Commercial Package Policy (CPP)
Commercial insurance policies have changed steadily over time. As new business risks appeared, insurers typically responded by creating new forms, endorsements, and coverage extensions to address those needs.
Commercial package policy
Purpose
A business faces several kinds of loss at the same time: damage to its building and contents, income lost while it is closed, theft, and claims by people it injures. Before the Commercial Package Policy (CPP) was introduced, insurers commonly issued separate commercial contracts for each of these exposures. The CPP offers broader coverage and more flexibility than those older stand-alone forms.
The purpose of the CPP is to let a business put the coverages it needs into one policy with one insurer, under one policy period, one set of common declarations and one set of common conditions.
Definition
A commercial package policy is a commercial policy built from coverage parts that the insured selects. With a CPP, the insured doesn’t have to purchase specific coverages. If the insured selects only one coverage part, the contract is monoline. Once additional coverage parts are added, it becomes a true package policy. A package policy, in other words, combines two or more coverage parts in one contract.
Coverages
The insured can choose from several available coverage parts, including (but not limited to) liability, commercial property, inland marine, crime, auto, equipment breakdown, and farms. Equipment breakdown coverage was formerly called boiler and machinery coverage.
Each coverage part holds one or more coverage forms, and each coverage form states its own coverages. The commercial property coverage part, the subject of this chapter and the two that follow, can provide these coverages:
| Coverage | Coverage form that provides it |
|---|---|
| Direct damage to buildings, business personal property and personal property of others | Building and Personal Property Coverage Form |
| Direct damage to a building under construction | Builders Risk Coverage Form |
| Income lost while operations are suspended | Business Income Coverage Form |
| Extra cost of staying in operation after a loss | Extra Expense Coverage Form |
| The insured’s liability for damage to property of others in its care | Legal Liability Coverage Form |
Coverage extensions
A coverage extension stretches the insurance a coverage form already provides to property or places the form would not otherwise reach, for a limited amount and often for a limited time.
The extensions below belong to the Building and Personal Property Coverage Form, the form used to insure most business property. They apply only if the declarations show a coinsurance percentage of 80% or more or a value reporting period symbol. Each extension is additional insurance unless the form says otherwise, and the coinsurance condition does not apply to the extensions.
| Coverage extension | What it adds | Most the insurer pays |
|---|---|---|
| Newly acquired or constructed property | Buildings being built at the described premises, buildings acquired elsewhere, and business personal property at those locations | $250,000 at each building. $100,000 at each building for business personal property |
| Personal effects and property of others | Personal effects of the insured and its officers, partners, members, managers or employees (but not loss by theft), and personal property of others in the insured’s care, custody or control | $2,500 at each described premises |
| Valuable papers and records (other than electronic data) | The cost to replace or restore lost information on valuable papers and records for which duplicates do not exist | $2,500 at each described premises, unless the declarations show a higher limit |
| Property off-premises | Covered property away from the described premises while temporarily at a location the insured does not own, lease or operate, in storage at a location leased after the current policy term began, or at a fair, trade show or exhibition. Property in or on a vehicle is not included | $10,000 |
| Outdoor property | Outdoor fences, radio and television antennas (including satellite dishes), trees, shrubs and plants, but only for loss by fire, lightning, explosion, riot or civil commotion, or aircraft | $1,000, but not more than $250 for any one tree, shrub or plant |
| Non-owned detached trailers | A trailer the insured does not own but uses in the business and is responsible for by contract, while detached at the described premises | $5,000, unless the declarations show a higher limit |
| Business personal property temporarily in portable storage units | Business personal property in a portable storage unit within 100 feet of the building or premises, for 90 days after it is placed there. The extension does not apply once the unit itself has been at the premises for more than 90 consecutive days | $10,000 in total, whatever the number of units, unless the declarations show a higher limit. It is part of the business personal property limit, not added to it |
Newly acquired or constructed property
The insured may extend the insurance on the building to apply to a new building while being built on the described premises and buildings acquired at other locations intended for similar use or as a warehouse. The most the insurer pays under this extension is $250,000 at each building.
If the policy covers business personal property, that insurance extends to business personal property at any location the insured acquires (other than fairs, trade shows or exhibitions) and in newly constructed or acquired buildings at the described location. The most the insurer pays is $100,000 at each building.
