For ease of use, we will discuss the forms separately and provide a link to each article.This article analyzes form CP 10 45 02 19.

The CP 10 45 can be added to the Commercial Property Coverage Part and the Standard Property Policy. To provide the coverage, the Earthquake and Volcanic Eruption Coverage Schedule (Sub-Limit Form) CP DS 06 must be completed and attached to show the limit and the property to be covered by the endorsement.
The limit is a blanket limit, but 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. There is an option to increase the earthquake aggregate limit and this also must be indicated on the schedule by checking the "yes" or "no" box on the schedule.

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, or stated such in the declarations, with the appropriate limit of insurance which should be less than the limit that applies to other perils. The "Earthquake – Sprinkler Leakage Only" option appears under Additional Covered Causes Of Loss in the endorsement. 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 Earthquake – Volcanic Eruption Coverage Schedule or the Declarations 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 specified 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.

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 by 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. No Coinsurance

The Coinsurance Condition in this Policy, if any, does not apply to the coverage provided under this endorsement.

Various Coverage Extensions, in the Coverage Form to which this endorsement is attached, require coinsurance. The coinsurance requirement for such Coverage Extensions is eliminated with respect to endorsement.

Analysis

Because the coverage provided by this endorsement is only a sub-limit, the coinsurance does not apply to the earthquake coverage provided by the endorsement, except that the coinsurance requirement must be met with respect to the coverage form to which this endorsement is attached.

F. Limit Of Insurance

1. General Information

The term Limit of Insurance means the Limit of Insurance applicable to Earthquake – Volcanic Eruption for the Covered Property or Coverage under which loss or damage is sustained.

The Earthquake – Volcanic Eruption Coverage Schedule or the Declarations provides information on the Limit of Insurance applicable to Covered Property and Coverages for Earthquake – Volcanic Eruption.

Analysis

The limit of insurance is again a sub-limit that applies to earthquake or volcanic eruption under this endorsement. This limit may be shown on CP DS 06 02 19 or the policy declarations.

2. Annual Aggregate Limit
The Limit of Insurance for Earthquake – Volcanic Eruption is an annual aggregate limit and as such is the most we will pay for the total of all loss or damage that is caused by Earthquake or Volcanic Eruption in a 12-month period (starting with the beginning of the present annual policy period), even if there is more than one Earthquake or Volcanic Eruption during that period of time. Thus, if the first Earthquake or Volcanic Eruption does not exhaust the Limit of Insurance, then the balance of that Limit is available for a subsequent Earthquake(s) or Volcanic Eruption(s).

If a single Earthquake or Volcanic Eruption (as defined in Section C. of this endorsement) begins during one annual policy period and ends during the following annual policy period, any Limit of Insurance applicable to the following annual policy period will not apply to such Earthquake or Volcanic Eruption.

Analysis

The sub-limit that applies to earthquake provided by this endorsement is subject to an annual aggregate, regardless of the number of earthquakes or volcanic eruptions that occur in a 12-month period, coinciding with the annual policy period.If the first earthquake or volcanic eruption does not exhaust the limit of insurance, then the balance of that limit is available for a subsequent earthquake or volcanic eruption. If the earthquake or volcanic eruption begins in one annual policy period but extends into the next policy period, the limit of insurance in effect at the beginning will be the limit of insurance that will apply to the entire earthquake or volcanic eruption event.

3. Increased Annual Aggregate Limit Option
If the Earthquake – Volcanic Eruption Coverage Schedule or the Declarations indicates that the Increased Annual Aggregate Limit Option applies, then the following applies instead of Paragraph F.2. above:
The Limit of Insurance for Earthquake – Volcanic Eruption is the most we will pay in a single Earthquake or Volcanic Eruption (as defined in Section C. of this endorsement) for loss or damage caused by the Earthquake or Volcanic Eruption. If there is more than one Earthquake or Volcanic Eruption in a 12-month period (starting with the beginning of the present annual policy period), the most we will pay for the total of all loss or damage sustained during that period of time and caused by Earthquake or Volcanic Eruption is two times the Limit of Insurance.

