Property insurance policies provide benefits based on losses that
are caused by an event covered under the terms of the policy
contract. These events are called “Causes of Loss” or “Perils” and
are identified in the policy itself. Both tangible and intangible
properties are exposed to a variety of perils.
There are three standard property causes of loss or perils forms.
The “Causes of Loss — Basic Form” includes the perils of fire,
lightning, windstorm, hail, riot or civil commotion, damage by aircraft
or vehicles, smoke, explosion, vandalism, volcanic action, sinkhole
collapse and sprinkler leakage. These are also referred to as “Named Perils.”
The next level of property causes of loss is the “Causes of Loss —
Broad Form”. The Broad form includes all of the named perils found
in the Basic form as well as the following perils: falling objects,
weight of snow, ice or sleet, and water damage (accidental discharge
or leakage of water or steam as a result of breaking apart or cracking
of a domestic system or appliance).
The third and most liberal is the “Causes of Loss — Special Form”
which provides what used to be called the “all-risks” coverage. This
form covers any accidental cause of loss unless it is specifically
excluded in the form.
On most property insurance forms Flood and Earthquake perils
are excluded because of their catastrophic exposure. However they
can be available in separate policies or by endorsement. There is an“Earthquake” Cause of Loss form available when the coverage is to be added to a commercial policy.
Property Loss Settlement Features.
Building and personal property insurance policies can be written
on a replacement cost basis (RC), which provides “new for old” in
the event of loss. Otherwise these policies are issued on an actual
cash value basis (ACV) that deducts depreciation from the loss
The financial loss is limited to the value of the property plus any
income loss or extra expense. Insurance is the major technique to be
used by individuals and families for protection from loss. However,
loss control methods which involve both loss prevention and loss
reduction activities are important for an insured in reducing the
chance of loss.
Retention of risk in the form of a deductible is used with most
insurance policies when dealing with property loss exposures. The
use of a deductible also will tend to reduce premium costs.
A concurrent cause of loss occurs when more than one peril is
involved in a loss. If one of the involved perils is excluded from
coverage when concurrent causation occurs, and the other is
covered, there may be problems in the settlement of the loss.