Summary: There are three alternatives insureds may select from when arranging the scope of coverage desired under ISO's commercial property program. A policy written under the simplified language commercial property program of Insurance Services Office must incorporate one of three alternative causes of loss forms—basic form CP 10 10 10 12, broad form CP 10 20 10 12, or special form CP 10 30 10 12—which are differentiated by the scope of covered perils (referred to in the forms as causes of loss rather than perils) each provides. A fourth cause of loss form, CP 10 40 10 12, provides earthquake coverage for insureds who choose to add it to their policies. A number of optional causes of loss endorsements are also available to modify the terms of the policy.
The basic form includes eleven causes of loss that are insured under the policy. The broad form includes the same eleven, plus three additional causes of loss and additional coverages applicable to collapse and fungus, wet and dry rot, and bacteria. The special form is the broadest cause of loss form. It covers all causes of loss except those that are excluded or limited.
This discussion reviews the causes of loss forms. The most recent edition of these forms is dated October 2012.
Topics covered:
Causes of Loss—Named Perils
Basic form CP 10 10 and broad form CP 10 20 are the two causes of loss forms used to create named perils coverage for insureds under the ISO commercial property program. Form CP 10 10 contains eleven basic causes of loss; form CP 10 20 includes three additional causes of loss, plus additional coverages applicable to collapse and fungus, wet and dry rot, and bacteria.
The term named perils is used to describe the basic and broad causes of loss forms because only damage caused by a peril listed on the respective form is covered. This is distinguished from the special causes of loss form, CP 10 30, which covers risk of direct physical loss but uses exclusions and limitations to define and refine the coverage. A peril is a potential cause of loss, such as fire, windstorm, hail, and flood.
Even though the basic and broad causes of loss forms name the perils that are insured, exclusions and limitations still exist on the forms and must be reviewed for a complete understanding of how coverage flows.
A. Covered Causes of Loss
When Basic is shown in the Declarations, Covered Causes of Loss means the following:
1.Fire.
2.Lightning.
3.Explosion, including the explosion of gases or fuel within the furnace of any fired vessel or within the flues or passages through which the gases of combustion pass. This cause of loss does not include loss or damage by:
a.Rupture, bursting or operation of pressure relief devices; or
b.Rupture or bursting due to expansion or swelling of the contents of any building or structure, caused by or resulting from water.
4.Windstorm or Hail, but not including:
a.Frost or cold weather;
b.Ice (other than hail), snow or sleet, whether driven by wind or not; or
c.Loss or damage to the interior of any building or structure, or the property inside the building or structure, caused by rain, snow, sand or dust, whether driven by wind or not, unless the building or structure first sustains wind or hail damage to its roof or walls through which the rain, snow, sand or dust enters.
d. Loss or damage by hail to lawns, trees, shrubs or plants which are part of a vegetated roof.
5.Smoke causing sudden and accidental loss or damage. This cause of loss does not include smoke from agricultural smudging or industrial operations.
6.Aircraft or Vehicles, meaning only physical contact of an aircraft, a spacecraft, a self-propelled missile, a vehicle or an object thrown up by a vehicle with the described property or with the building or structure containing the described property. This cause of loss includes loss or damage by objects falling from aircraft.
We will not pay for loss or damage caused by or resulting from vehicles you own or which are operated in the course of your business.
7.Riot or Civil Commotion, including:
a.Acts of striking employees while occupying the described premises; and
b.Looting occurring at the time and place of a riot or civil commotion.
8.Vandalism, meaning willful and malicious damage to, or destruction of, the described property.
We will not pay for loss or damage caused by or resulting from theft, except for building damage caused by the breaking in or exiting of burglars.
9.Sprinkler Leakage, meaning leakage or discharge of any substance from an Automatic Sprinkler System, including collapse of a tank that is part of the system.
If the building or structure containing the Automatic Sprinkler System is Covered Property, we will also pay the cost to:
a.Repair or replace damaged parts of the Automatic Sprinkler System if the damage:
(1)Results in sprinkler leakage; or
(2)Is directly caused by freezing.
b.Tear out and replace any part of the building or structure to repair damage to the Automatic Sprinkler System that has resulted in sprinkler leakage.
Automatic Sprinkler System means:
(1)Any automatic fire protective or extinguishing system, including connected:
(a)Sprinklers and discharge nozzles;
(b)Ducts, pipes, valves and fittings;
(c)Tanks, their component parts and supports; and
(d)Pumps and private fire protection mains.
(2)When supplied from an automatic fire protective system:
(a)Non-automatic fire protective systems; and
(b)Hydrants, standpipes and outlets.
10.Sinkhole Collapse, meaning loss or damage caused by the sudden sinking or collapse of land into underground empty spaces created by the action of water on limestone or dolomite. This cause of loss does not include:
a.The cost of filling sinkholes; or
b.Sinking or collapse of land into man-made underground cavities.
11.Volcanic Action, meaning direct loss or damage resulting from the eruption of a volcano when the loss or damage is caused by:
a.Airborne volcanic blast or airborne shock waves;
b.Ash, dust or particulate matter; or
c.Lava flow.
With respect to coverage for Volcanic Action as set forth in 11.a., 11.b. and 11.c., all volcanic eruptions that occur within any 168-hour period will constitute a single occurrence.
This cause of loss does not include the cost to remove ash, dust or particulate matter that does not cause direct physical loss or damage to the described property.
Analysis
These eleven perils are the named perils of the basic causes of loss form, CP 10 10. They also are featured on the broad causes of loss form, CP 10 20.
As with the standard fire policy, which has not typically been used since the introduction of the ISO simplified language commercial property forms, forms CP 10 10 and CP 10 20 do not define or limit the term fire in any way. The courts have long interpreted the standard fire policy as covering only hostile fire, which is a fire that is out of bounds. For example, a fire within a furnace or stove fire box is considered friendly and loss arising from it has typically not been held to be covered. For example, personal property that is burned in a trash fire would not typically be considered covered for the fire damage to it. However, when the fire escapes its normal boundaries—such as when flames jump from a campfire to a forest or buildings—it is transformed into a hostile fire and resulting damage to covered property typically is covered.
Although explosion also is not defined, the coverage for damage caused by explosion is narrowed through two exclusions: neither explosion arising from the operation of pressure relief devices nor rupture due to expansion of the contents of any structure or its contents caused by water are covered. Steam boiler explosion is also excluded, but this limitation is found as item 2.d of exclusion section B of form CP 10 10 (2.b. of form CP 10 20; 2.e. of form CP 10 30). Sonic boom and water hammer, specifically removed from the explosion peril of historical commercial property forms, are not mentioned in the explosion language of form CP 10 10 or CP 10 20 and therefore are considered to be covered.
The windstorm basic cause of loss, like earlier versions of the windstorm or hail peril, does not encompass coverage for damage caused by frost or cold weather, or ice, snow, or sleet, even if driven by wind. Also retained in the CP 10 10 and CP 10 20 from previous coverage forms is the requirement that the exterior of a building or structure be damaged by wind or hail before coverage is provided for damage to the building interior or its interior property by rain, snow, sand, or dust that enters the building or structure. In other words, wind or hail has to have created a hole through which the rain, snow, sand, or dust entered before interior damage caused by such elements of the weather is covered. Windstorm or hail is one of three causes of loss that may be removed from coverage through the commercial property program by endorsement. Its removal is made possible to avoid duplication of coverage for insureds that have windstorm insurance through a catastrophe pool or similar facility. In the 2012 form, loss or damage by hail to shrubs, lawns, trees or plants that are part of a vegetated roof were specifically excluded from the windstorm or hail coverage.
Smoke damage from agricultural smudging or industrial operations is not covered under this cause of loss, although sudden and accidental damage to covered property by smoke is covered. Additional information on the peril of smoke is provided at Smoke Damage Coverage.
In addition to physical contact with an aircraft or vehicle, including a spacecraft or self-propelled missile, the aircraft cause of loss applies specifically to objects falling from aircraft and to objects thrown up by a vehicle.
Damage by vehicles owned by the named insured or by vehicles operated in the course of the named insured's business is excluded. (Prior to the 1988 revisions to the basic causes of loss form, damage caused by any vehicle operated by the named insured was excluded.) Because of this exception, damage caused to an insured building when a customer backs into the loading dock would be covered. However, if an employee driving a company-owned delivery van had the same accident, neither the basic nor the broad causes of loss forms would pay for the damage to the building. Additional information on the aircraft or vehicles cause of loss is available at Aircraft or Vehicles as a Cause of Loss.
Acts of striking employees occupying the described premises are covered under the riot or civil commotion cause of loss, as is looting at the time and place of a riot or civil commotion. Additional information on the riot or civil commotion cause of loss can be found at Riot or Civil Commotion Coverage.
Malicious mischief was dropped from the name of the vandalism cause of loss some time ago, although the definition remains the same as that of the vandalism or malicious mischief title used in some much earlier forms—willful and malicious damage to or destruction of the insured property. Building damage caused by the break-in or exit of burglars is covered, but other loss caused by or resulting from theft is excluded. A detailed discussion of how various jurisdictions have interpreted this exclusion is found at Vandalism as Cause of Loss.
Under some earlier forms of commercial property insurance, vandalism and malicious mischief coverage was optional. It may be excluded as a basic cause of loss under the simplified language program by endorsement, but otherwise it is automatically included. Vandalism is one of the causes of loss for which there is no coverage if the building where the loss occurs has been vacant for more than sixty consecutive days.
