What is the basic causes of loss form?

Commercial Property

There are three alternatives insureds may select from when arranging the scope of coverage desired under ISO's commercial property program, basic, broad or special, which are differentiated by the scope of covered perils. This describes those forms.

Basic, Broad, and Special Forms Available

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.

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Basic, Broad, and Special form are three common coverage forms when insuring property.  Basic form is the most restrictive, while Special offers the greater level of protection.

Basic form covers these 11 “perils” or causes of loss:  Fire or Lightning, Smoke, Windstorm or Hail, Explosion, Riot or Civil Commotion, Aircraft [striking the property], Vehicles [striking the property], Glass Breakage, Vandalism & Malicious Mischief, Theft, and Volcanic Eruption. 

Broad form covers the same 11 perils, but adds 6 more:  Falling objects, Weight of ice, snow or sleet, accidental discharge or overflow of water or stream from within plumbing or related systems; does not include discharge or overflow of water from a sump,  sudden and accidental rupture of heating, air conditioning, fire protective sprinkler, or hot water heating system.  Freezing of plumbing or related systems.  And Sudden and accidental damage from artificially generated electrical current.

Special form does not specifically list perils, rather it is “all risk” coverage unless otherwise specifically excluded.

As always refer to your actual policy for coverage language as it could vary slightly from carrier to carrier, and product to product.

Prior to working in the insurance industry, I purchased insurance because I had to. I did not really understand the ins and outs of what I was purchasing or exactly what risks it would or would not protect me from. An insurance policy can be intimidating and sometimes confusing, but it is important to understand your coverage prior to a loss rather than after the damage is done to avoid unexpected gaps. There are three commercial property forms [basic, broad and special] that identify the causes of loss [or perils] for which coverage is provided. The basic and broad causes of loss forms are named peril forms whereas the special cause of loss form is an opened peril form. The named peril form provides coverage for losses caused by only those specifically listed while the open peril coverage form is an all risk form that provides coverage for losses by any cause unless it is specifically excluded.

Please give your agent a call today if you have any questions on the coverage forms within your policy.

We’re moving ahead with Part VI of our The Basics of Commercial Lines Rating series.

Remember that WSRB does not create rates. We provide our Subscribers with the information and data necessary to effectively assess risk and determine a rate. We give you the tools you need to perform the craft of rating. In this blog post, we’ll explore the basics of the Basic Causes of Loss form, an important element in rating properties.

Related:
WSRB's Essential Guide to Commercial Property Risk Assessment

Basic Causes of Loss perils

Both class-rated and specifically-rated properties are eligible for Basic Causes of Loss coverage, which covers 11 perils, or causes of loss. The Basic Causes of Loss form provides complete descriptions of each peril.

These perils are the only causes of loss for which a claim will be paid under a Basic form policy, and they’re divided into two groups:

* Sprinkler Leakage is included in Group I whether or not the building is sprinklered.

When developing the premium for Basic Causes of Loss, both Group I and Group II perils need to be rated.

As stated in the Commercial Lines Manual [CLM], Rule 70.D.2., when rating a Basic form policy, the amount of insurance and the coinsurance percentage must be the same for Basic Group I [BGI] and for Basic Group II [BGII].

Related:
When to Use the Broad Causes of Loss Form

How to determine the loss cost

To determine the Basic Group I Loss Cost, you must first determine whether the building is class or specifically rated.

If it’s class rated, you can find the Basic Group I Loss Costs on the state loss cost pages of the CLM based on CSPclass codes.

For specifically-rated risks, you will find the Basic Group I Loss Cost on the Loss Cost publication for the physically inspected property. For properties in Washington, WSRB provides this information on the Subscriber Solutions website.

Developing the Basic Group II loss cost takes us into some new territory. Let’s see what it looks like for the state of Washington.

The Group II classification uses symbols to reference construction. In Washington, these symbols are:

A         Wind Resistive Construction

            AB       Semi-Wind Resistive Construction

            B         Ordinary Construction

For class-rated risks, the CLM contains a chart [Rule 70.E.2.a.[4] in the Washington exception pages] that provides you with the necessary information.  

AB       Semi-Wind Resistive Construction

            B         Ordinary Construction

*Construction Class Codes: 1=Frame, 2=Joisted Masonry, 3=Non-Combustible, 4=Masonry Non-Combustible, 5=Modified Fire Resistive, 6=Fire Resistive

At first glance, the chart can look confusing. A few examples quickly illustrate how it works.

• A frame construction class [CC1] building would be symbol B [Ordinary Construction] for Basic Group II loss costs for most CSP class codes.
• But if the property was a greenhouse [CSP 0580], it would be 4 x the B [Ordinary Construction] loss cost.

Note: When the Group II symbol includes a numerical prefix, multiply the applicable loss cost by that number.

Related:
What is Covered and When to Use the Special Causes of Loss Form

For specifically rated properties, the Basic Group II symbol is shown on the published Loss Cost page for the property. On WSRB, you will find this on the search results in Risk Search.

Now that you have the BGII symbol, you can find the BGII Loss Costs on the Washington Loss Costs Pages of the CLM, Rule 70.E.2.e. These Loss Costs apply to both class-rated and specifically-rated properties.

To provide you with even further insight, WSRB provides a Loss Costs Publications handbook that explains the information shown on the published Loss Cost page for specifically-rated buildings in Washington. You can locate this document on the Publications tab of the Subscriber Solutions website.

The factors below apply to Basic Group I and Basic Group II Loss Costs in the following order unless otherwise specified by rule:

• Company filed Loss Cost Multiplier.
• Protection class multipliers: applicable to Group I class rated risks.
• Territorial multiplier; applicable to class-rated risks.
• Causes of loss exclusion adjustment.
• Coinsurance or flat rate adjustment.
• Limit of Insurance [LOI] relativity factor, if LOI rating method* is used [interpolated].
• Factors or charges required by individual rules.

Find the complete Cause of Loss — Basic Form Rule [Rule 70] in Division Five of the CLM.

* “Observations of commercial property losses by limit of insurance indicate that average property losses sustained by policies written at higher limits are generally a smaller percentage of the limit than those losses sustained by policies written at lower limits”. WSRB filing CF-2012-RLC09

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