For ease of use,we will discuss the forms separately and provide a link to each article. This article analyzes form CP 10 28 02 19.

The CP 10 28 can be added to the Commercial Property Coverage Part and the Standard Property Policy. The limit of coverage must be the same as the limit of insurance for other causes of loss. For specific insurance, if a policy contains more than one item, coverage may apply to any or all the items; it must be indicated in the schedule to which properties the earthquake coverage applies to.

For blanket coverage, if the coverage does not apply to all buildings or personal property included in a scheduled item, the schedule must identify to which building or personal property the coverage applies. Also, the earthquake coverage limit must be shown per item.

The form requires the building or buildings to be covered to be identified in the schedule with a deductible and limit of insurance. An option exists to include coverage for property with masonry veneer; this must be listed on the schedule as well. Another option is to only provide coverage for sprinkler leakage caused by an earthquake. Again, it must be indicated on the schedule as to which building this applies to, with the appropriate limit of insurance. The deductible for sprinkler leakage will be the same as the fire deductible.

A. When this endorsement is attached to the Standard Property Policy, the terms Coverage Part and Coverage Form in this endorsement are replaced by the term policy.

B. This endorsement applies to the Covered Property and Coverages for which a Limit Of Insurance is shown in the Schedule.

C. Additional Covered Causes Of Loss

1. The following are added to the Covered Causes of Loss:
a. Earthquake.
b. Volcanic Eruption, meaning the eruption, explosion or effusion of a volcano.
All Earthquake shocks or Volcanic Eruptions that occur within any 168-hour period will constitute a single Earthquake or Volcanic Eruption. The expiration of this Policy will not reduce the 168-hour period.

2. If the Schedule indicates that this endorsement covers Earthquake – Sprinkler Leakage Only, then the Covered Causes of Loss in Paragraph C.1. of this endorsement do not apply, and the following apply instead:
a. Sprinkler Leakage resulting from Earthquake.
b. Sprinkler Leakage resulting from Volcanic Eruption. Volcanic Eruption means the eruption, explosion or effusion of a volcano.

All Earthquake shocks or Volcanic Eruptions that occur within any 168-hour period will constitute a single Earthquake or Volcanic Eruption. The expiration of this Policy will not reduce the 168-hour period.

Analysis

The form begins by stating that the terms Coverage Part and Coverage Form in the endorsement are replaced by the term policy when the endorsement is attached to the Standard Property Policy. It then specifies that the endorsement applies to the Covered Property and Coverages as long as a Limit of Insurance is shown in the schedule. If no limit is shown, then no coverage applies to the property in question.

Two additional causes of loss are then added to the policy as covered causes of loss. Earthquake and volcanic eruption; volcanic eruption means the eruption, explosion or effusion of a volcano. Earthquake shocks or volcanic eruptions that occur within any 168-hour period are considered a single earthquake or volcanic eruption. The expiration of the policy does not reduce this 168-hour period. Earthquakes and volcanos often have aftershocks or multiple eruptions in any one event. This defines where the policy considers one event to end.

Coverage for sprinkler leakage is an option. If that option is selected, then the coverages for earthquake and volcanic eruption do not apply. The only coverage is for sprinkler leakage that results from either an earthquake or a volcanic eruption. Again, volcanic eruption is defined as an eruption, explosion or effusion of a volcano and again, any earthquake or volcanic eruption within a 168-hour period is considered one event.

D. Exclusions, Limitations And Related Provisions

1. The Exclusions and Limitation(s) sections of the Causes Of Loss Form (and the Exclusions section of the Mortgageholders Errors And Omissions Coverage Form and the Standard Property Policy) apply to coverage provided under this endorsement, except as provided in Paragraphs D.2. and D.3.below.
   
2. To the extent that the Earth Movement Exclusion might conflict with coverage provided under this endorsement, the Earth Movement Exclusion does not apply.
   
3. The exclusion of collapse, in the Causes Of Loss – Special Form and Mortgageholders Errors And Omissions Coverage Form, does not apply to collapse caused by Earthquake or Volcanic Eruption.
   
4. The Additional Coverage – Collapse, in the Causes Of Loss – Broad Form, Causes Of Loss – Special Form and Mortgageholders Errors And Omissions Coverage Form, does not apply to the coverage provided under this endorsement. This endorsement includes coverage for collapse caused by Earthquake or Volcanic Eruption.
   