The sprinkler leakage cause of loss addresses roughly the same exposure dealt with under earlier commercial property forms by attachment of an optional sprinkler leakage endorsement. It may be eliminated from form CP 10 10 or CP 10 20 at the insured's option. Coverage is for leakage or discharge from an automatic sprinkler system, including the collapse of the system's tank if there is one. Automatic sprinkler system is a defined term within the context of the sprinkler leakage cause of loss. It refers to an "automatic fire protective or extinguishing system" and includes sprinklers, nozzles, ducts, pipes, valves, fittings, tanks, pumps, and private fire protection mains. It also includes nonautomatic systems, hydrants, standpipes, and outlets supplied from an automatic system.
This cause of loss, when it is part of a policy covering the building or structure containing the sprinkler system, also applies to repair or replacement of damaged parts of the system when the damage results in sprinkler leakage or is directly caused by freezing, and to the cost of tearing out and replacing part of the structure in order to repair the system. The sixty-day vacancy condition of the building and personal property coverage form applies to sprinkler leakage losses.
Coverage for the sinkhole collapse loss exposure was previously available only by endorsement and only in certain regions of the country where sinkholes occur with some frequency. As a basic cause of loss under the simplified language commercial property program, sinkhole collapse applies to the sudden sinking or collapse of land caused by the underground erosion of limestone or dolomite by water. The cost of filling the sinkhole itself is not covered.
The form clarifies that sinkhole collapse coverage does not include those instances where the ground sinks or collapses into manmade cavities in the earth. This exposure is more appropriately the subject of mine subsidence coverage. One interesting note is that the ISO broad and special causes of loss forms (CP 10 20 and CP 10 30) both include an additional coverage for collapse under Sections C and D respectively. In York Ins. Co. v. Williams Seafood, 544 S.E.2d 156 (Ga. 2001) the insured's restaurant collapsed into a sinkhole caused by a flood. Flood is an excluded peril on the commercial property forms. However, because of the placement of coverage for collapse (section D) in the special causes of loss form, with its own set of exclusions, the court held that the exclusions that applied to section B were not applicable. Therefore, the sinkhole coverage was not limited by the exclusion for damage by flood. The basic cause of loss form does not include an additional coverage for collapse, so this reasoning could not be applied to coverage provisions on that form. As the Georgia court reasoned, sinkhole coverage as a direct physical loss and not as an additional coverage was subject to the exclusion for damage caused by flood.
Volcanic action coverage was historically available only through an optional endorsement. As a basic cause of loss under the ISO commercial property program, it covers damage from the above-ground effects of a volcanic eruption—airborne blast and shock waves, ash, dust, particulate matter, and lava flow. It does not include, as detailed in the earth movement exclusion, the removal cost of volcanic ash or dust that has not physically damaged insured property, nor the seismic effects of a volcanic eruption.
All volcanic eruptions occurring within a seven day period (168 hours) is considered a single occurrence. Under the original versions of the form (prior to the 1988 revisions), this period was three days.
In addition to the previously discussed eleven basic causes of loss, broad form CP 10 20 includes under section A three other causes of loss—falling objects; weight of snow, ice, or sleet; and water damage.
12.Falling Objects.
But we will not pay for loss or damage to:
a.Personal property in the open; or
b.The interior of a building or structure, or property inside a building or structure, unless the roof or an outside wall of the building or structure is first damaged by a falling object.
13.Weight of Snow, Ice or Sleet.
But we will not pay for loss or damage to personal property outside of buildings or structures, or for loss or damage to lawns, trees, shrubs or plants which are part of a vegetated roof.
14.Water Damage
a.Water Damage, meaning accidental discharge or leakage of water or steam as the direct result of the breaking or apart or cracking of a plumbing, heating, air conditioning or other system or appliance, that is located on the described premises and contains water or steam.
However, Water Damage does not include:
(1)Discharge or leakage from:
(a)An Automatic Sprinkler System;
(b)A sump or related equipment and parts, including overflow due to sump pump failure or excessive volume of water; or
(c)Roof drains, gutters, downspouts or similar fixtures or equipment.
(2)The cost to repair any defect that caused the loss or damage;
(3)Loss or damage caused by or resulting from continuous or repeated seepage or leakage that occurs over a period of fourteen days or more; or
(4)For loss or damage caused by or resulting from freezing, unless:
(a)You do your best to maintain heat in the building or structure; or
(b)You drain the equipment and shut off the water supply if the heat is not maintained.
b.If coverage applies subject to a. above, and the building or structure containing the system or appliance is Covered Property, we will also pay the cost to tear out and replace any part of the building or structure to repair damage to the system or appliance from which the water or steam escapes. But we will not pay the cost to repair any defect that caused the loss or damage.
Analysis:
Loss or damage caused by falling objects to personal property in the open is not covered. There also is an exception to the falling objects cause of loss that precludes coverage for personal property within a structure or the interior of the structure itself unless the roof or an outside wall is first damaged by a falling object. Under this exception, there would be no coverage for damage to personal property located within a manufacturing plant if, for example, a piece of steel being lifted by a crane were dropped and crushed the personal property. In that instance, even though the piece of steel can be considered a falling object, the steel did not pierce a hole in the roof or an outside wall on its way down.
The weight of snow, ice, or sleet peril in pre-1988 property forms typically includes a long list of property to which the peril does not apply. As a cause of loss under the simplified language commercial property program, that exception to coverage applies only to loss of or damage to personal property outside of buildings or structures that is caused by the weight of snow, ice, or sleet, and, with the 2012 form, loss or damage to lawns, trees, shrubs, or plants that are part of a vegetated roof.
Coverage under the water damage cause of loss applies to accidental discharge or leakage of water or steam when a system or appliance containing water or steam breaks or cracks. Water damage coverage does not encompass leakage or discharge from an automatic sprinkler system, which is the subject of coverage under a separate cause of loss. Water damage also does not include discharge or leakage from a sump and its related equipment, roof drains, gutters, downspouts, or similar fixtures and equipment.
Included as a covered part of water damage losses is the cost of tearing out and replacing part of the building or structure to repair damage to the system or appliance. Excluded from coverage is "the cost to repair any defect that caused the loss or damage." This wording, which was introduced in the 1988 edition of CP 10 20, replaced the previous exclusion of the "cost of repairing or replacing the actual system or appliance itself." This revision constituted a broadening of coverage under this cause of loss as illustrated by the following situation. Suppose a beam settles on a pipe causing it to crack and leak water. Under the revised language, the defect can be considered to be the misplaced beam. The cost to repair the defect—restore the beam to its proper location—is not covered, but the cost to repair or replace the damaged pipe would be covered.
Other exceptions to the water damage cause of loss are for damage caused by continuous or repeated leakage (the form specifies that such leakage must occur over a period of at least fourteen days) and loss caused by freezing unless the insured has taken steps to maintain heat in the building or structure or has drained the equipment and shut off the water supply. Pre-1988 versions of commercial property forms typically imposed these last conditions on coverage for freezing losses only when the building was vacant or unoccupied. Broad form CP 10 20 currently makes no such distinction, imposing the conditions with respect to freezing losses regardless of the building's status. However, coverage under the entire water damage cause of loss is subject to the sixty-day vacancy condition of the building and personal property coverage form, CP 00 10.
A general water exclusion is found elsewhere in the form; it excludes all other types of loss or damage caused by the items listed within it. The cause of loss for water damage must be read in conjunction with that exclusion. Additional information on the water exclusion is found under the exclusions section of this article, as well as in Water Exclusion Clause, for a discussion of court cases relating to the accidental discharge peril and its apparent conflict with the water damage exclusion.
A. Covered Causes of Loss
When Special is shown in the Declarations, Covered Causes of Loss means direct physical loss unless the loss is excluded or limited in this policy.
Analysis:
A commercial property program insured's third option with respect to scope of insured perils is the special causes of loss form, CP 10 30, which provides coverage on an open perils basis—that is, it insures against direct physical loss or damage other than causes of loss specifically excluded or limited in the form itself. These exclusions and limitations are discussed in the following sections.
There are eight exclusions comprising subsection B.1. of each of the three causes of loss forms of the ISO commercial property program. These exclusions operate to eliminate coverage as specified, regardless of other concurrent causes that contribute to the loss.
This introductory language, which excludes coverage for the seven causes of loss described in section B "regardless of any other cause or event that contributes concurrently or in any sequence to the loss," appears to extend the exclusions to many kinds of losses that historically have been considered as a part of the damage from a named peril such as fire, wind, explosion, and vandalism. And while there is coverage for damage from certain specified causes of loss (as noted in the description of these exclusions that follows) that occurs after the occurrence of the excluded cause of loss, no exceptions are provided for otherwise covered causes of loss that occur before an excluded cause of loss and give rise to the excluded cause of loss.
For example, suppose a fire damages a building adjacent to the insured's property. Fire fighters, in combating the blaze, pump enormous amounts of water into the building, much of which flows away and into the insured's basement. In the absence of the water exclusion, this damage is covered as a fire loss on either a named or a special causes of loss basis. Or suppose there is an explosion in a building on a hillside of sufficient force not only to damage the building but to cause displacement of the earth or rock of the hill so the building slides down the hill and is totally demolished. Again, the loss would be fully covered as an explosion loss in the absence of the earth movement exclusion with its anti-concurrent causation language.
