9.2 Commercial Property Coverage Part

When a Commercial Package Policy (CPP) includes the Commercial Property Coverage Part, the property coverage is subject to additional conditions that apply specifically to commercial property insurance. In addition, the policy uses standard Causes of Loss forms to identify which perils are covered. A peril is a cause of loss, such as fire, windstorm, theft, or vandalism. The Causes of Loss form is important because it determines whether a particular loss is covered under the Commercial Property Coverage Part.

Commercial Property Conditions

Commercial property policies include additional standard conditions that apply specifically to the Commercial Property Coverage Part. These conditions are separate from, and in addition to, the Common Policy Conditions that apply to every Commercial Package Policy. The Common Policy Conditions govern the policy as a whole, while the commercial property conditions address matters that are unique to property coverage, such as how losses are handled, how property values are determined, and the duties that apply after a property loss.

Concealment, Misrepresentation, or Fraud

The insurer has the right to void the policy if any insured intentionally conceals or misrepresents a material fact. A material fact is important information that could affect the insurer’s decision to provide coverage, determine premiums, or handle a claim. This condition applies to facts involving the coverage part, the covered property, or a property claim. If an insured intentionally provides false information or withholds important information, the insurer may treat the policy as if it were never valid.

Control of Property

Coverage will not be affected by the act or neglect of a person who is not under the named insured’s control or direction. This means the named insured does not lose coverage because of the actions or failures of someone they do not control. If a policy condition is breached, the breach applies only to the location where it occurred. Coverage for other insured locations remains unaffected. This condition is important for businesses with multiple locations because a problem at one location does not automatically eliminate coverage at all other covered locations.

Insurance Under Two or More Coverages

If the same loss is covered under two or more sections or coverages within the policy, the insurer will not pay more than the actual amount of the loss or damage. This condition prevents the insured from receiving duplicate payment for the same loss. Even when more than one coverage may apply, the total amount paid by the insurer cannot exceed the amount needed to cover the actual loss.

Legal Action Against Us

Before the insured may bring legal action against the insurer, all policy terms and conditions must be satisfied. This means the insured must first comply with the duties and requirements stated in the policy. If legal action is brought, it must be filed within 2 years after the date of loss. This time limit helps establish a clear deadline for resolving disputes related to a covered property loss.

Liberalization

If the insurer broadens coverage during the policy period and does not charge an additional premium for that broader coverage, the broadened coverage will automatically apply to the policy. This condition benefits the insured by allowing certain coverage improvements to apply without requiring a separate endorsement or additional premium.

No Benefit to Bailee

Insurance is intended to protect the insured’s financial interest in the covered property. Coverage under the policy is for the benefit of the insured and should not create a benefit for any other person or organization unless the policy specifically provides otherwise. This condition helps clarify that the policy is not designed to protect outside parties who do not have rights under the insurance contract.

Other Insurance

If other insurance also applies to the same loss, the Commercial Property Coverage Part will determine how much it must pay. When the other insurance is written on the same basis and is subject to the same plan, terms, conditions, and provisions, the policy will pay its share of the loss on a pro rata basis. This means the insurer pays the proportion of the loss that its applicable limit of insurance bears to the total limits of all insurance that applies to the loss. If the other insurance is not written on the same basis or is not subject to the same terms and conditions, the Commercial Property Coverage Part will apply on an excess basis. This means it will pay only after the other applicable insurance has paid.

Policy Period, Coverage Territory

The Commercial Property Coverage Part applies only to loss or damage that occurs during the policy period and within the policy’s coverage territory. The coverage territory includes the United States of America, its territories and possessions, Puerto Rico, and Canada. For coverage to apply, the covered loss must take place within this geographic area and during the time the policy is in effect.

Transfer of Rights of Recovery Against Others to Us (Subrogation)

If the insured has the legal right to recover damages from another person or organization responsible for a loss, those rights may transfer to the insurer after the insurer pays the claim. This transfer of rights is called subrogation. Subrogation allows the insurer to seek reimbursement from the responsible party, but only to the extent of the amount the insurer paid for the covered loss. This condition helps prevent the responsible party from avoiding financial responsibility simply because the insured’s insurer paid the claim.

