Commercial Property Policy
Cause of Loss - Basic Form
There are three common causes of loss forms of the Commercial
Property policy: the Basic Form - CP 10 10; the Broad Form - CP 10 20;
and the Special Form - CP 10 30. The first two of these cause of loss
forms (Basic and Broad) are written on a named perils basis; the third
(Special) is written on an open perils basis (much akin to an all-risk form).
The Basic Form permits coverage under 11 causes of loss, each of
which is discussed separately below; the Broad Form adds 4 additional
causes of loss. As indicated in the preceding paragraph, the Special
Form is written on an open perils basis. Each of the three forms may be
broadened by Earthquake - CP 10 40 to take in the cause of loss by
CAUSES OF LOSS COVERED
Fire and/or Lightning - The policy covers both causes of loss. Loss by
lightning is covered whether or not fire ensues. Fire is understood to
mean oxidation of a sufficient intensity to produce a visible flame or glow.
Destruction, damage or spoilage caused by excessive heat, scorching
or blistering, when no fire occurs, would not be covered.
Hostile Fire - The fire must be "hostile" in order for the loss to be covered.
A friendly fire is one that is intentionally started and remains confined
entirely within the area for which it was intended, e.g., a fire in a
furnace, a fireplace, a stove, etc. A hostile fire is one which escapes
from its intended area.
A friendly fire becomes hostile at the moment it escapes from its intended
area. For example, a fire escaping through a crack in an oven is a hostile
fire, even if only a momentary spurt of flame. Contrarily, if the fire
remains confined within the stove and the stove becomes overheated
and the excessive heat blisters the paint on the wall, there would be no
coverage under the policy, as the fire was friendly (confined to the area
for which it was intended - the stove).
There is no mention of hostile or friendly fire in the policy. The policy
merely says "loss by fire," but this is understood and held by the courts
to mean only hostile fire.
NOTE: While there have been recent cases which upheld the doctrine of
"friendly" fire and found that the accidental burning of property within
furnaces and other "friendly" areas is not a risk covered by the a fire
insurance policy, a contrary conclusion has been reached in several cases,
most notably in LOUISIANA, MINNESOTA, NEW YORK and WISCONSIN.
Proximate Cause - In addition to the loss or damage caused directly by
the fire or lightning, the policy covers loss caused by other occurrences
of which fire is the proximate cause.
Proximate means very close in space, time, order, meaning, etc. It is the
opposite of remote. Proximate cause is defined as the active, efficient
cause that sets in motion a train of events which brings about a result
without the intervention of any force from a new and independent
source. A federal court defined proximate cause as "that cause which,
operating in natural and continuous sequence, unbroken by any
completely preceding independent intervening cause, produces the
results complained of, and without which the result would not have
EXAMPLE: A building and machinery used for generating electricity were
insured under an insurance policy. A fire broke out in a second building
located some distance away which contained the dynamos and the
electrical machinery. The fire caused a sudden increase in the pressure
on the driving belt of the dynamo, which parted. This caused the flywheel
to revolve too rapidly and it burst, wrecking the machinery and the
building. Although the building was not reached by fire, the jury held that
the entire loss was covered under the policy.
EXAMPLE: Fire razed a building. One wall was left standing. Seven days
later, the wind blew down the remaining wall. It was held that fire was the
proximate cause of the collapse of the wall which had been weakened by
the blaze, and the loss was covered under the insurance policy.
On the other hand, if a friendly fire is the proximate cause of damage,
there is no coverage under the policy. Thus, if smoke from an
overheated pan of grease damages property, there is no coverage,
since the policy does not cover friendly fire. If, however, the grease
itself were to catch fire, any resultant smoke damage would be covered,
since the ignited grease is a hostile fire which is covered under the
policy and which is the proximate cause of the damage.