The legal situation surrounding the concurrent causes of loss language is not entirely settled, and jurisdictions have varied in their application of it. See Concurrent Causation and Efficient Proximate Cause for a legal analysis of the concurrent causation issue and relevant case law.
B. Exclusions
1.We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
a.Ordinance or Law
The enforcement of or compliance with any ordinance or law:
(1)Regulating the construction, use or repair of any property; or
(2)Requiring the tearing down of any property, including the cost of removing its debris.
This exclusion, Ordinance or Law, applies whether the loss results from:
(1)An ordinance or law that is enforced even if the property has not been damaged; or
(2)The increased costs incurred to comply with an ordinance or law in the course of construction, repair, renovation, remodeling or demolition of property, or removal of its debris, following a physical loss to that property.
b.Earth Movement
(1)Earthquake, including tremors and aftershocks and any earth sinking, rising or shifting related to such event;
(2)Landslide, including any earth sinking, rising or shifting related to such event;
(3)Mine subsidence, meaning subsidence of a man-made mine, whether or not mining activity has ceased;
(4)Earth sinking (other than sinkhole collapse), rising or shifting including soil conditions which cause settling, cracking, or other disarrangement of foundations or other parts of realty. Soil conditions include contraction, expansion, freezing, thawing, erosion, improperly compacted soil and the action of water under the ground surface.
But if Earth Movement, as described in b.(1) through (4) above, results in fire or explosion, we will pay for the loss or damage caused by that fire or explosion.
(5)Volcanic eruption, explosion or effusion. But if volcanic eruption, explosion or effusion results in fire or Volcanic Action, we will pay for the loss or damage caused by that fire or Volcanic Action.
Volcanic Action means direct loss or damage resulting from the eruption of a volcano when the loss or damage is caused by:
(a)Airborne volcanic blast or airborne shock waves;
(b)Ash, dust or particulate matter; or
(c)Lava flow.
With respect to coverage for Volcanic Action as set forth in (5)(a), (5)(b) and (5)(c), all volcanic eruptions that occur within any 168-hour period will constitute a single occurrence.
Volcanic Action does not include the cost to remove ash, dust or particulate matter that does not cause direct physical loss or damage to the described property.
This exclusion applies regardless of whether any of the above, in Paragraphs
(1) through (5), is caused by an act of nature or is otherwise caused.
c.Governmental Action
Seizure or destruction of property by order of governmental authority.
But we will pay for loss or damage caused by or resulting from acts of destruction ordered by governmental authority and taken at the time of a fire to prevent its spread, if the fire would be covered under this Coverage Part.
d.Nuclear Hazard
Nuclear reaction or radiation, or radioactive contamination, however caused.
But if nuclear reaction or radiation, or radioactive contamination, results in fire, we will pay for the loss or damage caused by that fire.
e.Utility Services
The failure of power, communication, water or other utility service supplied to the described premises, however caused, if the failure:
(1)Originates away from the described premises; or
(2)Originates at the described premises, but only if such failure involves equipment used to supply the utility service to the described premises from a source away from the described premises.
Failure of any utility service includes lack of sufficient capacity and reduction in supply.
Loss or damage caused by a surge of power is also excluded, if the surge would not have occurred but for an event causing a failure of power.
But if the failure or surge of power, or the failure of communication, water or other utility service, results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.
Communication services include but are not limited to service relating to Internet access or access to any electronic, cellular or satellite network.
f.War and Military Action
(1)War, including undeclared or civil war;
(2)Warlike action by a military force, including action in hindering or defending against an actual or expected attack, by any government, sovereign or other authority using military personnel or other agents; or
(3)Insurrection, rebellion, revolution, usurped power, or action taken by governmental authority in hindering or defending against any of these.
g.Water
(1)Flood, surface water, waves (including tidal wave and tsunami), tides, tidal water, overflow of any body of water, or spray from any of these, all whether or not driven by wind (including storm surge);
(2)Mudslide or mudflow;
(3)Water that backs up or overflows or is otherwise discharged from a sewer, drain, sump, sump pump or related equipment;
(4)Water under the ground surface pressing on, or flowing or seeping through:
(a)Foundations, walls, floors or paved surfaces;
(b)Basements, whether paved or not; or
(c)Doors, windows or other openings; or
(5)Waterborne material carried or otherwise moved by any of the water referred to in Paragraph (1), (3) or (4), or material carried or otherwise moved by mudslide or mudflow.
This exclusion applies regardless of whether any of the above, in Paragraphs (1) through (5), is caused by an act of nature or is otherwise caused. An example of a situation to which this exclusion applies is the situation where a dam, levee, seawall or other boundary or containment system fails in whole or in part, for any reason, to contain the water.
But if any of the above, in Paragraphs (1) through (5), results in fire, explosion or sprinkler leakage, we will pay for the loss or damage caused by that fire, explosion or sprinkler leakage (if sprinkler leakage is a Covered Cause of Loss).
h."Fungus", Wet Rot, Dry Rot And Bacteria
Presence, growth, proliferation, spread or any activity of "fungus", wet or dry rot or bacteria.
But if "fungus", wet or dry rot or bacteria results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.
This exclusion does not apply:
1.When "fungus", wet or dry rot or bacteria results from fire or lightning; or
2. To the extent that coverage is provided in the Additional Coverage – Limited Coverage For "Fungus", Wet Rot, Dry Rot And Bacteria with respect to loss or damage by a cause of loss other than fire or lightning.
Exclusions B.1.a. through B.1.h. apply whether or not the loss event results in widespread damage or affects a substantial area.
Analysis:
Losses arising out of the enforcement of building laws or ordinances, including those that may require the demolition of damaged structures, are not covered by standard commercial property policies. Under the simplified language commercial property program, coverage for this exposure is available by attaching endorsement CP 04 05 10 12. An extensive discussion of ordinance and law issues for various lines of coverage is available at Ordinance or Law Issues).
All forms of earth movement, other than sinkhole collapse, which is specifically covered as a basic or broad cause of loss, are excluded from coverage. Ensuing fire or explosion damage is covered. The 2012 edition of the form included tremors and aftershocks as part of the term earthquake. Also, language was added to the exclusion to make it clear that earth movement is excluded whether caused by acts of nature or otherwise.
Also ruled out by the earth movement exclusion is loss caused by volcanic eruption, explosion, or effusion. Exempt from this part of the exclusion (and therefore covered) is ensuing fire damage and loss attributable to volcanic action—the above-ground effects of volcanic eruption—an insured cause of loss under the basic and broad forms. The volcanic eruption exclusion of broad form CP 10 20 specifically exempts—and therefore covers—building glass breakage resulting from volcanic eruption. In special form CP 10 30, the earth movement exclusion spells out coverage for volcanic action losses equivalent to that provided in the basic and broad forms. For a general discussion of court decisions interpreting the earth movement exclusion, see Earth Movement Exclusion.
Seizure or destruction of covered property as an act of governmental authority is not covered, except for destruction of property ordered to prevent the more general spread of fire when the fire itself would be a covered cause of loss. This rewording of the standard fire policy's "order of civil authority" exclusion is more precise in its application than the historical versions because it confines itself specifically to seizure or destruction rather than the more general "order of any civil authority."
The nuclear hazard exclusion of the simplified language commercial property program eliminates coverage of loss by nuclear reaction, radiation, or radioactive contamination regardless of the cause. Ensuing fire loss is covered.
Some pre-1988 editions of property coverage forms contain a lengthier but equivalent nuclear clause precluding coverage for nuclear losses as a species of fire loss, but likewise specifying coverage for direct loss by fire that results from a nuclear reaction. A separate nuclear clause, applicable only in New York under some earlier editions and emphasizing that nuclear reactions are not covered even if they result from a covered peril, is also eliminated from the simplified language forms. Radioactive contamination is not covered, but limited coverage for radioactive contamination may be added to a commercial property policy by endorsement CP 10 37 10 00.
The utility services exclusion differs substantively from that of the 2002 causes of loss forms. The first variation is in the description of utility services. The 2007 form specified that the exclusion precludes coverage for the failure of power, communication, water, or other utility service that is supplied to the described premises. In contrast, the 2002 form excluded coverage for the failure of power "or other utility service" without specifying that communication and water services were included. According to the ISO explanation, the explicit mention of communication and water services coordinates with optional coverage endorsements. For example, the Utility Services – Direct Damage endorsement CP 04 17 10 12 allows the insured to select which utility services should be covered—water, communication, or power. The revised wording affirmatively mentions that Internet or other access to electronic, cellular, or satellite networks is included within the term "communication services" and therefore affirmatively excluded.
Another difference with the 2007 revision is that it focused on off-premises suppliers regardless of whether the failure originates away from the insured premises or if the equipment that actually fails and leads to the loss is located on the insured premises. This is a substantive shoring up of the exclusion and clarifies that the intent is to preclude coverage for utility failure related to an off-premises provider, regardless of where the actual failure occurs. For example, some power company transmission lines and transformers may actually be located on the insured premises. If that type of supply equipment fails, causes a service interruption, and causes a loss, the exclusion is triggered even though the failed equipment is located on the insured premises. The 2007 exclusionary wording retained the statement that utility service failures that originate away from the described premises are also excluded. Businesses may purchase coverage for off-premises utility services failures (as noted in the previous paragraph) for additional premium.