5. We will not pay for loss or damage caused directly or indirectly by tidal wave or tsunami, even if attributable to an Earthquake or Volcanic Eruption.
   
6. We will not pay for loss or damage caused by or resulting from any Earthquake or Volcanic Eruption that begins before the inception of this insurance.
   
7. The Ordinance Or Law Exclusion in this Coverage Part continues to apply with respect to any loss under this Coverage Part including any loss under this endorsement, unless Ordinance Or Law Coverage is added by endorsement.
   
8. We will not pay for loss of or damage to exterior masonry veneer (except stucco) on wood frame walls caused by or resulting from Earthquake or Volcanic Eruption. The value of such veneer will not be included in the value of Covered Property or the amount of loss when applying the Property Damage Deductible applicable to this endorsement. This limitation, D.8., does not apply if:

9. Under this Coverage Part, as set forth under Property Not Covered in the Coverage Form to which this endorsement is attached, land is not covered property, nor is the cost of excavations, grading, backfilling or filling. Therefore, coverage under this endorsement does not include the cost of restoring or remediating land.

Analysis

Exclusions D. 1., 2., and 3. serve to maintain the exclusions and limitations that are in the listed forms, except with respect to removing the exclusions that apply to earth movement and collapse that might conflict with the coverages provided by this endorsement. For example, if an earthquake causes a covered building to collapse, then exclusion D.3. would not apply to that collapse damage.

Exclusion D.4. removes the Additional Coverage – Collapse found in the applicable forms with respect to damage caused by earthquake or volcanic eruption.

Exclusion D.5. precludes any coverage for direct damage caused tidal wave or tsunami, even in event of an earthquake. Sometimes an earthquake can trigger a tsunami. So,damage done by the earthquake would be covered by the endorsement but not the water damage done by the tsunami.

Exclusion D.6. precludes coverage for any earthquake or volcanic eruption beginning prior to the inception of this coverage endorsement. Sometimes an earthquake will be preceded by small earthquake tremors, which then lead to a large earthquake. This exclusion will apply if the insured waits until the tremors have started to add this endorsement.

Exclusion D.7. serves to follow the applicable coverage part with respect to Ordinance or Law coverage. If excluded on the coverage part, then it will not apply to this earthquake coverage; but if added on the coverage part by endorsement, then that coverage will also extend to the coverage provided by this endorsement.

Exclusion D.8. only applies with respect to damage to buildings with exterior masonry veneer, where such veneer is on greater than 10% of the building. There is an option to remove this exclusion for additional premium which will apply in exception D.8.a. if the schedule indicates that the "Including Masonry Veneer" option applies or the premises description in the Declarations specifically states "Including Masonry Veneer". Exterior masonry veneer as used in this exclusion does not apply to stucco. An example of how this exclusion might apply is if a wood frame building has a brick front. The brick front makes up 15%of the building's structure. In this case, the exclusion would apply to the cost to replace the masonry veneer (brick) front, and the value of that veneer would not be calculated in the covered property loss, unless that building was shown in the schedule to "include masonry veneer".

Land in any form is excluded by D.9.--including any excavations, grading, backfilling or filling of land;or any costs of restoring or remediating land.

E. Property Damage Deductible

1. The provisions of Paragraph E.3. of this endorsement are applicable to all Coverage Forms except:

a. Business Income (And Extra Expense) Coverage Form;
b. Business Income (Without Extra Expense) Coverage Form; and
c. Extra Expense Coverage Form.

2. If the Schedule indicates that this endorsement covers Earthquake – Sprinkler Leakage Only, then the Deductible provisions set forth in Paragraph E.3. of this endorsement do not apply to such coverage. The applicable Deductible for such coverage is the same Deductible that applies to Fire.

3. The Deductible, if any, in this Coverage Part is replaced by the following with respect to Earthquake and Volcanic Eruption:

Deductible Clause

a. The Deductible provisions apply to each Earthquake or Volcanic Eruption. A single Earthquake or Volcanic Eruption is defined in Paragraph C. of this endorsement.
b. We will not pay for loss or damage until the amount of loss or damage exceeds the applicable Deductible. Subject to the provisions of 3.c. below, we will then pay the amount of loss or damage in excess of that Deductible, up to the applicable Limit of Insurance, after any reduction required by any of the following: Coinsurance Condition, Agreed Value Optional Coverage, Additional Condition – Need For Adequate Insurance or Additional Condition – Need For Full Reports.
c. Applicable Deductibles by location are shown in the Schedule. If a Deductible is shown for a particular building, then that building is considered to be a separate location for the purpose of this Deductible Clause.

