The three primary causes of loss in commercial property insurance are basic, broad, and special. These designations define which perils, or risks, are covered by an insurance policy.
In the realm of commercial property insurance, especially within standard ISO (Insurance Services Office) commercial property policies, the determination of covered perils is outlined in specific forms. These "causes of loss" forms, when combined with other crucial policy components such as coverage forms, general conditions, and declarations, constitute a complete insurance policy. Understanding these distinct forms is essential for businesses to ensure their assets are adequately protected against potential damages and financial setbacks.
The Three Causes of Loss
Each of the three causes of loss forms offers a different scope of coverage, ranging from very specific named perils to a broader "all-risk" approach with exclusions.
1. Basic Causes of Loss
The Basic Causes of Loss form provides the most restrictive coverage, specifically listing the perils that are covered. If a loss occurs due to a peril not explicitly named in this form, it will not be covered by the policy. This type of coverage is often the most economical option, but it comes with a narrower range of protection.
Examples of perils typically covered under the Basic Causes of Loss form include:
- Fire
- Lightning
- Explosion
- Windstorm or Hail
- Smoke
- Aircraft or Vehicles
- Riot or Civil Commotion
- Vandalism
- Sprinkler Leakage
- Sinkhole Collapse
- Volcanic Action
For more details on specific inclusions, refer to a comprehensive guide on Basic Causes of Loss.
2. Broad Causes of Loss
The Broad Causes of Loss form expands upon the perils covered in the Basic form by adding several additional named perils. It offers a wider range of protection compared to the Basic form, making it a more comprehensive choice for many businesses.
Additional perils typically covered under the Broad Causes of Loss form include:
- Falling Objects: Damage caused by objects falling from above.
- Weight of Ice, Snow, or Sleet: Damage to property caused by the accumulation of heavy ice, snow, or sleet.
- Water Damage: Damage resulting from the accidental discharge or leakage of water or steam from within a plumbing, heating, air conditioning, or automatic fire protective sprinkler system, or from within an appliance.
- Collapse: Physical loss or damage involving the collapse of a building or part of a building.
To learn more about what the Broad form covers, see a detailed explanation of Broad Causes of Loss.
3. Special Causes of Loss
The Special Causes of Loss form, often referred to as "all-risk" or "open perils" coverage, provides the broadest protection. Instead of listing what is covered, this form covers all causes of direct physical loss unless specifically excluded in the policy. This means that if a peril is not explicitly listed as an exclusion, it is covered.
This form offers the most extensive coverage, making it a preferred choice for businesses seeking maximum protection. However, it's crucial to review the exclusions carefully, as common exclusions can include:
- Flood
- Earthquake
- Ordinance or Law
- Power Failure
- Neglect
- War and Military Acts
- Nuclear Hazard
- Fungus, Wet Rot, Dry Rot, and Bacteria
- Artificially Generated Electrical Current
- Mechanical Breakdown
- Wear and Tear, Rust, Corrosion, Decay
For a comprehensive understanding of this extensive coverage, explore the details of Special Causes of Loss.
Comparative Overview of Causes of Loss Forms
The table below summarizes the key differences between the three causes of loss forms:
| Feature | Basic Causes of Loss | Broad Causes of Loss | Special Causes of Loss |
|---|---|---|---|
| Coverage Type | Named Peril | Named Peril (expanded) | All-Risk / Open Peril (with exclusions) |
| Scope | Most restrictive; only listed perils are covered. | Moderately restrictive; covers Basic perils plus others. | Most expansive; covers all perils unless specifically excluded. |
| Common Perils | Fire, lightning, windstorm, smoke, vandalism, etc. | All Basic perils, plus falling objects, weight of snow/ice, water damage, collapse. | All perils except those explicitly listed as exclusions (e.g., flood, earthquake, mold). |
| Cost | Generally the lowest premium. | Moderate premium. | Generally the highest premium. |
Understanding the distinctions between these forms empowers businesses to make informed decisions about their property insurance, ensuring they select the level of coverage that best suits their risk exposure and budget.