Also added in the 2007 wording was a statement that loss or damage caused by a power surge resulting from such a utility failure is excluded. Prior to this wording, a case may have been made that loss caused by the actual failure of, for example, electrical power was not covered, but damage from a subsequent power surge (when the power was restored) was covered. In addition, this exclusion operates regardless of the cause of the failure, that is, even if the failure is brought about by a covered cause of loss such as windstorm or hail. However, if the power surge or the failure results in a covered cause of loss that damages covered property, that resulting damage is covered. For example, if heat interruption causes pipes to freeze and rupture and either the broad or special causes of loss forms applies, there is coverage for the damage caused by the rupture.
If, on the other hand, a lightning strike away from the insured premises knocks out the electrical power at the premises, consequential property damage on the premises—spoilage of refrigerated products or of property in process depending on continuous heat or cooling are common examples—is not covered. Though lightning is a covered cause of loss, the underlying agreement is to pay for direct physical loss caused by a covered cause of loss. Lightning that strikes off premises and runs in on a line to cause direct lightning damage on premises is covered under these provisions, but consequential damage caused by a lightning induced power interruption is not.
The war and military action exclusion applies to three related causes of loss: war (including undeclared or civil war); warlike action by any governmental military force; and acts of insurrection, rebellion, revolution, or usurped power.
Deleted from the ISO commercial property program's war exclusion is the specific reference found in pre-1988 property coverage forms to the discharge, explosion, or use of any nuclear weapon. These earlier forms stated a presumption that any such loss caused by a nuclear weapon would be an excluded warlike action. The absence of this provision in the simplified language forms leaves the way open for coverage at least of ensuing fire damage (exempt—as noted previously for exclusion d.—from the nuclear exclusion) should a nuclear weapon be discharged by accident or by an individual not involved as part of any military force. See The War Exclusion Clause, for a discussion of court cases interpreting this exclusion.
As noted in the previous section on the broad form causes of loss, there is a general exclusion for damage arising from water. The types of water that are excluded are flood and other types of surface water, whether driven by wind or not; mudslide or mudflow; backup or overflow of sewers, drains, and sumps; water under the surface of the ground that presses on, flows, or seeps through foundations, basements, doors, windows, or other openings. However, if the water damage results in fire, explosion, or sprinkler leakage, that damage will be paid. The water exclusion is one that provokes frequent discussion and debate. For example, when does rain become surface water? What if a flood occurs (excluded), partially damaging a building, and the building subsequently is completely blown away by hurricane force winds? Courts in various jurisdictions have applied this language in different ways. Additional information on these topics is available at Water Exclusion Clause.
The 2012 revision to the commercial property program incorporated the language of the Water Exclusion Endorsement, CP 10 32 08 08, in the causes of loss forms. The endorsement has been withdrawn. Tsunami has been added to the description of water, as well as waterborne material that is carried or otherwise moved by flood, mudslide, or water under the ground surface. Wording was also added to emphasize that the exclusion applies whether caused by nature or is otherwise caused.
The last exclusion in this section is for damage arising from fungus, wet and dry rot, and bacteria. Fungus is defined as "any type or form of fungus, including mold or mildew, and any mycotoxins, spores, scents or by-products produced or released by fungi." There are two exceptions to the exclusion. There is coverage if the fungus, rot, or bacteria results from fire or lightning and to the extent that coverage is provided under the additional coverage for fungus, wet rot, dry rot, and bacteria. For example, fire damages a building and exposes its interior to the elements. Before the damage is repaired, fungus begins to grow. That fungal damage is covered. The additional coverage for this exposure is discussed later in this article.
The last portion of this set of exclusions addresses situations in which there is widespread damage. An isolated interruption in power is excluded the same as a widespread power outage caused by a hurricane.
Subsection B.2. of each of the causes of loss forms contains several more exclusions, but, unlike the subsection B.1. exclusions, these do not apply "regardless of any other cause or event . . ." to defeat coverage by a covered cause of loss that happens to involve damage by the excluded cause of loss (concurrent causation). They are excluded on their own merit. For broad form CP 10 20, three of these six exclusions, a., d., and e., are shown as exclusions a., b., and c. respectively. The broad form covers the two causes of loss listed as basic form exclusions b. and c. The neglect of an insured exclusion is listed on both the basic and broad causes of loss forms as f. (basic form) and d. (broad form) respectively.
2.We will not pay for loss or damage caused by or resulting from:
a.Artificially generated electrical, magnetic or electromagnetic energy that damages, disturbs, disrupts or otherwise interferes with any:
(1) Electrical or electronic wire, device, appliance, system or network; or
(2) Device, appliance, system or network utilizing cellular or satellite technology.
For the purpose of this exclusion, electrical, magnetic or electromagnetic energy includes but is not limited to:
(a)Electrical current, including arcing;
(b)Electrical charge produced or conducted by a magnetic or electromagnetic field;
(c)Pulse of electromagnetic energy; or
(d)Electromagnetic waves or microwaves.
But if fire results, we will pay for the loss or damage caused by that fire.
b.Rupture or bursting of water pipes (other than Automatic Sprinkler Systems) unless caused by a Covered Cause of Loss.
c.Leakage or discharge of water or steam from any part of a system or appliance containing water or steam (other than an Automatic Sprinkler System), unless the leakage or discharge occurs because the system or appliance was damaged by a Covered Cause of Loss.
d.Explosion of steam boilers, steam pipes, steam engines or steam turbines owned or leased by you, or operated under your control.
But if explosions of steam boilers, steam pipes, steam engines or steam turbines results in fire combustion explosion, we will pay for the loss or damage caused by that fire or combustion explosion.
e.Mechanical breakdown, including rupture or busting caused by centrifugal force.
But if mechanical breakdown results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.
f.Neglect of an insured to use all reasonable means to save and preserve property from further damage at and after the time of loss.
Analysis:
There was a substantive change in exclusion 2.a., artificially generated electrical current, in the 2007 editions. One of the primary exposures excluded in this section deals with power surge. ISO updated the exclusion to explicitly incorporate terminology that reflects current technology in regard to power sources and associated systems, such as electromagnetic energy, microwaves, and the various risks presented by them. Therefore, instead of merely excluding "artificially generated electrical current," as the 2002 forms stated, the 2007 version excludes "artificially generated electrical, magnetic, or electromagnetic energy that damages, disturbs, disrupts or otherwise interferes" with electrical and electronic wires, systems, and devices, appliances, systems, or networks that use cellular or satellite technology.
The exclusion further states that electrical, magnetic, or electromagnetic energy includes, in addition to electrical arcing, electrical charges that are produced or conducted by a magnetic or electromagnetic field, the pulse of electromagnetic energy, or electromagnetic waves or microwaves. The form further specifies that the examples cited are not all inclusive. This more extensive language reflects the current technology in regard to what artificially generated electrical current encompasses. It encompasses more than merely electric arcing. As with the 2002 form, if fire results, there is coverage for the loss or damage cause by that fire.
These types of electrical damage are typically insured on equipment breakdown coverage forms. Two endorsements in the 2007 property program were revised to dovetail with this revised wording. They are the Electrical Apparatus endorsement, CP 04 10 06 07, and the Electronic Commerce (E-Commerce) endorsement, CP 04 30 06 07.
There is no change in the remaining exclusions of this section from the 2002 form. Several of them are typically insured by equipment breakdown insurance. The last exclusion—that for neglect to preserve property from further damage at and after the time of loss—requires that, even if damage by a cause of loss (such as artificially generated electrical current) is excluded, insureds must protect the property from further damage. So, for example, if artificially generated electrical current causes damage to electrical equipment, the insured must try to prevent that from developing into a fire by disconnecting the equipment from the electrical source.
3.Special Exclusions
The following provisions apply only to the specified Coverage Forms.
a.Business Income (And Extra Expense) Coverage Form, Business Income (Without Extra Expense) Coverage Form, or Extra Expense Coverage Form.
We will not pay for:
(1)Any loss caused directly or indirectly by the failure of power or other utility service supplied to the described premises, however caused, if the failure occurs outside of a covered building.
But if the failure of power or other utility service results in a Covered Cause of Loss, we will pay for the loss caused by that Covered Cause of Loss.
(2)Any loss caused by or resulting from:
(a)Damage or destruction of "finished stock"; or
(b)The time required to reproduce "finished stock."
This exclusion does not apply to Extra Expense.
(3)Any loss caused by or resulting from direct physical loss or damage to radio or television antennas (including satellite dishes) and their lead-in wiring, masts or towers.
(4)Any increase of loss caused by or resulting from:
(a)Delay in rebuilding, repairing or replacing the property or resuming "operations," due to interference at the location of the rebuilding, repair or replacement by strikers or other persons; or
(b)Suspension, lapse or cancellation of any license, lease or contract. But if the suspension, lapse or cancellation is directly caused by the suspension of "operations," we will cover such loss that affects your Business Income during the "period of restoration" and any extension of the "period of restoration" in accordance with the terms of the Extended Business Income Additional Coverage and the Extended Period of Indemnity Optional Coverage or any variation of these.
(5)Any Extra Expense caused by or resulting from suspension, lapse or cancellation of any license, lease or contract beyond the "period of restoration."
(6)Any other consequential loss.
b.Leasehold Interest Coverage Form
(1)Paragraph B.1.a., Ordinance or Law; does not apply to insurance under this Coverage Form.
