Commercial insurance policies, for many years, were characterized by a constant evolution of forms, endorsements and extensions of coverage to protect an insured’s business exposures. When a new need arose, a new form was created to satisfy that need.
Prior to the advent of the Commercial Package Policy (CPP), insurers offered such individual commercial insurance contracts as the General Property form, Comprehensive General Liability form, Business Auto form, Boiler and Machinery form, and Business Crime form, among others. The CPP provides much more flexibility than the previous forms. It has a broader scope of commercial insurance coverage as well.
With a CPP, the insured is not required to carry specific coverages. He/she may choose one coverage part and the contract is monoline. When another is added, the policy becomes a true package policy. Again, the insured is not required to select any particular coverage part that is available. There are several coverage parts available to be added to the policy, including, but not limited to, liability, commercial property, inland marine, crime, auto, boiler and machinery, and farms.
Common 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
Countersignature of agent (insurer stamp)
Any other forms added
Common Conditions
The CPP also includes a common conditions form to which all coverage parts are subject. 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 at any time by providing written notice to the insurer. Further, if the insurer cancels, it must provide 10 days written notice to the first named insured if the reason for cancellation is non-payment of premium. For any other reason, the insurer must provide 30 days written notice.
• 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.
• 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 individual must be identified as the first named insured.
Commercial Property Coverage Part
This coverage part includes its own declarations and conditions. Several specific coverage forms are available to an insured to add to this coverage part based on the property exposures of the business.
Common commercial property coverage forms include:
Building and personal property
Business income
Extra expense
Builder’s risk
Condominium association
Condominium commercial unit owners
Glass
Tobacco sales warehouses
Building and Personal Property Coverage Form
This is the standard form used for insuring most types of business property. Coverage may be written to cover buildings only, personal property only, or both.
Coverage A is for the “building” and includes:
The structure identified in the policy
Completed additions
Permanently installed fixtures
Machinery and equipment
Outdoor fixtures
Personal property used to service or maintain the business, including fire extinguishers, floor coverings, appliances, or outdoor furniture
Materials and supplies used for additions, alterations, or repairs of the covered building as long as they are on or within 100 feet of the described premises.
Coverage B covers business personal property and includes furniture and fixtures, machinery and equipment, stock, and all other personal property owned by the insured and used for business purposes. This business personal property must be located in or on the building described in the declarations or within 100 feet of the described premises.
Coverage C covers the personal property of others that is in the insured’s care, custody, or control.
Property not covered under the Building and Personal Property Coverage Form includes:
Ledgers, cash or contracts
Sidewalks and patios
Cost of excavations, grading, or filling
Foundation of the building
Land (reduction in value of land)
Personal property while airborne or waterborne
Piers, docks or wharves
Underground pipes, flues or conduits
Retaining walls
Crops or lawns
Masts or wiring while outside the building
Alterations and New Buildings
This extends coverage to buildings under construction at the described location. Coverage is also provided for newly acquired locations up to a maximum of $100,000. 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. Insurance under this extension for each newly acquired or constructed property will end when:
• The policy expires
-OR-
• 30 days after the insured acquires or begins construction on the property
Additional Coverages provides additional coverages that are similar to those provided by dwelling and HO policies. They include debris removal, preservation of property, fire department service charges and pollutant cleanup and removal.
Other Common Commercial Property Forms
Reporting Form
The coverage amount may increase or decrease during the year in relation to the fluctuating inventories. A final premium is determined at the end of the year when the experience is complete.
The insured must provide reporting of the changes occurring during the year. The insured must report 100% of the values of the property insured. Late reports or underestimates may result in a penalty at the time of loss. The full reporting value clause states that if the insured under reports, the amount of a loss will be based on the last value reported. For instance, if the insured reports only 1/3 of his/her value, the insurer will only pay 1/3 of the loss.
Business Income
This is another available commercial property coverage form that will protect the insured against the loss of earnings sustained as a result of a covered loss. Business income coverage will pay an insured if business operations are suspended due to a direct (covered) physical loss to the insured location. There are two available forms. One form includes extra expense coverage, and the other one provides business income coverage without extra expense coverage.
Extended Business Income
This provides 30 days of automatic coverage for continued loss of business income once restoration is complete. The thirty day period begins on the date when the property is actually repaired, rebuilt or replaced.
