Commercial Property Policy

Earthquake Insurance

The Commercial Property policy may be written under one of three forms
which differ only as to the causes of loss (perils) which each covers.  
Earthquake may be added to any of these forms by means of a special
endorsement (CP 10 40).

CAUSES OF LOSS COVERED

The form adds coverage against the perils of earthquake and volcanic
eruption.  Since both of these events usually run their course over a
period of time, it is important to understand that all earthquake shocks or
volcanic eruptions within a 7 day (168 hour) period are considered to be
one event for purposes of determining coverage and the extent of the
damage.  Note that if an earthquake or volcanic eruption begins while the
policy is in effect, the entire loss is covered even if it extends beyond the
policy expiration.  Conversely, there is no coverage under the policy for
an earthquake or volcanic eruption which commenced before the policy
went into effect, even if the event continued into the period when the
policy was in effect. This 7-day "feature" of the policy may prove to be
significant in settlement of loss, as will be shown below under FOR HOW
MUCH.

Volcanic eruption is defined in the policy as the eruption, explosion or
effusion of a volcano.

A special endorsement is available to guard against possible gaps in
coverage which occur due to the 168-hour provision discussed above.
This endorsement (CP 10 41) brings within the policy coverage
earthquake or volcanic eruptions that began within 168 hours before the
policy takes effect and that cause damage within the policy period.

CAUSES OF LOSS NOT COVERED

Basically, the Earthquake form incorporates the exclusions which appear
in the three forms under which the Commercial Property policy is written.
As an example, a volcano may weaken the insured structure to the point
where the government orders that it be razed.  This type of loss (due to
a government ordinance) is not covered under the Earthquake
endorsement, since it is excluded by the underlying policy.  

The form adds a specific exclusion which excludes loss or damage to
exterior masonry veneer on wood frame structures when 100% or more
of the total outside wall area of the building is covered with masonry
veneer.
An exception is made for stucco.  It is possible to include coverage on
masonry veneer for an additional premium charge.

FOR HOW MUCH

Effect of the 168-Hour Provision - As was discussed above, all
earthquake shocks and volcanic eruptions within any 168-hour period
are deemed to be a single event.  This will affect the maximum recovery
which the policy may offer for certain events.  Thus, if the policy
contains a $100,000 limit under the Earthquake and Volcanic Eruption
endorsement, a series of shocks or after-shocks may occur on each of
the three consecutive days.  Assume the damage caused by the quake
on its first day was $40,000; that of the second day, $50,000; followed
by $30,000 of damage on the third day.  The total damage caused by this
event totals $120,000, even though the damage on anyone day was less
than the policy limit of $100,000. The policy will respond to this entire loss
with a payment of no more than $100,000, the policy limit.

Deductible - The policy is written with a deductible which is a percentage
of the value of the damaged property.  The usual deductibles range
between 2% and 5%, but even higher percentages have been used
when the risk is located in an area with high earthquake potential.  
Assume a building whose actual cash value is $500,000 is insured under
a policy with a 3% deductible.  The building sustains a $100,000 loss by
earthquake.  The deductible, 3%, is applied to the value of the building at
the time of the loss; and the result, $15,000 (3% of $500,000) is
deducted from the loss.  The insured receives $85,000 in settlement of
the claim.
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
this page.
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Miscellaneous Property Forms -
Builders Risk Coverage
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Policy - Special Form