(2)We will not pay for any loss caused by:
(a)Your canceling the lease;
(b)The suspension, lapse or cancellation of any license; or
(c)Any other consequential loss.
c.Legal Liability Coverage Form
(1The following Exclusions do not apply to insurance under this Coverage Form:
(a)Paragraph B.1.a., Ordinance or Law;
(b)Paragraph B.1.c., Governmental Action;
(c)Paragraph B.1.d., Nuclear Hazard;
(d)Paragraph B.1.e., Utility Services; and
(e)Paragraph B.1.f., War and Military Action.
(2)The following additional exclusions apply to insurance under this Coverage Form:
(a)Contractual Liability
We will not defend any claim or "suit," or pay damages that you are legally liable to pay, solely by reason of your assumption of liability in a contract or agreement.
But this exclusion does not apply to a written lease agreement in which you have assumed liability for building damage resulting from an actual or attempted burglary or robbery, provided that:
(i)Your assumption of liability was executed prior to the accident; and
(ii)The building is Covered Property under this Coverage Form.
(b)Nuclear Hazard
We will not defend any claim or "suit," or pay any damages, loss, expense or obligation, resulting from nuclear reaction or radiation, or radioactive contamination, however caused.
Analysis:
Three special exclusions contained in each of the causes of loss forms apply only to particular optional coverages that may or may not be included in an individual policy. The special exclusions apply, respectively, to business income or extra expense coverage, to leasehold interest coverage, and to legal liability coverage. Since each of these coverages is the subject of a separate discussion elsewhere in this service, exclusions applicable to each are treated specifically in those separate discussions.
2.We will not pay for loss or damage caused by or resulting from any of the following:
a.Artificially generated electrical, magnetic or electromagnetic energy that damages, disturbs, disrupts or otherwise interferes with any:
(1) Electrical or electronic wire, device, appliance, system or network; or
(2) Device, appliance, system or network utilizing cellular or satellite technology.
For the purpose of this exclusion, electrical, magnetic or electromagnetic energy includes but is not limited to:
(a)Electrical current, including arcing;
(b)Electrical charge produced or conducted by a magnetic or electromagnetic field;
(c)Pulse of electromagnetic energy; or
(d)Electromagnetic waves or microwaves.
But if fire results, we will pay for the loss or damage caused by that fire.
b.Delay, loss of use or loss of market.
c.Smoke, vapor or gas from agricultural smudging or industrial operations.
(1) Wear and tear;
(2)Rust or other corrosion, decay, deterioration, hidden or latent defect or any quality in property that causes it to damage or destroy itself;
(3)Smog;
(4)Settling, cracking, shrinking or expansion;
(5)Nesting or infestation, or discharge or release of waste products or secretions, by insects, birds, rodents or other animals;
(6)Mechanical breakdown, including rupture or bursting caused by centrifugal force. But if mechanical breakdown results in elevator collision, we will pay for the loss or damage caused by that elevator collision.
(7)The following causes of loss to personal property:
(a)Dampness or dryness of atmosphere;
(b)Changes in or extremes of temperature; or
(c)Marring or scratching.
But if an excluded cause of loss that is listed in 2.d.(1) through (7) results in a "specified causes of loss" or building glass breakage, we will pay for the loss or damage caused by that "specified causes of loss" or building glass breakage.
e.Explosion of steam boilers, steam pipes, steam engines or steam turbines owned or leased by you, or operated under your control. But if explosion of steam boilers, steam pipes, steam engines or steam turbines results in a fire or combustion explosion, we will pay for the loss or damage caused by that fire or combustion explosion. We will also pay for loss or damage caused by or resulting from the explosion of gases or fuel within the furnace of any fired vessel or within the flues or passages through which the gases of combustion pass.
f.Continuous or repeated seepage or leakage of water, or the presence or condensation of humidity, moisture or vapor, that occurs over a period of 14 days or more.
g.Water, other liquids, powder or molten material that leaks or flows from plumbing, heating, air conditioning or other equipment (except fire protective systems) caused by or resulting from freezing, unless:
(1)You do your best to maintain heat in the building or structure; or
(2)You drain the equipment and shut off the supply if the heat is not maintained.
h.Dishonest or criminal act (including theft) by you, any of your partners, members, officers, managers, employees (including temporary employees and leased workers), directors, trustees or authorized representatives, whether acting alone or in collusion with each other or with any other party; or theft by any person to whom you entrust the property for any purpose, whether acting alone or in collusion with any other party:
This exclusion:
(1) Applies whether or not an act occurs during your normal hours of operation;
(2) Does not apply to acts of destruction by your employees (including temporary employees and leased workers) or authorized representatives; but theft by your employees (including temporary employees and leased workers) or authorized representatives; but theft by your employees (including temporary employees or leased workers) or authorized representatives is not covered.
i.Voluntary parting with any property by you or anyone else to whom you have entrusted the property if induced to do so by any fraudulent scheme, trick, device or false pretense.
j.Rain, snow, ice or sleet to personal property in the open.
k.Collapse, including any of the following conditions of property or any part of the property:
(1)An abrupt falling down or caving in;
(2)Loss of structural integrity, including separation of parts of the property or property in danger of falling down or caving in; or
(3)Any cracking, bulging, sagging, bending, leaning, settling, shrinkage or expansion as such condition relates to (1) or (2) above.
But if collapse results in a Covered Cause of Loss at the described premises, we will pay for the loss or damage caused by that Covered Cause of Loss.
This exclusion, k., does not apply:
(a)To the extent that coverage is provided under the Additional Coverage – Collapse; or
(b)To collapse caused by one or more of the following:
(i)The "specified causes of loss";
(ii)Breakage of building glass;
(iii)Weight of rain that collects on a roof; or
(iv)Weight of people or personal property.
l.Discharge, dispersal, seepage, migration, release or escape of "pollutants" unless the discharge, dispersal, seepage, migration, release or escape is itself caused by any of the "specified causes of loss." But if the discharge, dispersal, seepage, migration, release or escape of "pollutants" results in a "specified cause of loss," we will pay for the loss or damage caused by that "specified causes of loss."
This exclusion, l., does not apply to damage to glass caused by chemicals applied to the glass.
m.Neglect of an insured to use all reasonable means to save and preserve property from further damage at and after the time of loss.
3.We will not pay for loss or damage caused by or resulting from any of the following, 3.a. through 3.c. But if an excluded cause of loss that is listed in 3.a. through 3.c. results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.
a.Weather conditions. But this exclusion only applies if weather conditions contribute in any way with a cause or event excluded in paragraph 1. above to produce the loss or damage.
b.Acts or decisions, including the failure to act or decide, of any person, group, organization or governmental body.
c.Faulty, inadequate or defective:
(1)Planning, zoning, development, surveying, siting;
(2)Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;
(3)Materials used in repair, construction, renovation or remodeling; or
(4)Maintenance;
of part or all of any property on or off the described premises.
Analysis:
Subsection B.2. of the special form (CP 10 30) consists of several exclusions, some with several subparts. In addition, the special form has a third set of exclusions, subsection B.3., with three exclusions—the exclusions adopted to avoid coverage losses that could be covered under a concurrent causation argument. The exclusions of this form are comparable to those incorporated into other property forms providing open perils or all risks coverage. The three subsection B.2. exclusions of the broad form are included in the special form as well, but in different sequence.
With the 2007 edition, the artificially generated electrical exclusion has been expanded to include advances in technology. This exclusion is discussed in the section on Additional Exclusions – Basic and Broad Forms.
Like the other causes of loss forms, the special form has a mechanical breakdown exclusion. However, the 1990 edition of the special causes of loss form added a provision to this exclusion, carrying over to the current version, clarifying that it does not apply to any resulting loss or damage caused by elevator collision.
Special form CP 10 30 excludes loss or damage caused by delay, loss of use, or loss of market; wear and tear; rust or other corrosion, decay, deterioration, hidden or latent defect or any quality in property that causes it to damage or destroy itself (the "inherent vice" of pre-1988 property form language); settling, cracking, shrinking, or expansion; nesting or infestation, or discharge or release of waste products or secretions, by insects, birds, rodents or other animals; and, with respect to personal property, marring or scratching, dampness or dryness of atmosphere, and changes in or extremes of temperature. One of the items listed under 2.d. has been revised from previous forms. The exclusion d. (2) for rust or other corrosion, etc., has been revised to delete a reference to fungus. This deletion reflects the fact that the form's exclusionary language dealing with "fungus" has been moved to an earlier section of the form, B.1. h.
The exclusion for dishonest or criminal acts committed by the named insured, partners, employees, directors, trustees, or authorized representatives of the named insured, or anyone to whom the named insured entrusts covered property was revised in 2012 to distinguish among partners, employees, and others who have a role in the insured's business and those to whom property was entrusted, such as bailees and tenants. For those to whom property is entrusted, the exclusion is narrowed to apply only to theft. Thus, acts of destruction by those not having a role in the insured's business are covered. This represents a broadening of coverage.
A related exclusion rules out coverage for voluntary parting losses. It applies to loss of property with which the named insured has been induced to part voluntarily by any fraudulent scheme, trick, device, or false pretense. For example, a store keeper allows a customer to take merchandise out of the store to show a spouse and does not require payment. The merchant voluntarily parted with the merchandise, so, if the customer fails to return it, there is no coverage despite the fact that theft losses, in general, are covered.
