insured.

 

 

 

 

 

Fragile articles such as glassware, statuary and porcelains, if broken.  An exception from the exclusion is made for glass, which is part of a building, containers of property held for sale, or lenses for photographic or scientific instruments.

 

 

 

Jewelry and Furs Limitations - The policy, will not be liable for more than $2,500 for loss by theft to furs and fur garments, jewelry, watches, pearls, precious and semi - precious stones or precious metals or alloys.

 

ILLUSTRATION:

ILLUSTRATION:

 

ILLUSTRATION:

 

ILLUSTRATION:

 

 

 

EARTHQUAKE INSURANCE

 

Earthquake insurance may be provided by special endorsement.

 

The Special Form adds coverage against perils of earthquake and volcanic eruption.  For purposes of determining coverage and the extent of damage earthquake shocks and volcanic eruptions that happen within a 168-hour period and that started while the policy was in effect, are considered as one event. 

A special endorsement is available that provides coverage for earthquake or volcanic eruptions that began within 168 hours before the policy takes effect and cause damage within the policy period.

EXCLUSIONS

The Earthquake Form contains the same exclusions as appears in the three forms under which the Commercial Property Policy is written.

The Earthquake Form adds a specific exclusion excluding loss or damage to exterior masonry veneer on wood frame structures.  Coverage may be provided for an additional premium.

The effect of the 168-hour provision affects the amount that may be recovered for certain events.

ILLUSTRATION:

MISCELLANEOUS PROPERTY FORMS

BUILDERS RISK COVERAGE FORM

The Builders Risk Coverage Form incorporates the provisions of the Commercial Property forms, modified to make it adaptable to the class of property at risk.

The Builders Risk Forms may be attached to any of the three forms of the Commercial Property policy: Basic, Broad or Special Form.

Buildings Under Construction - The policy covers buildings or structures under construction as described in the Declarations, and includes foundations and other temporary structures on the site if not covered by other insurance.

The policy may, also be written to cover renovations under construction, with a maximum payment of $2,500 at each described premise.

 

EXCLUSIONS:

Land or water

Property Outside Buildings such as lawns, trees, plants or shrubs, radio and TV antennas, including their lead - in wiring, masts or towers.  Signs not attached to buildings are covered to a maximum of $1,000.

 

Coinsurance  -  The Builders Risk policy is subject to 100% Coinsurance.

Cessation of Coverage  -  Coverage ceases when the policy expires, is canceled or when the Insured’s interest in the property ceases by transfer to the purchaser, or it is put to the use for which it was designed, or the property is abandoned.

OTHER BUILDERS RISK FORMS:

• Builders Risk Monthly Value Reporting Form - Insurance may also be written on a Form under which the Insured reports monthly the values of the construction to - date.  This Form is available to larger risks whose property values either fluctuates, or they frequently as a matter of business, acquire or relinquish locations other than their basic premises periodically.
• Builders Risk Renovation - Covers the renovation values without the basic structure being renovated.
• Builders Risk Contractors Interest - There are two available forms: one includes the value of the contractors’ labor, materials and supplies; and the second form excluding such values.
• Collapse During Construction - The Broad and Special Forms may be endorsed to cover collapse due to defective materials or methods which occur during construction.

 

 

ILLUSTRATION:

 

Coverage can also be purchased for Additional Covered Property, Acquired Locations and Incidental Locations.

 

GLASS COVERAGE FORM

Even though glass insurance is usually referred to as “Plate Glass policy”, the Comprehensive policy may be used to cover most types of glass, including structural glass, leaded glass, mirrors, Thermopane, barber poles, burglar alarm foil, Plexiglas, tropical doors, windows and shutters, glass of special manufacture, etc.  Glass, such as types of art glass and stained glass windows which are insurable under Inland Marine Forms, are not insurable under Glass coverage.

Glass can be written by Schedule Policies or Blanket Policies.

The Glass policy will also pay for repairing or replacing frames encasing insured glass when damage to the glass makes it necessary to replace or repair the frames.

