Business Personal Property of Others: Insuring It Properly Involves Many Considerations


Covered Causes of Loss

Unless there is some underwriting restriction, a named insured has the option of selecting from among three causes of loss forms to cover its property: the (1) basic form (2) broad form and (3) causes of loss-special form.

The basic form is a named peril or named causes of loss form covering loss by fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, volcanic eruption, and fungus (provided as an additional coverage).

The broad form includes all causes of loss in the basic form and adds loss or damage from falling objects, weight of snow, ice or sleet, water damage, and collapse (provided as an additional coverage).

Unlike the basic and broad forms, the causes of loss-special form does not list the causes that are considered covered. Instead, all fortuitous (accidental) loss or damage is covered, unless specifically excluded. This form states that the covered causes of loss means “Risks of Direct Physical Loss.” This term (in quotes) was replaced by ISO in its 2012 revisions with the words, “Direct Physical Loss or Damage.” 3 The reason is, that reference to “Risks of” can also mean an impending or possible loss. If, for example, the named insured takes costly steps to avert an otherwise covered loss and submits a claim for those costs, the named insured has an argument that those costs are covered because the causes of loss-special form also covers risks associated with the chance of a loss occurring. <ß/p>

The cost increases progressively when one goes from basic to the special causes of loss. Price, however, is not always the criterion. If, for example, the named insured leases some office equipment and the lease agreement requires coverage that includes loss from theft, the named insured would have no choice but to select the causes of loss- special form. The reason is that this form is the only one of the three forms that includes coverage for theft, except theft committed by the named insured’s officers, directors or employees. If the named insured is unable to obtain the causes of loss-special form or it is too expensive, a possible alternative might be to look into the purchase of an inland marine floater, since these floaters commonly provide broad coverage having to do with causes of loss.

Legal Liability Coverage Form

As mentioned earlier, another one of the property forms under which business personal property of others can be covered is the Legal Liability Coverage Form. (The ISO version carries the form number of CP 00 40.) Even though the name of this coverage form connotes liability insurance, it actually is categorized as a property form because of its mechanics. In other words, under this form, the insurer agrees to pay sums the named insured is legally obligated to pay as damages to covered property caused by accident and arising out of any covered cause of loss. The covered cause of loss form can be the basic, broad or causes of loss- special form. The cost of this coverage also is likely to be less than the coverage under a property policy because the named insured must be found legally liable for the loss of the property. There is no such requirement under a property policy.