The insured may give up, or waive, the right to recover damages from another party if the waiver is made in writing before a loss occurs. This is often referred to as a waiver of subrogation. After a loss has occurred, the insured may waive the right of recovery only in certain situations. The insured may waive this right if the other party is:

• Another insured under the policy
• A tenant of the insured
• A business firm owned or controlled by the insured
• A business firm that owns or controls the insured

This condition is important because it explains when the insured may give up recovery rights without affecting the insurer’s subrogation rights.

Commercial Property Causes of Loss Forms

Commercial property coverage uses Causes of Loss forms to identify the perils insured against. There are three standard Causes of Loss forms available for commercial property coverage:

• Basic Form
• Broad Form
• Special Form

Each form provides a different level of coverage. The Basic Form provides the narrowest coverage, the Broad Form adds additional covered causes of loss, and the Special Form generally provides the broadest coverage. More than one Causes of Loss form may be attached to the same commercial property coverage form. This allows different Causes of Loss forms to apply to different covered locations or different classes of property. For example, one location may be insured under the Broad Form, while another location or type of property may be insured under the Special Form.

Example

A plumbing business has a Commercial Package Policy (CPP) that includes commercial property coverage for two locations: an office and a separate warehouse. The business may choose different Causes of Loss forms for each location based on the type of property and the exposures at each site. For example, the office may be insured under the Causes of Loss – Broad Form, while the warehouse may be insured under the Causes of Loss – Special Form. This approach allows the business to tailor its property coverage so that each location is insured in a way that better matches its specific risk exposures.

Most exclusions that apply to commercial property coverage are found in the Causes of Loss forms. These exclusions identify losses that are not covered, even if the type of property is insured under the policy. Because the Causes of Loss form determines which perils are covered and which losses are excluded, it is an important part of understanding how commercial property coverage applies.

Causes of Loss – Basic Form

The Causes of Loss – Basic Form serves as the foundation for the coverages, limitations, and exclusions found in the other commercial property Causes of Loss forms. Unless another Causes of Loss form specifically changes or removes a provision, the terms found in the Basic Form generally carry over and continue to apply. For this reason, learners should understand the Basic Form first before studying the Broad Form or Special Form.

Covered Perils

The Causes of Loss – Basic Form provides coverage for specific named causes of loss. Because this is a named perils form, coverage applies only when the loss is caused by one of the listed covered causes of loss, unless an exclusion or limitation applies.

The Basic Form covers the following causes of loss:

• Fire and lightning
  • Coverage applies to direct loss or damage caused by fire or lightning.
• Explosion
  • Coverage includes explosion, such as the explosion of gases or fuel inside a furnace. However, the rupture of pressure-relief devices, such as a boiler, and ruptures caused by water are excluded.
• Windstorm or hail
  • Coverage applies to damage caused by windstorm or hail. Damage to the building’s contents is covered only if the windstorm or hail first creates an opening in the exterior of the building and the contents are damaged through that opening. This coverage does not include damage caused by frost, ice, snow, or sleet.
• Smoke
  • Coverage applies to smoke damage. However, smoke damage caused by agricultural smudging or industrial operations is excluded.
• Aircraft or vehicles
  • Coverage includes loss caused by aircraft, vehicles, and objects falling from aircraft. However, this coverage does not apply to losses caused by vehicles owned by the insured or vehicles used in the insured’s business.
• Riot or civil commotion
  • Coverage includes damage caused by riot or civil commotion, including acts committed by striking employees and losses caused by looting.
• Vandalism
  • Coverage applies to damage caused by vandalism, including building damage caused when burglars break into or exit the building. However, theft losses are excluded.
• Sprinkler leakage
  • Coverage applies to damage caused by the accidental leakage or discharge of water or other substances from an automatic sprinkler system. It also includes the cost to repair or replace the damaged sprinkler system.
• Sinkhole collapse
  • Coverage applies to collapse caused when land suddenly sinks or collapses into underground empty spaces created by water erosion.
• Volcanic action
  • Coverage applies to damage caused by volcanic action, including airborne volcanic shock waves, ash, dust, and lava flow.