Explosion - All explosion losses are covered except those caused by
explosion of steam boilers, steam pipes, steam turbines or steam engines
if owned by, or leased by, or actually operated under the control of the
insured. It is stipulated that the bursting due to expansion or swelling of
the contents of any building due to water or the rupture, bursting or
operation of pressure relief devices is not an explosion within the
meaning of the explosion coverage.
Any explosion other than the kind specifically excluded would be
covered, e.g., explosion of gases, gasoline, naphtha or other volatiles;
explosion of devices using compressed air, etc.
It is important to note that only the explosion of the steam- or water-
containing vessel is excluded. If the explosion originates in the firebox or
combustion chamber from accumulated gases or unconsumed fuel, the
loss is covered, even if the firebox or combustion chamber is part of the
vessel. Furthermore, the exclusion applies only to a steam vessel which
is owned or leased by, or actually operated under the control of, the
insured. Thus, damage to the property of a tenant in a building would be
covered if it were caused by the explosion of a steam boiler in the
basement, except if the vessel were owned or leased by the tenant, or
actually operated under the control of the tenant. Similarly, the explosion
of a steam boiler in a neighboring building would be covered.
Windstorm or Hail Provisions - Windstorm or hail is covered under the
Basic Form. There is no requirement that the wind attain any minimum
velocity. There is no liability for loss caused directly or indirectly by:
1. frost or cold weather
2. ice (other than hail), snowstorm, whether driven by wind or not.
There is no liability for damage caused by rain, snow, sand or dust to the
interior of any building or the property within unless the wind or hail first
does actual damage to the roof or walls of the building. If the building
sustains such damage, the policy will pay for loss caused by the rain,
snow, sand or dust entering through openings made by the windstorm or
There is no coverage for loss or damage to specified outdoor property:
fences, radio and television antennas, satellite dishes, signs (other than
signs attached to building), trees, shrubs and plants.
NOTE: Outdoor signs and antennas may be added to the coverage of the
policy for an additional premium.
Coverage against windstorm or hail may be excluded from the policy on
an optional basis, with a consequent reduction in the basic rate.
Smoke - The policy affords coverage for smoke causing sudden and
accidental loss except when due to agricultural smudging or industrial
operations. Certain classes of outdoor property are not covered
(discussed under windstorm or hail provisions, directly above).
Aircraft or Vehicles - The policy affords coverage for loss or damage
caused by actual physical contact of an aircraft or vehicle with the
insured property or with the building containing the property. It also
covers damage by objects falling from an aircraft or thrown up by a
vehicle. The term "aircraft" includes spacecraft and self-propelled
The policy excludes loss or damage caused by vehicles owned or
operated by the insured.
Riot or Civil Commotion - Coverage is afforded for such losses under the
Basic Form. The term "riot" is a statutory one, defined in the laws of
each state. A fairly general definition of riot states: "Whenever three or
more persons, having assembled for any purpose, disturb the public
peace by using force or violence to any other person or to property, or
threaten or attempt to commit such disturbance, or do an unlawful act by
the use of force or violence, accompanied with the power of immediate
execution of such threat or attempt, they are guilty of riot."
Civil commotion is defined as "an uprising among a group of people which
occasions a serious and prolonged disturbance and infraction of civil
order, not attaining the status of war or armed insurrection."
If damage were caused by one or two persons or by a large group
acting in a manner that was not construed as a riot or civil commotion,
there would be no coverage. Thus, if a group of mischievous boys or
vandals defaced or damaged property, there would be no coverage
under this provision.
The coverage is extended to include direct loss caused by striking
employees while occupying the premises. Such loss is covered whether
or not the striking employees are acting in a riotous manner. Damage
caused by persons other than striking employees is covered only if the
acts constitute a riot.
Coverage also is for looting occurring at the time and place of a riot or
Vandalism - The policy covers loss caused by willful and malicious
damage under this provision. (Losses of this nature are not covered
under the Riot or Civil Commotion sections of the policy, as discussed
immediately above). The following types of property are specifically
1. Glass which is part of the building (other than glass building blocks or
glass which is part of an outside structure or sign).