Exclusion B.2.k., dealing with collapse, was revised and expanded from the 2002 form. The current wording elaborates on the previous general exclusion for "collapse," stating that collapse includes a total falling down, a lack of structural integrity, and any cracking, sagging, bulging, sagging, bending, leaning, settling, shrinkage, or expansion that arises from either total collapse or a lack of structural integrity. As with many excluded causes of loss, there is coverage if an excluded collapse results in a covered cause of loss. The insurance will pay for the damage caused by the covered cause of loss but not for the collapse damage.
There are two exceptions to the exclusion for collapse. The exclusion does not apply to the coverage provided by the form's additional coverage for collapse, and it does not apply if the collapse is caused by any of the specified causes of loss, the breakage of building glass, the weight of rain that collected on a roof, or the weight of people or personal property. Therefore, for example, there would be coverage if an elevated pedestrian walkway connecting two sections of a building abruptly collapsed because of the collective weight of the people on it. In its discussion of these changes, ISO explained that some of the wording is editorially restructured in order to emphasize the fact that the collapse must be abrupt in order for the damage to qualify as a collapse for coverage purposes. The exclusion was also revised to reinforce the relationship between it and the form's additional coverage for collapse, which is discussed subsequently in this analysis.
The exclusion for release, discharge, or dispersal of contaminants or pollutants, originally part of the group of "wear and tear" exclusions discussed previously, was removed as part of the 1986 modifications made to the commercial property program. It was replaced by an exclusion removing coverage for loss or damage caused by or resulting from the release, discharge, or dispersal of pollutants unless the release, discharge, or dispersal is itself caused by any of the specified causes of loss. But if loss or damage by the specified causes of loss results, the insurer will pay for the resulting damage caused by the specified causes of loss.
The 1990 form revision modified this language to exclude coverage for loss or damage caused by or resulting from seepage, migration, and escape of pollutants as well, thus giving stronger emphasis to the exclusion of non-sudden pollution losses. This change is in accord with changes made in the 1990 Building and Personal Property Coverage Form, CP 00 10 10 90.
The effect of this exclusion is to limit the pollutant clean up and removal coverage to those sudden and accidental occurrences brought on by the specified causes of loss—the broad form perils.
A number of exclusions in special form CP 10 30 function to limit the scope of individual covered causes of loss under the special form to that of their counterparts in the basic and broad forms. There is an exclusion of smoke, vapor, or gas from agricultural smudging or industrial operations, paralleling an equivalent restriction on coverage for the named peril of smoke. An exclusion of damage from continuous or repeated seepage or leakage of water over a period of fourteen days or more modifies coverage for plumbing discharge under special form coverage just as it does the named cause of loss of water damage in the broad form. Similarly, there is an exclusion applicable to freezing of plumbing when the insured has not taken steps to maintain heat in the building or shut off the water supply and drain the pipes.
Damage to personal property in the open caused by rain, snow, ice, or sleet is excluded.
An additional exclusion, for loss or damage to products, has been added to the special causes of loss form with the 2007 revisions. It addresses errors in production.
5.Additional Exclusion
The following provisions apply only to the specified property.
Loss Or Damage To Products
We will not pay for loss or damage to any merchandise, goods or other product caused by or resulting from error or omission by any person or entity (including those having possession under an arrangement where work or a portion of the work is outsourced) in any stage of the development, production or use of the product, including planning, testing, processing, packaging, installation, maintenance or repair. This exclusion applies to any effect that compromises the form, substance or quality of the product. But if such error or omission results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.
Analysis:
ISO indicated that this exclusion was added to reinforce the intent that errors in production are not intended for coverage under the property policy. Examples of production errors are adding an incorrect amount of a particular ingredient or element, inadvertently adding foreign matter, or using an incorrect ingredient or element. Such mistakes are business risks and not a peril for property insurance purposes. The ISO circular for the 2007 filing explained that there have been claims involving errors in production that allege a useless product had to be destroyed because of the production error. Some claimants have alleged that destroying the product constitutes physical loss or damage for coverage purposes. The exclusion, which applies only to the property specified in the exclusion, was added in response to these types of claims. As with similar exclusions, if the error in production results in damage by a covered cause of loss, that damage is insured. An example of this would be the mistaken use of inferior containers to house flammable liquids. If the liquids escaped from the faulty packaging and caused a fire, the damage from that fire would be covered.
D. Additional Coverages – Collapse
The coverage provided under this Additional Coverage, Collapse applies only to an abrupt collapse as described and limited in D.1. through D.7.
1.For the purpose of this Additional Coverage – Collapse, abrupt collapse means an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose.
2.We will pay for direct physical loss or damage to Covered Property, caused by abrupt collapse of a building or any part of a building that is insured under this Coverage Form or that contains Covered Property insured under this Coverage Form, if such collapse is caused by one or more of the following:
a.Building decay that is hidden from view, unless the presence of such decay is known to an insured prior to collapse;
b.Insect or vermin damage that is hidden from view, unless the presence of such damage is known to an insured prior to collapse;
c.Use of defective material or methods in construction, remodeling or renovation if the abrupt collapse occurs during the course of the construction, remodeling or renovation.
d.Use of defective material or methods in construction, remodeling or renovation if the abrupt collapse occurs after the construction, remodeling or renovation is complete, but only if the collapse is caused in part by:
(1)A cause of loss listed in 2.a. or 2.b.;
(2)One or more of the "specified causes of loss";
(3)Breakage of building glass;
(4)Weight of people or personal property; or
(5)Weight of rain that collects on a roof.
3.This Additional Coverage – Collapse does not apply to:
a.A building or any part of a building that is in danger of falling down or caving in;
b.A part of a building that is standing, even if it has separated from another part of the building; or
c.A building that is standing or any part of a building that is standing, even if it shows evidence of cracking, bulging, sagging, bending, leaning, settling, shrinkage or expansion.
4.With respect to the following property:
a.Outdoor radio or television antennas (including satellite dishes) and their lead-in wiring, masts or towers;
b.Awnings, gutters and downspouts;
c.Yard fixtures;
d.Outdoor swimming pools;
e.Fences;
f.Piers, wharves and docks;
g.Beach or diving platforms or appurtenances;
h Retaining walls; and
i.Walks, roadways and other paved surfaces;
if an abrupt collapse is caused by a cause of loss listed in 2.a. through 2.d., we will pay for loss or damage to that property only if:
(1)Such loss or damage is a direct result of the abrupt collapse of a building insured under this Coverage Form; and
(2)The property is Covered Property under this Coverage Form.
5.If personal property abruptly falls down or caves in and such collapse is not the result of abrupt collapse of a building, we will pay for loss or damage to Covered Property caused by such collapse of personal property only if:
a.The collapse of personal property was caused by a cause of loss listed in 2.a. through 2.d.;
b.The personal property which collapses is inside a building; and
c.The property which collapses is not of a kind listed in 4., regardless of whether that kind of property is considered to be personal property or real property.
The coverage stated in this Paragraph 5. does not apply to personal property if marring and/or scratching is the only damage to that personal property caused by the collapse.
6.This Additional Coverage, Collapse, does not apply to personal property that has not abruptly fallen down or caved in, even if the personal property shows evidence of cracking, bulging, sagging, bending, leaning, settling, shrinkage or expansion.
7.This Additional Coverage, Collapse, will not increase the Limits of Insurance provided in this Coverage Part.
8.The term Covered Cause of Loss includes the Additional Coverage, Collapse, as described and limited in D.1. through D.7.
Analysis:
Collapse is covered under broad and special forms CP 10 20 and CP 10 30 not as a cause of loss but as an additional coverage, parallel to that provided in other commercial and personal property forms that have been revised to eliminate concurrent causation losses from coverage. In the 2007 revision of the forms, the term abrupt is frequently used to reinforce that coverage applies only to collapses that are abrupt in nature. A building or any part of it that is in imminent danger of collapsing does not qualify as a collapse for purposes of this additional coverage. The forms also require that the building or part of the building must be uninhabitable because of the abrupt collapse in order to qualify for coverage. For example, two walls of a building are bowing inward, cracking and sagging. Such a situation does not qualify as collapse, even though collapse seems imminent. The walls must have abruptly caved in or collapsed abruptly in order to qualify for this additional coverage.
Courts are split on the meaning of collapse. Some jurisdictions follow a conservative interpretation of the word and limit collapse coverage to cases involving a falling down or reduction to rubble. Other courts have adopted a more liberal view, allowing coverage when there is detectable serious impairment of structural integrity, with collapse probable unless repairs are made. Court cases interpreting this issue are discussed elsewhere; see Meaning of Collapse. The current causes of loss forms attempt to preempt judicial interpretation of the meaning of collapse by explicitly listing what collapse is and what it is not.
In the 2007 program, the collapse must be caused by building decay that is hidden from view; hidden insect or vermin damage; use of defective construction materials or methods if the collapse occurs during the course of construction, remodeling, or renovation; use of defective construction materials or methods after construction or renovation is completed only if the collapse is caused in part by hidden building decay or hidden insect or vermin damage, by one or more specified causes of loss, breakage of building glass, weight of people or personal property; or weight of rain that collected on a roof. Prior to the 2007 revisions, this coverage grant allowed coverage for collapse arising from several other causes of loss. However, the 2007 form removes those because they are now listed under the exceptions to the exclusion for collapse. The result of these editorial revisions is that the exclusion and the additional coverage for collapse are dovetailed to reflect one another.