If a single Earthquake or Volcanic Eruption (as defined in Section C. of this endorsement) begins during one annual policy period and ends during the following annual policy period, any Limit of Insurance applicable to the following annual policy period will not apply to such Earthquake or Volcanic Eruption.

Analysis

If the increased aggregate limit option is purchased, the annual aggregate is two times the limit of insurance; but the limit of insurance remains the maximum amount recoverable for a single earthquake or volcanic eruption. Again, this option must be selected in the schedule or shown in the declarations. If the earthquake or volcanic eruption begins in one annual policy period but extends into the next policy period, the limit of insurance in effect at the beginning will be the limit of insurance that will apply to the entire earthquake or volcanic eruption event.All earthquake shocks or volcanic eruptions that occur within any 168-hour period will constitute a single earthquake or volcanic eruption. For example, if an earthquake tremor starts three days before the end of the 12-month policy period, but then proceeds and increases in intensity over the next several days, then the limit of insurance for earthquake that was in effect when the tremors first started will be the limit of insurance that applies to the entire earthquake event.

This limit is not in addition to the limit of insurance that applies to other covered causes of loss. For example, the maximum amount recoverable for the total of all loss or damage caused by an earthquake and fire resulting from the earthquake is the limit of insurance applicable to fire. So,if the limit of insurance for earthquake is $100,000 but the fire limit of insurance is $1,000,000 then the fire limit will apply to the entire sum of the damage caused by the earthquake plus the damage done by the resulting fire.

4. Additional Coverages and Coverage Extensions
Amounts payable under an Additional Coverage or Coverage Extension, asset forth in the applicable Coverage Form, do not increase the Limit of Insurance for Earthquake – Volcanic Eruption.

Analysis

The amounts available under the additional coverages or coverage extensions of the coverage form to which this endorsement is attached do not increase the limit of insurance that applies to earthquake–volcanic eruption under this endorsement.

5. Limitation
For property or coverage that is subject to a Blanket Limit on Earthquake – Volcanic Eruption (as shown in the Earthquake – Volcanic Eruption Coverage Schedule or in the Declarations), we will not pay more than we would pay in the absence of such Blanket Limit. Therefore, the maximum amount payable for any such item of property or coverage is the Limit of Insurance or stated value (as shown in a Statement of Values on file with us) specific to that item of property or coverage for Covered Causes of Loss other than Earthquake – Volcanic Eruption.

Analysis

Even though the endorsement may be insured on a blanket basis, each individual item of property is subject to a specific stated value as shown in the insured's statement of values submitted to and on file with the insurer. As such, payment for each item of property will not exceed this value, even if there is a blanket limit of insurance. For example, the earthquake and volcanic eruption blanket limit of insurance is $500,000. The statement of values shows building 1 valued at $25,000, building 2 at $50,000, building 3 at $35,000. In event of earthquake damage to buildings 1 and 3 only, the maximum amount payable for earthquake damage will be $60,000, not the full blanket limit of $500,000.

6. Ensuing Loss
If a Cause of Loss (such as fire) is covered by means of an exception to the Earth Movement Exclusion, in the Causes Of Loss Form, we will also pay for the loss or damage caused by that other Covered Cause of Loss. But the most we will pay, for the total of all loss or damage caused by the Earthquake, Volcanic Eruption and other Covered Cause of Loss, is the Limit of Insurance applicable to such other Covered Cause of Loss. We will not pay the sum of the two Limits.

Analysis

An earthquake may lead to a fire as an ensuing cause of loss.If such fire or other ensuing loss is covered by means of an exception to the earth movement exclusion in the policy, the loss payment will be subject to this ensuing loss provision. As such, if a fire ensues that is caused by the earthquake, the payment for such loss will be the limit of insurance that applies to the damage done by each peril. The insured will not be able to add the two limits of insurance together from the two separate perils.

This is further explained by the following examples of ensuing loss as described in the endorsement.