Extra Expense
Extra expense coverage insures against the necessary extra expenses during the period of restoration that would not have been incurred had there been no underlying property loss. This coverage includes expenses incurred to avoid or minimize the suspension of operations, at either the described location or at a replacement premises or a temporary location.
Builder’s Risk
This form pays for damage to structures while they are being built. Any other property or equipment is covered, if necessary, for the maintenance of the structure being constructed. Coverage under this form terminates when the building has been occupied or 90 days after construction of the new building is concluded.
Condominium Association
The property of a condominium association would be protected against covered perils under this coverage form.
Commercial Unit Owners
This form furnishes protection for loss to property owned by a real estate investor.
Difference in Conditions (DIC) Insurance
Written to cover certain perils that may otherwise be excluded by the standard fire policy or commercial package policy (usually with a large deductible).
Spoilage
This endorsement provides coverage for perishable stock due to power outage, mechanical breakdown or contamination. This coverage applies to losses resulting from change in temperature or humidity, or contamination resulting from a power outage either on or off the premises, or resulting from mechanical breakdown.
Cause of Loss Forms
Once the desired coverage forms are added, the named insured must determine which cause of loss form to attach to the policy to specify the perils insured against. There are four available forms, including:
• Basic Cause of Loss
This form covers loss caused by the same perils that are available to be included in a Dwelling Property Basic form, including:
Fire
Lightning
Extended coverages (WHARVVES)
Vandalism
Sprinkler leakage
Sinkhole collapse
• Broad Cause of Loss
This form includes all the perils of the basic form plus:
Glass breakage ($100 per pane, $500 per occurrence)
Weight of ice, snow and sleet
Falling objects
Water damage
The water damage coverage does not include flood damage but does cover damage from leakage or discharge of water or steam from an appliance or the bursting of water pipes. Similar exclusions like those found in the basic form are present in this form.
• Special Causes of Loss
This is the all-risk cause of loss form. It covers all perils found in the broad form plus any other cause of loss except those specifically excluded, such as:
Earth movement
War
Nuclear hazard
• Earthquake Form
Another form available to be added to commercial property coverages protects an insured against loss caused by an earthquake or volcanic eruption. Without the addition of this form, coverage for earthquake damage is excluded.
Endorsements
Additional commercial property endorsements are available, which may modify the basis on which property is insured, including:
• Peak Season
This endorsement increases the limit of insurance for the business’s personal property of a firm that encounters durational fluctuations in inventory during the coverage period; it allows the insured to increase his/her contents amount for specified periods of time when his/her inventory may be higher than usual (i.e., department store inventory at holidays)
• Ordinance or Law
This endorsement is used to provide three types of coverage related to the enforcement of building codes that were insured under separate forms previously.
• Blanket Insurance
An insured, for instance, who owns several buildings may specifically insure each of them individually or may cover all of them on a blanket basis. Blanket coverage usually requires 90% coinsurance.
• Glass
Special coverage may be provided for ornate or large types of glass if destroyed or broken.
Lesson Summary
The Commercial Package Policy (CPP) simplifies commercial insurance by offering a flexible and comprehensive approach to covering various business exposures. It allows an insured to select coverage parts based on their needs, making it a monoline contract until additional coverage parts are added.
The CPP includes Common Declarations, which provide essential details about the policy, such as the insured’s name, policy period, premium, and more. There are also Common Conditions that apply across all coverage parts, covering aspects like cancellation, policy changes, and premium responsibilities.
Commercial Property Coverage Part
This coverage part includes various forms like Building and Personal Property, Business Income, and more to cater to different property exposures in a business.
The Building and Personal Property Coverage Form covers buildings, personal property, and business personal property, detailing what is included and excluded under each type.
Additional Coverages offer protection similar to dwelling and HO policies, including debris removal, fire department service charges, and more.
Other forms like Reporting Form, Business Income, Extended Business Income, Extra Expense, Builder’s Risk, and more cater to specific property protection needs.
Cause of Loss Forms
Once coverage forms are selected, a cause of loss form must be chosen to specify the perils insured against. Options include Basic, Broad, Special, and Earthquake forms, each with specific coverage details and exclusions.
Endorsements
Endorsements offer additional modifications to property insurance, such as Peak Season for inventory fluctuations, Ordinance or Law for building code enforcement, Blanket Insurance for covering multiple properties under one policy, and Glass coverage for specialized glass protection.
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