California Property & Casualty Broker-AgentProperty InsuranceMedium
A business owner has a Commercial Property Policy with a Causes of Loss - Special Form. Due to heavy rainfall, a sewer line backs up and causes significant water damage to the basement of their commercial building. What will be the likely outcome regarding coverage for this loss?
- AThe loss will be fully covered, as Special Form covers all direct physical loss unless excluded.
- BCoverage will be denied because sewer backup is typically excluded under a Special Form.
- CThe policy will pay a reduced amount due to the peril being a common occurrence.
- DCoverage will be provided only if the rainfall was declared a natural disaster.
Show answer & explanationAnswer & explanation
Correct answer: B. Coverage will be denied because sewer backup is typically excluded under a Special Form.
Even though a Causes of Loss - Special Form provides 'open perils' coverage, meaning it covers all direct physical loss unless specifically excluded, common exclusions include flood, earth movement, and sewer backup. Therefore, damage from a sewer backup would typically be excluded.
Why the other options are wrong
- A. While Special Form is broad, it still has exclusions, and sewer backup is a common one.
- C. Reduced payment is not the typical outcome for an excluded peril; denial is.
- D. Natural disaster declarations are generally irrelevant to specific policy exclusions like sewer backup.
Causes of Loss - Special Form Exclusions (Sewer Backup)
The Causes of Loss - Special Form provides 'open perils' coverage, meaning it covers all direct physical loss unless specifically excluded. Standard exclusions include flood, earth movement, governmental action, ordinance or law, and sewer backup.
- Covers 'all risks' not specifically excluded.
- Sewer backup is a common exclusion.
- Requires endorsement for coverage (e.g., Water Backup and Sump Overflow).
Memory trick: Special Form covers 'Everything but the Big Exclusions' like 'Water Below'.