Insurance under this extension for each newly acquired or constructed property will end when the first of these occurs:
- The policy expires
- 30 days after the insured acquires or begins construction on the property
- The insured reports values to the insurer
The insurer charges additional premium from the date the property was acquired. For example, a retailer whose policy covers its store and contents buys a second store. For the next 30 days, unless the policy expires first, the second building is covered for up to $250,000 and its contents for up to $100,000, even though the insurer has not yet been told about it.
Commercial policy components
Every commercial policy, package or monoline, is assembled from the same components: declarations, conditions, and coverage forms that each contain an insuring agreement, limited by exclusions.
Declarations
A common declarations page is attached to the CPP. The information in this section applies to any coverage part added to the policy.
The common declarations page will typically include the following information:
- The name and address of the named insured
- The policy period
- The policy number
- The name of the insurer and agent
- A description of the insured business
- A list of each coverage part and its premium
- The total policy premium
- Any other forms added
Each coverage part also has declarations of its own. The commercial property declarations show the premises described, the limit of insurance for each type of covered property, the causes of loss form that applies, the coinsurance percentage, any optional coverages that apply, and any mortgageholder.
Conditions
Conditions are the rules the insured and the insurer must follow for coverage to apply. A commercial property policy has three layers of conditions.
Common policy conditions. The CPP also includes a common conditions form. All coverage parts added to the CPP are subject to these conditions.
This form consists of several conditions that apply to all coverage parts added, including:
Cancellation
- This condition states that the first named insured may cancel the policy by mailing or delivering advance written notice to the insurer. If the insurer cancels, it must give the first named insured written notice at least 10 days before the effective date of cancellation when the reason is non-payment of premium, and at least 30 days before it for any other reason.
Policy changes
- This condition states that the first named insured is authorized to make any policy changes with the insurer’s consent.
Examination of books and records
- This states that the insurer has the right to examine or audit the books or records of the insured regarding the coverage provided. This audit may be done at any time during the policy period and up to three years afterward.
Inspection and surveys
- The insurer has the right to conduct any inspections or surveys at any time as they relate to coverage provided. However, these inspections do not guarantee safety or compliance with regulations.
Transfer of rights and duties
- This is the assignment provision, as reviewed earlier. The policy may not be assigned to another without the written consent of the insurer (except if the named insured dies, in which case his interest in the policy is transferred to a legal representative).
Premiums
- This stipulates that the first named insured is responsible for all premium payments. The first named insured will receive any return premiums, if applicable. The reason for the designation “first named insured” is that there may be more than one insured under the policy. However, one of them is shown in the declarations as the first named insured.
Commercial property conditions. The commercial property coverage part adds a conditions form. It applies in full to the building and personal property, builders risk, business income and extra expense coverage forms. Only three of its conditions (concealment, misrepresentation or fraud; insurance under two or more coverages; and liberalization) apply to the Legal Liability Coverage Form, which states its own conditions on the other subjects. The conditions are:
- Concealment, misrepresentation or fraud. The coverage part is void if the insured commits fraud or intentionally conceals or misrepresents a material fact.
- Control of property. An act or neglect of someone outside the insured’s direction or control does not affect the insurance.
- Insurance under two or more coverages. The insurer pays no more than the actual amount of the loss.
- Legal action against the insurer. No one may sue the insurer under the coverage part unless all of its terms have been complied with and the action is brought within 2 years after the date the direct physical loss or damage occurred.
- Liberalization. A revision that broadens coverage without additional premium, adopted within 45 days before the policy period or during it, applies immediately.
- No benefit to bailee. No one other than the insured who has custody of covered property benefits from the insurance.
- Other insurance. The insurer pays its share with other insurance written on the same basis, and is excess over any other insurance.
- Policy period, coverage territory. Loss must begin during the policy period and within the United States (including its territories and possessions), Puerto Rico or Canada.
- Transfer of rights of recovery against others. When the insurer pays a loss, the rights of the person it paid to recover damages from someone else pass to the insurer, to the extent of its payment. The insured may waive those rights in writing before a loss. After a loss it may waive them, also in writing, only against a party that at the time of the loss was another insured, a business firm it owns or controls or that owns or controls it, or its tenant.
Coverage form conditions. Each coverage form then adds loss conditions and additional conditions of its own, such as appraisal, duties in the event of loss, valuation, coinsurance and mortgageholders.