Additional Coverage – Limited Coverage for Fungus, Wet Rot, Dry Rot, and Bacteria

The Causes of Loss – Basic Form provides limited coverage for loss involving fungus, wet rot, dry rot, or bacteria when the condition results from a covered cause of loss, other than fire or lightning. This limited coverage may include:

• Direct physical loss or damage to covered property
• The cost to tear out and replace any part of the building needed to reach the fungus, rot, or bacteria
• The cost of testing performed to confirm that the fungus, rot, or bacteria has been removed

The most the insurer will pay for all covered losses involving fungus, wet rot, dry rot, or bacteria is $15,000 during the 12-month period that begins when the policy starts.

Limitations

The Causes of Loss forms include a Limitations section that restricts coverage for certain types of property. One limitation applies to animals. The insurer will pay for loss involving animals only if the animals are killed or if their destruction becomes necessary because of a covered cause of loss. This means coverage does not apply simply because animals are injured, sick, missing, or reduced in value unless the policy’s specific requirements are met.

Exclusions

The Causes of Loss – Basic Form excludes certain perils. If a loss is caused by one of these excluded perils, coverage does not apply unless the policy specifically gives coverage back for a resulting covered cause of loss. The Basic Form excludes loss caused by the following:

• Ordinance or law
  • Loss caused by the enforcement of any ordinance or law regulating the construction, use, or repair of property is excluded. This includes laws requiring that property be torn down or rebuilt in a certain way.
• Earth movement
  • Earth movement is excluded, including earthquake tremors and aftershocks, landslide, mine subsidence, and earth sinking, rising, or shifting. However, if earth movement results in fire or explosion, the resulting fire or explosion loss is covered.
• Volcanic eruption
  • Volcanic eruption itself is not covered. However, if the eruption results in fire or volcanic action, the resulting loss caused by fire or volcanic action is covered.
• Water
  • Water damage is excluded when caused by flood, surface water, tidal water, mudslide, mudflow, water backing up from a sewer or sump pump, or underground water seeping through foundations, walls, floors, or basements. However, if the water damage results in fire, explosion, or sprinkler leakage, the resulting loss from that covered peril is covered.
• Utility services
  • Loss caused by the failure of power, communication, water, or other utility service is excluded when the failure originates away from the described premises. Loss caused by a power surge is also excluded. However, if the utility failure or power surge results in a covered cause of loss, the resulting covered loss is insured.
• Governmental action
  • Loss caused by seizure, destruction, or confiscation of property by governmental authority is excluded, unless an exception applies.
• Nuclear hazard, war, and military action
  • Loss caused by nuclear hazard, war, or military action is excluded.
• Fungus, wet rot, dry rot, or bacteria
  • Loss caused by fungus, wet rot, dry rot, or bacteria is excluded, except to the extent coverage is provided under the Additional Coverage. However, this exclusion gives coverage back when fungus, rot, or bacteria results from fire or lightning.
• Artificially generated electrical energy
  • Loss caused by artificially generated electrical energy is excluded.
• Explosion of certain steam equipment
  • Loss caused by the explosion of steam boilers, steam pipes, or steam engines owned by the insured or operated under the insured’s control is excluded. However, any resulting fire loss is covered.
• Mechanical breakdown
  • Loss caused by mechanical breakdown is excluded.
• Neglect
  • Loss caused by the insured’s failure to use all reasonable means to save and preserve property at and after the time of loss is excluded.

Causes of Loss – Broad Form

The Causes of Loss – Broad Form includes all of the covered causes of loss provided by the Basic Form. In addition, the Broad Form adds three covered causes of loss:

• Falling objects
  • Coverage applies to damage caused by falling objects. However, coverage does not apply to personal property located in the open. Damage to the interior of a building or to property inside the building is covered only if the falling object first damages the exterior of the building.
• Weight of ice, snow, or sleet
  • Coverage applies to damage caused by the weight of ice, snow, or sleet. However, this coverage does not apply to personal property located outside.
• Water damage
  • Coverage applies when water or steam accidentally discharges or leaks as a direct result of the breaking apart or cracking of a plumbing, heating, air conditioning, or other system or appliance located on the described premises.
  • This coverage does not apply to discharge or leakage from a sump or related equipment, roof drains, gutters, or downspouts. Coverage also does not apply when continuous or repeated seepage or leakage occurs over a period of 14 days or more. In addition, damage to the plumbing system or appliance itself is not covered.