The collapse provision limits collapse coverage for certain types of property unless the loss is a direct result of the collapse of a building and caused by the perils listed. These properties are outdoor radio or television antennas (and satellite dishes), including lead-in wiring, masts, or towers; awnings; gutters and downspouts; yard fixtures; outdoor swimming pools; fences; piers; wharves and docks; beach or diving platforms or appurtenances; retaining walls; and walks, roadways, and other paved surfaces. In addition, the property must be covered under the policy.
There is limited coverage for the collapse of personal property that is not caused by the abrupt collapse of a building. The provision states that collapse does not include settling, cracking, shrinkage, bulging, or expansion. As with the building coverage, the collapse of personal property must be abrupt in order to qualify for coverage. This collapse coverage does not increase the limits of insurance provided by the coverage form.
E. Additional Coverage – Limited Coverage For "Fungus", Wet Rot, Dry Rot And Bacteria
1.The coverage described in E.2. and E.6. only applies when the "fungus", wet or dry rot or bacteria is the result of one or more of the following causes that occurs during the policy period and only if all reasonable means were used to save and preserve the property from further damage at the time of and after that occurrence:
a.A Covered Cause Of Loss other than fire or lightning; or
b.Flood, if the Flood Coverage Endorsement applies to the affected premises.
This Additional Coverage does not apply to lawns, trees, shrubs or plants which are part of a vegetated roof.
2.We will pay for loss or damage by "fungus", wet or dry rot or bacteria. As used in this Limited Coverage, the term loss or damage means:
a.Direct physical loss or damage to Covered Property caused by "fungus", wet or dry rot or bacteria, including the cost of removal of the "fungus", wet or dry rot or bacteria;
b.The cost to tear out and replace any part of the building or other property as needed to gain access to the "fungus", wet or dry rot or bacteria; and
c.The cost of testing performed after removal, repair, replacement or restoration of the damaged property is completed, provided there is a reason to believe that "fungus", wet or dry rot or bacteria are present.
3.The coverage described under C.2. of this Limited Coverage is limited to $15,000. Regardless of the number of claims, this limit is the most we will pay for the total of all loss or damage arising out of all occurrences of Covered Causes Of Loss (other than fire or lightning) and Flood which take place in a 12-month period (starting with the beginning of the present annual policy period). With respect to a particular occurrence of loss which results in "fungus", wet or dry rot or bacteria, we will not pay more than a total of $15,000 even if the "fungus", wet or dry rot or bacteria continue to be present or active, or recurs, in a later policy period.
4.The coverage provided under this Limited Coverage does not increase the applicable Limit of Insurance on any Covered Property. If a particular occurrence results in loss or damage by "fungus", wet or dry rot or bacteria, and other loss or damage, we will not pay more, for the total of all loss or damage, than the applicable Limit of Insurance on the affected Covered Property.
If there is covered loss or damage to Covered Property, not caused by "fungus", wet or dry rot or bacteria, loss payment will not be limited by the terms of this Limited Coverage, except to the extent that "fungus", wet or dry rot or bacteria cause an increase in the loss. Any such increase in the loss will be subject to the terms of this Limited Coverage.
5.The terms of this Limited Coverage do not increase or reduce the coverage provided under Paragraph F.2. (Water Damage, Other Liquids, Powder Or Molten Material Damage) of this Causes Of Loss Form or under the Additional Coverage – Collapse.
6.The following, 6.a. or 6.b., applies only if Business Income and/or Extra Expense coverage applies to the described premises and only if the "suspension" of "operations" satisfies all terms and conditions of the applicable Business Income and/or Extra Expense coverage form:
a.If the loss which resulted in "fungus", wet or dry rot or bacteria does not in itself necessitate a "suspension" of "operations", but such "suspension" is necessary due to loss or damage to property caused by "fungus", wet or dry rot or bacteria, then our payment under Business Income and/or Extra Expense is limited to the amount of loss and/or expense sustained in a period of not more than 30 days. The days need not be consecutive.
b.If a covered "suspension" of "operations" was caused by loss or damage other than "fungus", wet or dry rot or bacteria but re mediation of "fungus", wet or dry rot or bacteria prolongs the "period of restoration", we will pay for loss and/or expense sustained during the delay (regardless of when such a delay occurs during the "period of restoration"), but such coverage is limited to 30 days. The days need not be consecutive.
Analysis:
An annual aggregate amount of $15,000 is available for fungus, wet rot, dry rot, and bacteria that results from any covered cause of loss except fire, lightning, and flood (if flood insurance is purchased). However, the $15,000 is a lifetime limit for mold caused by the same event. The exception for such damage arising from fire, lightning, or flood is provided so that the additional coverage dovetails with the parallel exclusion, explained under the exclusions discussion.
The 2012 edition of the form added that the additional coverage does not apply to lawns, trees, shrubs, or plants that are part of a vegetated roof.
D. Limitation
We will pay for loss of animals only if they are killed or their destruction is made necessary.
Analysis:
These forms add a limitation of coverage pertaining to animals so they conform to coverage provided by the special causes of loss form, CP 10 30. The basic and broad forms provide that coverage for animals applies only if they are killed or their destruction is made necessary. Without the limitation, coverage for animals under the basic and broad forms would be broader than under the special causes of loss form, an inequity considering the higher premiums charged for special causes of loss coverage.
C. Limitations
The following limitations apply to all policy forms and endorsements, unless otherwise stated.
1.We will not pay for loss of or damage to property, as described and limited in this section. In addition, we will not pay for any loss that is a consequence of loss or damage as described and limited in this section.
a.Steam boilers, steam pipes, steam engines or steam turbines caused by or resulting from any condition or event inside such equipment. But we will pay for loss of or damage to such equipment caused by or resulting from an explosion of gases or fuel within the furnace of any fired vessel or within the flues or passages through which the gases of combustion pass.
b.Hot water boilers or other water heating equipment caused by or resulting from any condition or event inside such boilers or equipment, other than an explosion.
c.The interior of any building or structure, or to personal property in the building or structure, caused by or resulting from rain, snow, sleet, ice, sand or dust, whether driven by wind or not, unless:
(1)The building or structure first sustains damage by a Covered Cause of Loss to its roof or walls through which the rain, snow, sleet, ice, sand or dust enters; or
(2)The loss or damage is caused by or results from thawing of snow, sleet or ice on the building or structure.
d.Building materials and supplies not attached as part of the building or structure, caused by or resulting from theft.
However, this limitation does not apply to:
(1)Building materials and supplies held for sale by you, unless they are insured under the Builders Risk Coverage Form; or
(2)Business Income coverage or Extra Expense coverage.
e.Property that is missing, where the only evidence of the loss or damage is a shortage disclosed on taking inventory, or other instances where there is no physical evidence to show what happened to the property.
f.Property that has been transferred to a person or to a place outside the described premises on the basis of unauthorized instructions.
g.Lawns, trees, shrubs or plants which are part of a vegetated roof, caused by or resulting from:
(1)Dampness or dryness of atmosphere or of soil supporting the vegetation;
(2)Changes in or extremes of temperature;
(3)Disease;
(4)Frost or hail; or
(5)Rain, snow, ice or sleet.
2.We will not pay for loss of or damage to the following types of property unless caused by the "specified causes of loss" or building glass breakage:
a.Animals, and then only if they are killed or their destruction is made necessary.
b.Fragile articles such as statuary, marbles, chinaware and porcelains, if broken. This restriction does not apply to:
(1)Glass; or
(2)Containers of property held for sale.
c.Builders' machinery, tools and equipment owned by you or entrusted to you, provided such property is Covered Property.
However, this limitation does not apply:
(1)If the property is located on or within 100 feet of the described premises, unless the premises is insured under the Builders Risk Coverage Form; or
(2)To Business Income Coverage or to Extra Expense Coverage.
3.The special limit shown for each category, a. through d., is the total limit for loss of or damage to all property in that category. The special limit applies to any one occurrence of theft, regardless of the types or number of articles that are lost or damaged in that occurrence. The special limits are (unless a higher limit is shown in the Declarations):
a.$2,500 for furs, fur garments and garments trimmed with fur.
b.$2,500 for jewelry, watches, watch movements, jewels, pearls, precious and semi-precious stones, bullion, gold, silver, platinum and other precious alloys or metals. This limit does not apply to jewelry and watches worth $100 or less per item.
c.$2,500 for patterns, dies, molds and forms.
d.$250 for stamps, tickets, including lottery tickets held for sale, and letters of credit.
These special limits are part of, not in addition to, the Limit of Insurance applicable to the Covered Property.
This limitation, C.3., does not apply to Business Income Coverage or to Extra Expense Coverage.
4.We will not pay the cost to repair any defect to a system or appliance from which water, other liquid, powder or molten material escapes. But we will pay the cost to repair or replace damaged parts of fire-extinguishing equipment if the damage:
a.Results in discharge of any substance from an automatic fire protection system; or
b.Is directly caused by freezing.
However, this limitation does not apply to Business Income Coverage or to Extra Expense Coverage.
Analysis:
Coverage for losses involving certain perils or certain kinds of property is further modified under the special causes of loss form by a set of limitations. These limitations must be read in conjunction with the form's exclusions to fully comprehend how the broad coverage this form provides is tempered.
