Commercial insurance policies have evolved over time as insurers created new forms, endorsements, and coverage extensions to address new business exposures. When a new need appeared, insurers typically responded by creating a new form.

Before the Commercial Package Policy (CPP) was introduced, insurers commonly issued separate commercial contracts such as the General Property form, Comprehensive General Liability form, Business Auto form, Boiler and Machinery form, and Business Crime form. The CPP offers broader commercial coverage and more flexibility than these earlier standalone forms.

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, the policy becomes a true package policy. The insured can choose from several available coverage parts, 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. 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 at any time by providing written notice to the insurer. 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.

Sidenote

Know this...

The standard deductible on a CP form is $500.

Commercial property coverage part

This coverage part includes its own declarations and conditions. Several specific coverage forms are available to add to this coverage part, depending on the business’s property exposures.

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.

Sidenote

Know this...

Business personal property covers outdoor trees, shrubs, plants, fences, detached signs and antennas up to$1,000 (but not more than $250 for any tree, shrub or plant).

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.

Sidenote

Know this...

The debris removal limit under this coverage form will not exceed 25% of the amount the insurer pays for damage to the covered property.

Other common commercial property forms

Reporting form

The coverage amount may increase or decrease during the year in relation to 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 protects 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

Sidenote

Know this...

Theft is also covered under this form up to specific limits whereas it is not covered by the basic and broad forms.

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.

Sidenote

Know this...

With commercial property insurance, any volcanic action that causes damage within any 168-hour period will constitute a single occurrence.

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 address 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 address 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.

Chapter vocabulary

Definitions

Adjustable Premium

The agreed right of an insurance company to modify the insured’s premium payments under certain conditions.

Blanket Form

Provides insurance protection for property in various locations or different types of exposures at a single location.

Builders’ Risk Policies

Typically written on a reporting or completed value form, this coverage insures against loss to buildings in the course of construction. The coverage also includes machinery and equipment used in the course of construction and materials incidental to construction.

Business Interruption/Business Income Coverage

Loss of income as a result of property damage to a business facility.

Commercial Earthquake

Earthquake property coverage for commercial ventures.

Commercial Flood

Separate flood insurance policy sold to commercial ventures.

Commercial Package Policy

Provides a broad package of property and liability coverages for commercial ventures other than those provided insurance through a business owners policy.

Commercial Property

Property insurance coverage sold to commercial ventures.

Construction and Alteration Liability

Covering the liability of an insured to persons who have incurred bodily injury or property damage from alterations involving demolition, new construction, or change in size of a structure on the insured’s premises.

Difference In Conditions (DIC) Insurance

Special form of open-peril coverage written in conjunction with basic fire coverage and designed to provide protection against losses not reimbursed under the standard fire forms. Examples are flood and earthquake coverage.

Extra Expense Insurance

A type of property insurance for extraordinary expenses related to business interruption, such as a backup generator in case of power failure.

Reporting Form

Forms written with reporting requirements for changing values are used when it’s difficult to provide the insurance company with an accurate statement of values because of fluctuations from month to month.