Additional Coverages

In addition to the Fungus, Wet Rot, Dry Rot, and Bacteria Additional Coverage, the Causes of Loss – Broad Form also includes Collapse Additional Coverage. This additional coverage applies to loss caused by an abrupt collapse of a building or part of a building. For coverage to apply, the collapse must result from one of the covered causes listed in the policy. Collapse may be covered when it is caused by:

• A covered cause of loss
• Breakage of building glass
• Hidden building decay
• Hidden insect or vermin damage
• Weight of people or personal property
• Weight of rain that collects on a roof

This coverage is important because collapse is not automatically covered in every situation. The collapse must be abrupt and must result from a cause specifically allowed by the Broad Form.

Causes of Loss – Special Form

Like other special forms used in property insurance, the Causes of Loss – Special Form provides open perils coverage. This means coverage applies to direct physical loss unless the loss is specifically excluded or limited by the policy. The Special Form includes the same exclusions found in the Basic and Broad forms. It also includes the Additional Coverages provided by the Broad Form, such as Fungus, Wet Rot, Dry Rot, and Bacteria Additional Coverage and Collapse Additional Coverage. Because it provides open perils coverage, the Special Form generally offers broader protection than the Basic Form or Broad Form.

Unlike the Basic Form and Broad Form, the Causes of Loss – Special Form does not generally exclude theft losses. This means theft may be covered under the Special Form unless a specific exclusion or limitation applies. Because theft coverage is included with some exceptions, the Special Form provides broader protection than the Basic and Broad forms, which exclude theft as a covered cause of loss.

Limitations

The Limitations section of the Causes of Loss – Special Form includes provisions that are not found in the Basic Form or Broad Form. These limitations help clarify situations in which coverage is restricted, even though the Special Form provides open perils coverage. Examples of these additional limitations include:

• Steam boilers and related equipment Coverage is generally not provided for physical damage to steam boilers, steam pipes, steam engines, or steam turbines when the damage is caused by events occurring inside the equipment. However, damage may be covered if it results from a covered explosion, such as the explosion of gases or fuel within a furnace.
• Inventory shortage Coverage is not provided for inventory shortages when the only evidence of the loss is an inventory calculation or profit-and-loss statement. This limitation helps distinguish a covered physical loss from an unexplained shortage.
• Theft of building materials or supplies Coverage is not provided for the theft of building materials or supplies that are not yet attached to or part of the covered building. An exception may apply if the materials or supplies are held for sale as merchandise.

The Causes of Loss – Special Form also limits coverage for certain types of property, including fragile articles and builders’ machinery, tools, and equipment. Fragile articles, such as statuary, marble, glassware, or similar breakable property, may be covered only when the loss is caused by certain specified causes of loss. This limitation helps restrict coverage for property that is especially susceptible to breakage. Coverage for builders’ machinery, tools, and equipment is also limited. These items may not be fully covered under the Special Form unless the loss meets the specific requirements stated in the policy.

The Causes of Loss – Special Form includes special limits of insurance for certain types of personal property that are especially vulnerable to theft. These limits apply to loss or damage caused by theft and represent the most the insurer will pay for each category in any one occurrence. The special theft limits are:

• $2,500 for furs and fur garments
• $2,500 for jewelry, watches, jewels, precious and semiprecious stones, gold, silver, and similar property
• $2,500 for patterns, dies, molds, and forms
• $250 for stamps, tickets, and letters of credit

These limits are important because they reduce the amount payable for certain theft-prone property, even if the policy’s overall personal property limit is higher.