The policy will also pay for installing temporary plates or boarding up windows or other openings, when the glass cannot be replaced on a timely basis.

The policy may be extended to cover additional glass that is exchanged for the same type of glass as described in the policy, either at the same location or at one acquired by the insured.

The Glass policy insures against loss caused by breakage or chemical applied to glass, subject to the exclusions outlined below.

EXCLUSIONS:

                                                            War,

 Fire                                                                Invasion, Civil                      Commotion

 

                                     

 

 

 

 

Nuclear                                                                                    Cracked Glass

Hazard

 

 

 

Vacancy  -  The building has been vacant for more than 60 consecutive days (unless additional premium has been paid).

 

 

 

ILLUSTRATION:

 

Optional Coverage - Large Plate Replacement  -  On plates with an area of 100 sq. feet or more, the Company has the option of replacing such glass with two or more plates with a combined area equal to that of the described plate.  The number of plates will not exceed the number shown in the policy

 

STUDY QUESTIONS

1.  Under a Commercial Package Policy, Basic Form, water losses

        A.  are always covered regardless of source of water.

        B.  are not covered if caused by flood, surface water, or tide.

        C.  that enter the building through the drain are always covered.

        D.  are not covered, except for tide which is always covered.

 

2.  Snow on Michelle’s roof caused part of the roof to collapse, destroyed the gutters and downspouts, and damaged an adjacent tool shed.  What is covered?

        A.  The roof, gutters & downspout, and tool shed.

        B.  The roof only.

        C.  The roof and the toolshed only.

        D.  Only the gutters and downspout.

 

3.  The Broad Form is the same as the Basic Form as far as coverages are concerned, except

  A.  the Basic Form covers any damage caused by the collapse of a roof
          because of the amount of snow and ice on the roof.

  B.  the Broad Form covers damage created by broken water pipes.

  C.  the Basic Form does not cover damage by unfriendly fire.

  D.  the Broad Form does not cover damage by unfriendly fire.

 

4.  Damage caused by fallen objects are covered

  A.  under both the Broad Form and the Basic Form.

  B.  by the Broad Form only.

  C.  by the Basic Form only.

  D.  only under specific Floaters.

 

5.  Glass Breakage is covered

  A.  only by the Broad Form.

  B.  only by the Basic Form

  C.  Not covered by either Basic or Broad Form.

  D.  by the Basic Form and  is covered by any cause under the Broad form.

 

6.  In a previous Illustration, an employee discounted merchandise (computers) to a friend against the wishes of the employer.  The company has the Special Form coverage.  The employee later installed a computer virus in the machines in stock.

        A.  The insurer will pay for the losses suffered as a result of the 
             unapproved discounts.

        B.  The insurer will not pay for the losses suffered as a result of the
            unapproved discounts.

        C.  The insurer will pay for the loss due to dishonesty because
             they must also pay for the damage to the computers.

        D.  The insurer would only pay for the damage to the computer, not the
            discounts.

 

7.  Exclusions under the Special Form, include

        A.  damage created by lightning.

        B.  losses as a result of infestation of mice and rats.

        C.  theft of personal property.

        D. damage to the inside of a business building caused by ice & snow.

 

8.  Which glass items are excluded under the Special Form:

        A.  lenses for cameras.

        B.  glass windows in the front of an office building.

        C.  statues where are replicas of Greek statues.

        D.  glass showcases that hold watches sold by the company.

 

9.  Specific exclusions of the Special Form include

        A.  thawing of ice or snow.

        B.  wear and tear.

        C.  collapse of property.

        D.  fire.

 

10.  Builders Risk Insurance specifically covers

        A.  television antennas.

        B. buildings under construction.

        C. pollution to water on the premises.

        D.  trees and plant surrounding buildings.

 

ANSWERS TO STUDY QUESTIONS

 

1B     2B     3B     4B     5D     6B     7B     8C     9B     10B