EXAMPLES – ENSUING LOSS

Two examples follow using these facts: The Commercial Property Coverage Part, in these examples, includes the Causes Of Loss – Basic Form (which covers fire) and this Earthquake And Volcanic Eruption Coverage endorsement. A building is damaged by Earthquake, and by Fire which is caused by the Earthquake. The value of the damaged building is $1,000,000. The Limit of Insurance applicable to the building, for the Basic Causes of Loss, is $800,000. The Limit of Insurance for Earthquake – Volcanic Eruption is $400,000. The Earthquake Deductible amount is $50,000.

Example 1
The damage due to Earthquake is $500,000.
The damage due to Fire is $500,000.
Payment for Earthquake damage is $400,000 ($500,000 damage minus $50,000 Earthquake deductible = $450,000; Limit is $400,000).

Payment for Fire damage is $400,000 ($500,000 damage capped at the difference between the Basic Limit and the Earthquake Limit). Total Loss Payment is $800,000.

Example 2
The damage due to Earthquake is $800,000.
The damage due to Fire is $100,000.

Payment for Earthquake damage is $400,000 ($800,000 damage minus $50,000 Earthquake deductible = $750,000; Limit is $400,000). Payment for Fire damage is $100,000 (amount of damage).
Total Loss Payment is $500,000.

Analysis

These examples need no further explanation. As stated earlier, the insured may not add the two limits of insurance together when two perils are involved in the loss, even if the second peril ensues from the earthquake peril. The loss payment is made based on the damage from each peril and the limit of insurance that applies to that property from that peril, less any applicable deductible. Under this endorsement, the coinsurance provision will not apply to earthquake damage, but it will apply to the other causes of loss as it is stated on the coverage form that applies to that property.

G. Property Damage Deductible

1. The provisions of Section G.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;
c. Extra Expense Coverage Form.

2. If the Declarations indicates that this endorsement covers Earthquake – Sprinkler Leakage Only, then the Deductible provisions set forth in Paragraph G.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:

a. All Policies

(1) The Deductible provisions apply to each Earthquake or Volcanic Eruption.
(2) Separate Deductibles are calculated for, and apply to, each building, personal property at each building and personal property in the open. Deductibles are separately calculated and applied even if:
(a) Two or more buildings sustain loss or damage;
(b) Personal property at two or more buildings sustains loss or damage; and/or
(c) A building and the personal property in that building sustain loss or damage.
(3) We will not pay for loss or damage until the amount of loss or damage exceeds the applicable Deductible. We will then pay the amount of loss or damage in excess of that Deductible, up to the applicable Limit of Insurance.
(4) When property is covered under the Coverage Extension for Newly Acquired or Constructed Property: In determining the amount, if any, that we will pay for loss or damage, we will deduct an amount equal to a percentage of the value of the property at time of loss. The applicable percentage for Newly Acquired or Constructed Property is the highest percentage shown in the Earthquake – Volcanic Eruption Coverage Declarations Schedule for or any in the described premises.
(5) 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 the Earth Movement Exclusion, then the only applicable Deductible provisions are those stated in this endorsement.

b. Calculation Of The Deductible – Specific Insurance Other Than Builders Risk

(1) Property Not Subject To Value Reporting Forms
In determining the amount, if any, that we will pay for loss or damage, we will  deduct an amount equal to a percentage (as shown in the Earthquake –Volcanic Eruption Coverage Schedule or in the Declarations, concerning the Earthquake - Volcanic Eruption Deductible) of the value of the property that has sustained loss or damage. The value to be used is that shown in the most recent Statement of Values on file with us.

(2) Property Subject To Value Reporting Forms
In determining the amount, if any, that we will pay for loss or damage, we will deduct an amount equal to a percentage (as shown in the Earthquake – Volcanic Eruption Coverage Schedule or in the Declarations, concerning the Earthquake – Volcanic  Eruption Deductible) of the value of the property that has sustained loss or damage. The value to be used is the latest value shown in the most recent Report of Values on file with us.