The Deductible specified for a particular location applies to all property at that location. Therefore, if a building is shown in the Schedule as a separate location, all Covered Property at that location is subject to that Deductible. The Deductible will apply only once at that location in each occurrence of Earthquake or Volcanic Eruption.

If one occurrence of Earthquake or Volcanic Eruption results in loss or damage at more than one location, the applicable Deductible will apply separately to loss or damage at each location that has sustained loss or damage, in accordance with the information shown in the Schedule for locations and Deductibles. Therefore, for example, if an Earthquake damages two buildings which are shown in the Schedule as separate locations, the applicable Deductible will be applied separately to the loss at each location.

d. If there is loss or damage caused by Earthquake or Volcanic Eruption, and loss or damage caused by a Cause of Loss (e.g., fire) that is covered by means of an exception to Exclusion, then the Earth Movement the only applicable Deductible provisions are those stated in this endorsement.

EXAMPLE – APPLICATION OF DEDUCTIBLE

This example assumes:

That the loss at each location is less than the sum of the Limit of Insurance and the Deductible applicable to that location.

An Earthquake damages Buildings 1 and 2, and Business Personal Property at those buildings.
Location Deductible Loss to Building Loss to 

Business Personal Property
Building Loc. 1 $10,000 $50,000 $50,000
Building Loc. 2 $10,000 $20,000 $20,000

Calculation of Loss Payment

Building Location 1
Total amount of loss $100,000
Minus deductible – $10,000 
Loss Payment $90,000

Building Location 2
Total amount of loss $30,000
Minus deductible –$10,000 
Loss Payment $20,000

Analysis

The provisions of paragraph E describe the deductible application that applies to earthquake or volcanic eruption losses.Paragraph E.3. replaces the deductible provision of the coverage part that applies to other covered losses and describes how that the earthquake and volcanic eruption deductible should be applied to property damage losses caused by those causes of loss. These deductible provisions do not apply to business income and/or extra expense coverages provided for under the coverage part.

E.3.a.applies the deductible to each earthquake or volcanic eruption as described in paragraph C. All Earthquake shocks or Volcanic Eruptions that occur within any 168-hour period will constitute a single Earthquake or Volcanic Eruption, and this period may extend beyond the policy expiration.

E.3.b. maintains that losses will not be paid until the deductible has been exceeded, and after the application of any deductions that apply to Coinsurance, Agreed Value Optional Coverage, Additional Condition – Need For Adequate Insurance or Additional Conditions – Need for Full Reports,following the provisions detailed in E.3.c.

E.3.c.describes how the deductible applies if the schedule calls for different deductibles on a per location basis. For each location where a deductible amount is shown, the deductible will apply to all covered property at that location, for each occurrence of earthquake or volcanic eruption, regardless of the number of occurrences. The deductible will apply to each location scheduled, so if an earthquake damages more than one location, the losses at each location will be subject to the deductible application, for each occurrence.

E.3.d. describes that the deductible in this endorsement supersedes and replaces the deductible for other covered causes of loss with respect to earthquake or volcanic eruption damage covered by this endorsement. As such,if there are dual covered causes of loss, such as an earthquake and afire, then the deductible for the other cause of loss(fire), in the exception to Exclusion for Earth Movement does not apply and instead the earthquake deductible will apply.

The form then providesa detailed example of how the deductible should be applied and calculated in a given loss situation.

F. Business Income And Extra Expense Period Of Restoration

This Paragraph F. is applicable only to the Coverage Forms specified below:

a. Business Income (And Extra Expense) Coverage Form;
b. Business Income (Without Extra Expense) Coverage Form; and
c. Extra Expense Coverage Form.

The "period of restoration" definition stated in the Coverage Form, or in any endorsement amending the beginning of the "period of restoration", applies to each Earthquake or Volcanic Eruption. A single Earthquake or Volcanic Eruption is defined in Paragraph C. of this endorsement.

Analysis

This paragraph F only applies with respect to business income and/or extra expense coverages under the policy. The endorsement expands the "period of restoration" to apply to earthquake or volcanic eruption losses covered by this endorsement that meets the description in paragraph C.

Includes copyrighted material of Insurance Services Office, Inc., with its permission.

For further reading:

2023 Commercial Property Earthquake and Volcanic Eruption Rules Revisions

Earthquakes and Insurance

Disaster Compendium - Earthquakes