Insuring agreements
The insuring agreement is the insurer’s promise: what it will pay for, and under what circumstances. A commercial package policy has no single insuring agreement. Each coverage form states its own. In the commercial property coverage forms it comes first, under the heading “Coverage”.
The insuring agreement of the Building and Personal Property Coverage Form reads: “We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.” Four things must be true for a loss to be paid:
- There is direct physical loss or damage. Loss of income is not covered by this form.
- The loss is to covered property, meaning a type of property the form describes and for which the declarations show a limit of insurance.
- The property is at the premises described in the declarations.
- The loss is caused by a covered cause of loss, as defined by the causes of loss form shown in the declarations.
Other forms make a different promise. The business income form pays the actual loss of business income, and the legal liability form pays damages the insured is legally obligated to pay.
Exclusions
An exclusion takes a cause of loss out of the coverage the insuring agreement grants. The commercial property coverage forms do not list exclusions themselves. Each one refers to the causes of loss form shown in the declarations, so the exclusions that apply depend on whether the Basic, Broad or Special form is attached.
All three causes of loss forms begin with the same eight exclusions. Loss caused directly or indirectly by any of them is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
| Exclusion | What is excluded | What the insurer still pays |
|---|---|---|
| Ordinance or law | Enforcement of or compliance with a law regulating the construction, use or repair of property, or requiring it to be torn down | Nothing under this exclusion |
| Earth movement | Earthquake, landslide, mine subsidence, earth sinking, rising or shifting, and volcanic eruption | Fire or explosion that results from earthquake, landslide, mine subsidence or earth sinking. Fire or volcanic action that results from a volcanic eruption (and building glass breakage, in the Broad and Special forms) |
| Governmental action | Seizure or destruction of property by order of governmental authority | Destruction ordered at the time of a covered fire to prevent its spread |
| Nuclear hazard | Nuclear reaction or radiation, or radioactive contamination | Fire that results |
| Utility services | Failure of power, communication, water or other utility service supplied to the described premises, if the failure starts away from the premises or involves equipment that supplies the service from a source away from the premises | A covered cause of loss that results |
| War and military action | War, including undeclared or civil war, warlike action by a military force, insurrection, rebellion and revolution | Nothing under this exclusion |
| Water | Flood, surface water, waves, overflow of a body of water, mudslide, and water that backs up from a sewer or drain | Fire, explosion or sprinkler leakage that results |
| “Fungus”, wet rot, dry rot and bacteria | The presence, growth or spread of fungus (including mold), rot or bacteria | Fungus, rot or bacteria that results from fire or lightning, a covered cause of loss that fungus brings about, and a limited additional coverage |
A second group follows in each form. All three exclude loss from artificially generated electrical energy, explosion of steam boilers, mechanical breakdown, and neglect of an insured to use all reasonable means to save and preserve property at and after a loss. The Basic form also excludes rupture or bursting of water pipes and leakage of water or steam, unless a covered cause of loss brought it about. The Special form covers any direct physical loss it does not exclude or limit, so its list is longer. It adds, among others, wear and tear, rust and corrosion, and dishonest or criminal acts of the insured or its employees (theft by employees is excluded, but their acts of destruction are not).
Chapter vocabulary
Lesson summary
- A commercial package policy lets a business combine the coverages it needs in one policy. With one coverage part the policy is monoline. With two or more it is a package.
- A commercial policy is assembled from declarations, conditions, coverage forms that each contain an insuring agreement, and exclusions.
- The common policy conditions apply to every coverage part. The insurer gives at least 10 days’ notice of cancellation for non-payment of premium and at least 30 days for any other reason, and may examine the insured’s books up to three years after the policy period.
- The insuring agreement of the Building and Personal Property Coverage Form pays for direct physical loss of or damage to covered property at the described premises caused by a covered cause of loss.
- Exclusions are found in the causes of loss form. All three forms exclude ordinance or law, earth movement, governmental action, nuclear hazard, utility services, war and military action, water, and fungus, rot and bacteria.
- Coverage extensions in the Building and Personal Property Coverage Form apply only with 80% or higher coinsurance or a value reporting symbol. Newly acquired or constructed property is covered for up to $250,000 at each building and $100,000 for business personal property, for up to 30 days.