The limitation for damage to the interior of buildings by rain, snow, sleet, ice, sand, or dust unless the material enters the building through an area of the building damaged by a covered cause of loss should be contrasted with the similar limitation on the basic and broad forms (CP 10 10 and CP 10 20). On those forms, the limitation appears in the windstorm or hail cause of loss instead of in a separate limitations section. Those forms permit coverage for damage by rain, snow, sand, or dust (whether driven by wind or not) to the interior of a structure, or the personal property within a structure, only if the material enters the structure through a hole made by wind or hail. These limitations point out that there is no coverage if, for example, rain enters a building through an open window and damages the interior furnishings.
Certain categories of property are covered under special form CP 10 30 only with respect to building glass breakage (as a cause of loss) or one of the form's fourteen specified causes of loss (see the definitions section). These categories are animals if killed or their destruction made necessary by the effect of breakage of building glass or one of the specified causes of loss; fragile articles other than glass or containers of property held for sale; and builders' machinery, tools, and equipment owned by or entrusted to the named insured and away from the insured premises. (If this cause of loss form is attached to Builders' Risk Coverage form, CP 00 20 10 12, the limitation applies to builders' machinery, tools, and equipment whether the property is on or off the insured premises.)
The 2012 form revisions added a limitation for lawns, trees, shrubs, or plants that are part of a vegetated roof. Losses to this type of property are not covered if they result from dampness or dryness of atmosphere or of soil supporting the vegetation, changes in or extremes of temperature, disease, frost, hail, rain, snow, ice, or sleet.
The third set of limitations in special form CP 10 30 places maximum dollar amounts on theft coverage for enumerated types of property. Special form CP 10 30, unlike the basic and broad causes of loss forms, covers theft losses unless theft has been specifically excluded by endorsement. For this reason, form CP 10 30 applies these internal limits to property that may be considered particularly attractive to thieves: $2,500 on furs, including fur and fur-trimmed garments; $2,500 on jewelry, watches, precious metals, and similar property; $2,500 on patterns, dies, molds, and forms; and $250 on stamps, tickets (including lottery tickets held for sale), and letters of credit. The question of whether "stamps" includes philatelic items or collections is not addressed (see Numismatic and Philatelic Property for discussion of this subject). Each of these categories of property may be more specifically insured under one of several commercial inland marine forms. The loss of other types of property—such as business furnishings, manufacturing or building materials, and electronic equipment—is covered per policy limits for theft unless specifically limited or excluded by endorsement.
The fourth set involves damage to systems or appliances from which liquid, powder, or molten material escapes. There is no coverage for damage to the appliance or system unless it involves fire-extinguishing equipment and special circumstances. The special causes of loss form thus conforms to the basic and broad forms, which provide coverage for sprinkler leakage as a basic cause of loss. On those forms, the sprinkler system will be repaired under the same circumstances as in the special form—if the sprinkler discharges its fire protection substance or if the loss is directly caused by freezing.
F. Additional Coverage Extensions
1.Property In Transit. This Extension applies only to your personal property to which this form applies.
a.You may extend the insurance provided by this Coverage Part to apply to your personal property (other than property in the care, custody or control of your salespersons) in transit more than 100 feet from the described premises. Property must be in or on a motor vehicle you own, lease or operate while between points in the coverage territory.
b.Loss or damage must be caused by or result from one of the following causes of loss:
(1)Fire, lightning, explosion, windstorm or hail, riot or civil commotion, or vandalism.
(2)Vehicle collision, upset or overturn. Collision means accidental contact of your vehicle with another vehicle or object. It does not mean your vehicle's contact with the road bed.
(3)Theft of an entire bale, case or package by forced entry into a securely locked body or compartment of the vehicle. There must be visible marks of the forced entry.
c.The most we will pay for loss or damage under this Extension is $5,000.
This Coverage Extension is additional insurance. The Additional Condition, Coinsurance, does not apply to this Extension.
2.Water Damage, Other Liquids, Powder or Molten Material Damage.
If loss or damage caused by or resulting from covered water or other liquid, powder or molten material damage loss occurs, we will also pay the cost to tear out and replace any part of the building or structure to repair damage to the system or appliance from which the water or other substance escapes. This Coverage Extension does not increase the Limit of Insurance.
3.Glass
a.We will pay for expenses incurred to put up temporary plates or board up openings if repair or replacement of damaged glass is delayed.
b.We will pay for expenses incurred to remove or replace obstructions when repairing or replacing glass that is part of a building. This does not include removing or replacing window displays.
This Coverage Extension, F.3., does not increase the Limit of Insurance.
Analysis:
CP 10 30 offers coverage extensions to the insured dealing with property in transit, liquid damage, and glass.
The property in transit coverage applies to personal property covered under the business and personal property form, and the coverage is limited to certain causes of loss and to a maximum of $5,000. If the insured wants an open perils type coverage for property in transit, an inland marine form needs to be purchased.
As for the liquid damage coverage extension, CP 10 30 offers to pay the cost to tear out and replace any part of the building or structure that is needed in order to repair the damage to the system or appliance from which the liquid escaped. So, if the damaged appliance is behind a wall in the covered building, this clause removes the uncertainty as to whether the insurer will pay to have the wall torn out when it is necessary to do so in order to get at the appliance and fix it. This extension is tied to covered water/liquid damage. The extension must be read in conjunction with the water damage exclusion, item B.1.g. in the form, and the definition of water damage.
The glass coverage extension notes that the insurer will pay for boarding up openings if repair or replacement of damaged glass is delayed. This is meant to lessen the threat that the interior of the covered building and property in the building will be damaged or lost.
The amounts paid under both the liquid damage extension and the glass extension are within the limits of insurance. The amount for the property in transit extension is in addition to the limits of insurance.
G. Definitions
1."Fungus" means any type or form of fungus, including mold or mildew, and any mycotoxins, spores, scents or by-products produced or released by fungi.
2."Specified causes of loss" means the following: fire; lightning; explosion; windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire-extinguishing equipment; sinkhole collapse; volcanic action; falling objects; weight of snow, ice or sleet; water damage.
a.Sinkhole collapse means the sudden sinking or collapse of land into underground empty spaces created by the action of water on limestone or dolomite. This cause of loss does not include:
(1)The cost of filling sinkholes; or
(2)Sinking or collapse of land into man-made underground cavities.
b.Falling objects does not include loss or damage to:
(1)Personal property in the open; or
(2)The interior of a building or structure, or property inside a building or structure, unless the roof or an outside wall of the building or structure is first damaged by a falling object.
c.Water damage means:
(1)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 or appliance (other than a sump system including its related equipment and parts), that is located on the described premises and contains water or steam; and
(2)Accidental discharge or leakage of water or waterborne material as the direct result of the breaking apart or cracking of a water or sewer pipe that is located off the described premises and is part of a municipal potable water supply system or municipal sanitary sewer system, if the breakage or cracking is caused by wear and tear.
But water damage does not include loss or damage otherwise excluded under the terms of the Water Exclusion. Therefore, for example, there is no coverage under this policy in the situation in which discharge or leakage of water results from the breaking apart or cracking of a pipe which was caused by or related to weather-induced flooding, even if wear and tear contributed to the breakage or cracking. As another example, and also in accordance with the terms of the Water Exclusion, there is no coverage for loss or damage caused by or related to weather-induced flooding which follows or is exacerbated by pipe breakage or cracking attributable to wear and tear.
To the extent that accidental discharge or leakage of water falls within the criteria set forth in c.(1) or c.(2) of this definition of "specified causes of loss," such water is not subject to the provisions of the Water Exclusion which preclude coverage for surface water or water under the surface of the ground.
Analysis:
This definitions section is found on CP 10 30, the special form causes of loss. It may seem strange that an open perils coverage form lists a set of specified causes of loss. But, the specified causes of loss are referred to throughout CP 10 30 to clarify what is covered and what is not covered in specific loss situations.
For example, CP 10 30 excludes loss or damage caused by wear and tear or mechanical breakdown, but it will cover loss or damage caused by one of the specified causes of loss if the wear and tear or mechanical breakdown results in such a cause of loss. In other words, if the mechanical breakdown causes a fire or explosion, that damage is a covered cause of loss.
The limitations section of CP 10 30 declares that it will not pay for loss or damage to certain types of property—such as animals (if killed or destroyed) and certain fragile articles—unless the loss or damage is caused by the specified causes of loss or building glass breakage. For example, if the insured owns a fragile porcelain vase and it is damaged due to vandalism, CP 10 30 covers the loss. On the other hand, theft of the porcelain vase is not covered because theft is not one of the specified causes of loss.
The specified causes of loss also come into play again under the collapse coverage section of CP 10 30. If any of those specified causes of loss cause the collapse of the covered building, the loss is covered.
Sinkhole collapse, falling objects, and water damage are all further defined in this section of CP 10 30 in order to clarify coverage questions
The 2012 forms revision expanded the water damage definition to include accidental discharge or leakage of water or waterborne materials as the result of the breaking apart or cracking of a water or sewer pipe located on the described premises. The pipe must be part of the municipal potable water supply system or sewage system, if the loss is caused by wear and tear. The policy provides an example of what would not be considered water damage: if discharge or leakage occurs when the pipe breaks apart or cracks due to weather-induced flooding. In other words, damage does not include losses that would be excluded by the water exclusion. However, if accidental discharge or leakage falls within the criteria of the definition of specified causes of loss, the provisions of the water exclusion pertaining to surface water or water under the surface of the ground do not apply.
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