Exclusions

In addition to the standard exclusions found in the other Causes of Loss forms, the Causes of Loss – Special Form contains additional exclusions. These exclusions apply even though the Special Form provides open perils coverage. The Special Form excludes loss caused by:

• Delay, loss of use, or loss of market
  • Coverage does not apply to losses resulting from a delay in operations, the inability to use property, or a decrease in market value.
• Wear and tear and similar conditions
  • Coverage does not apply to loss caused by wear and tear, rust, corrosion, smog, or infestation by animals or insects. These types of losses are generally considered gradual or maintenance-related rather than sudden accidental losses.
• Dishonest or criminal acts
  • Coverage is excluded for dishonest or criminal acts, including theft, committed by the insured or by the insured’s partners, members, officers, managers, employees, directors, trustees, or authorized representatives.
• Discharge or escape of pollutants
  • Coverage does not apply to loss caused by the discharge, dispersal, seepage, migration, release, or escape of pollutants. However, the policy gives back limited coverage for chemical damage to glass.

Coverage Extensions

Property in Transit

Coverage may be extended to apply to personal property owned by the insured while it is in transit within the coverage territory. For this extension to apply, the property must be in or on a motor vehicle that is owned, leased, or operated by the insured. This allows limited protection for covered personal property while it is being transported from one location to another within the policy’s coverage territory.

For this transit coverage extension to apply, the loss must result from a named peril. Covered causes of loss include fire, lightning, explosion, windstorm or hail, riot or civil commotion, vandalism, and vehicle collision. Theft is also covered, but only when there is visible evidence of forced entry into the motor vehicle. This requirement helps distinguish a covered theft loss from unexplained disappearance or property that may have been misplaced.

The limit of insurance for this transit coverage extension is $5,000. This amount is paid in addition to the policy limit, meaning it provides extra coverage beyond the regular limit of insurance shown in the policy.

Water Damage and Other Liquids, Powder, or Molten Material Damage

After a covered loss caused by water or another liquid, powder, or molten material, this Coverage Extension pays the cost to tear out and replace any part of the building needed to repair damage to the system or appliance from which the substance escaped. This extension is intended to help provide access to the damaged system or appliance so repairs can be made. However, it does not increase the policy’s limit of insurance.

Glass

This Coverage Extension pays for expenses incurred to install temporary plates or board up openings when the repair or replacement of damaged building glass is delayed. This extension helps protect the building from additional exposure while permanent glass repairs or replacement are being arranged.

Causes of Loss Form Coverages

Category	Coverages	Basic Form	Broad Form	Special Form
Covered Perils	Open perils			✓*
Covered Perils	Fire	✓	✓	#
Covered Perils	Lightning	✓	✓	#
Covered Perils	Explosion	✓*	✓*	#
Covered Perils	Windstorm or Hail	✓**	✓**	#**
Covered Perils	Smoke	✓	✓	#
Covered Perils	Aircraft or Vehicles	✓	✓	#
Covered Perils	Riot or Civil Commotion	✓	✓	#
Covered Perils	Vandalism	✓	✓	#
Covered Perils	Sprinkler Leakage	✓	✓	#
Covered Perils	Sinkhole Collapse	✓	✓	#
Covered Perils	Volcanic Action	✓	✓	#
Covered Perils	Falling Objects		✓**	#**
Covered Perils	Weight of Ice, Snow, Sleet		✓	#
Covered Perils	Accidental Water Damage		✓	#
Covered Perils	Theft			#
Covered Perils	Chemical Damage to Glass			✓
Additional Coverages	Limited Coverage for Fungus, Wet/Dry Rot, and Bacteria	✓	✓	✓
Additional Coverages	Collapse		✓	✓
Coverage Extensions	Property in Transit			✓
Coverage Extensions	Water and Other Liquids, Powder, Molten Material Damage			✓
Coverage Extensions	Glass			✓

* Excludes loss resulting from steam boiler explosion
** Loss to contents are covered if the loss results from exterior damage that occurred first
# Included in open perils coverage

Commercial Property Coverage Forms

The Commercial Property Coverage Part may be written using one or more commercial property coverage forms. Each coverage form is designed to address a different type of commercial property exposure or coverage need. Common commercial property coverage forms include:

• Building and Personal Property Coverage Form
• Commercial Builders Risk Coverage Form
• Condominium Association Coverage Form
• Condominium Unit-Owners Coverage Form
• Legal Liability Coverage Form
• Business Income Without Extra Expense Coverage Form
• Business Income and Extra Expense Coverage Form
• Extra Expense Coverage Form

These forms allow the insured to select the property coverage structure that best matches the business’s property, operations, and potential financial losses.