However:
(a) If the most recent Report of Values shows less than the full value of the property on the report dates, we will determine the deductible amount as a percentage of the full value as of the report dates.
(b) If the first Report of Values is not filed with us prior to loss or damage, we will determine the deductible amount as a percentage of the value shown in the most recent Statement of Values on file with us.

c. Calculation Of The Deductible – Blanket Insurance Other Than Builders Risk

(1) Property Not Subject To Value Reporting Forms
In determining the amount, if any, that we will pay for loss or damage, we will deduct an amount equal to a percentage (as shown in the Earthquake – Volcanic Eruption Coverage Schedule or in the Declarations, concerning the Earthquake – Volcanic Eruption Deductible) of the value of the property that has sustained loss or damage. The value to be used is that shown in the most recent Statement of Values on file with us.

(2) Property Subject To Value Reporting Forms
In determining the amount, if any, that we will pay for property that has sustained loss or damage, we will deduct an amount equal to a percentage (as shown in the Earthquake – Volcanic Eruption Coverage Schedule or in the Declarations, concerning the Earthquake – Volcanic Eruption Deductible) of the value of that property as of the time of loss or damage.

d. Calculation Of The Deductible – Builders Risk Insurance

(1) Builders Risk Other Than Reporting Form
In determining the amount, if any, that we will pay for property that has sustained loss or damage, we will deduct an amount equal to a percentage (as shown in the Earthquake – Volcanic Eruption Coverage Schedule or in the Declarations, concerning the Earthquake – Volcanic Eruption Deductible) of the actual cash value of that property as of the time of loss or damage.

(2) Builders Risk Reporting Form
In determining the amount, if any, that we will pay for loss or damage, we will deduct an amount equal to a percentage (as shown in the Earthquake – Volcanic Eruption Coverage Schedule or in the Declarations, concerning the Earthquake – Volcanic Eruption Deductible) of the value of the property that has sustained loss or damage. The value to be used is the actual cash value shown in the most recent Report of Values on file with us.

However:
(a) If the most recent Report of Values shows less than the actual cash value of the property on the report date, we will determine the deductible amount as a percentage of the actual cash value as of the report date.
(b) If the first Report of Values is not filed with us prior to loss or damage, we will determine the deductible amount as a percentage of the actual cash value of the property as of the time of loss or damage.

Analysis

Under Endorsement CP 10 45, property damage coverage is subject to a percentage deductible which applies to the value of property that sustains damage by earthquake or volcanic eruption. The value to be used in determining the deductible amount is the value stated in the insured's Statement of Values, or in the Report of Values for reporting form policies. For Builders Risk non-reporting policies, the relevant value is the actual cash value of the damaged property as of the time of loss.

H. Example – Application Of Deductible In G.3.b.(1) And G.3.c.(1) – For Specific Or Blanket Insurance Other Than Builders Risk (Not Subject To Value Reporting Forms)

The values, as shown in the most recent Statement of Values on file with us, are:
Building 1 $500,000
Building 2 $500,000
Business Personal Property at Building 1 $250,000
Business Personal Property at Building 2 $250,000

For this example, assume that the amounts of loss do not exceed the applicable Limits of Insurance (for specific insurance). Also assume that the total amount of loss does not exceed the applicable Blanket Limit of Insurance (for blanket insurance).

Building 1 and Business Personal Property at Building 1 have sustained damage; the amounts of loss are $95,000 (Building) and $5,000 (Business Personal Property).

The Deductible is 10%.

Building
Step (1): $500,000 x 10% = $50,000
Step(2): $95,000 – $50,000 = $45,000

Business Personal Property
Step (1): $250,000 x 10% = $25,000

The loss, $5,000, does not exceed the deductible. The most we will pay is $45,000. The remainder of the building loss, $50,000, is not covered due to application of the Deductible. There is no loss payment for the business personal property.

Analysis

The examples shown are self-explanatory.

I. Business IncomeAndExtra Expense PeriodOfRestoration

This Section I. is applicable only to the Coverage Forms specified below:

1. Business Income (And Extra Expense) Coverage Form;
2. Business Income (Without Extra Expense) Coverage Form;
3. Extra Expense Coverage Form.

Analysis

This endorsement extends time element coverages that exist on the policy to apply to earthquake or volcanic eruption by amendment of the definition of period of restoration to include these perils.

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