2. Outdoor property as listed above under the Windstorm or Hail
There is no coverage for loss by theft other than damage to buildings
caused by burglars breaking into or exiting from the building. This
exception is not extended to contents or any property other than
There is no coverage under this provision for loss if the building has
been vacant for over 60 consecutive days prior to the loss.
NOTE: The insurance against vandalism may be deleted with an
appropriate reduction in rate allowed.
Sprinkler Leakage - One of the most effective devices for controlling fires
and reducing the extent of the damage is the sprinkler system. A series
of pipes is installed along the ceiling or roof of the entire premises.
These pipes contain water or, where specially required, some other
substance or chemical which will extinguish a fire or keep it under
control until the fire department arrives.
The pipes which carry the water or other substance are equipped with
special valves or heads which open when the temperature in the area
gets above a certain point, releasing quantities of water or other fire
retardant which blankets the area. In addition, the sprinkler system
usually is equipped with an alarm which goes off when a sprinkler head
opens. To supply the sprinkler system with the required pressure, a tank
is often set up.
Damage caused by the water or other substance released from a
sprinkler system during a fire is covered under the fire peril which does
not, however, cover the discharge from a sprinkler system when no fire
occurs. Such leakage or discharge can occur under many
circumstances, chief among them are;
1. break in the pipes caused by freezing;
2. opening of a sprinkler head due to overheating;
3. mechanical injury due to jarring of the sprinkler system;
4. corrosion, faulty valves, leaky tanks;
5. malicious tampering with the system;
6. improper maintenance.
Damage by leakage of a sprinkler system can cause considerable loss,
and this hazard calls for sprinkler leakage insurance which is included
under the Commercial Property policy as one of the basic causes of loss.
Sprinkler Leakage covers loss caused by leakage or discharge of water
or any other substance from within any automatic sprinkler system or
from collapse of tanks that are part of the sprinkler system and hydrants,
standpipes and outlets and non-automatic fire-protective systems
supplied by an automatic sprinkler system.
NOTE: The damage need not necessarily arise from leakage within the
system. Leakage from the sprinkler pipes due to condensation would be
NOTE: The insurance against sprinkler leakage may be deleted, with an
appropriate reduction in premium.
Under a policy which covers a building containing a sprinkler system,
coverage is afforded for damage to the system if the damage results in
sprinkler leakage or is caused directly by freezing. The policy also will
pay for the cost of tearing out and replacing any part of the structure to
repair damage to the system that has resulted in sprinkler leakage.
Automatic sprinkler systems are defined to include sprinklers and
discharge nozzles, pipes, valves, fittings, tanks and their components,
pumps and private fire protection mains.
Sinkhole Collapse - The policy covers loss or damage caused by the
sudden sinking or collapse of land into underground empty spaces
created by the action of water or limestone or dolomite. The cost of filling
such sinkholes is not covered, nor is sinking or collapse of land into
man-made underground cavities.
Volcanic Action - This peril includes loss due to airborne blast, airborne
shock waves, ash, dust or particulate matter or lava flow from a volcanic
eruption. It does not extend to the cost of removing ash, dust or
particulate matter that has not caused any physical loss to the insured
This peril applies only to losses above the ground and therefore would
not cover any related earth movement even if such were related to a
volcanic action. Thus, earthquake losses must be insured separately.
NOTE: All damage sustained within a 72-hour period is considered to be
one loss. Any damage sustained after a 72-hour period is considered to be
a new loss subject to the limits and deductibles applicable to each loss.
The insurance industry uses an acronym to help recall the 12 perils or
causes of loss of the Commercial Property policy discussed above:
REF V vs SHAWS V
Fire and Lightning
MY Insurance Agency
The materials on this page is meant to be
informative in nature. Due to the ever
changing and varying state laws, and the fact
some insurers offer coverage in slightly
different forms from the Insurance Services
Office (ISO) standard forms, we cannot
guarantee the accuracy of the materials on