CREATE AN ACCOUNT
LOG IN

Property Underwriting

A guide to key risks in Washington state: fire, wildfire and earthquakes.


Help Center

Self-serve articles on how to use our products. Available 24/7. 

Commercial Property

Information on Loss Costs, policy rating and assessment tools 


InsuranceEDGE

Weekly newsletter covering the P&C industry, curated by our experts. 

Protection Classes

The evaluation process explained from start to finish.


WSRB Blog

News on emerging risks as well as our latest products. 

Library

In-depth content on essential insurance topics.


Industry Toolkit

Links to help you work smarter and serve your customers.  

What is Covered and When to Use the Special Causes of Loss Form

July 30, 2019

Insurance is always changing, so we have updated our post on the Special Causes of Loss form, part of our series on the basics of commercial rating. We've also updated our posts on the Basic and Broad Causes of Loss forms. Since each post builds on the previous one, we encourage you to read the series from the beginning.

The Special Causes of Loss form is just that, special. It provides coverage for risks of direct physical loss unless, of course, they are excluded or limited. Unlike the Basic and Broad forms, which only cover what’s listed, the Special form covers everything except what’s listed in the called-out exclusions, limitations and conditions.

The Westlake building in downtown SeattleThe Special Causes of Loss form provides different coverage for commercial property
than the Basic or Broad form provides.

Related:
The Basics on the Basic Causes of Loss

 

A couple of items to note:

  • Theft coverage is included when using the limit of insurance (LOI) rating method, but it can be excluded.
  • The Watercraft Exclusion modifies coverage under the Special form. It excludes watercraft damage to retaining walls that are not part of a building, such as bulkheads, pilings, piers, wharves or docks.

When rating a policy with the Special form, both class-rated and specifically-rated properties are eligible. The amount of insurance and the coinsurance percentage must be the same for each cause of loss rated.

Property in offices may be written as a separate item under Special Causes of Loss, and Basic or Broad Causes of Loss forms can be used for the remaining property.

Special Causes of Loss eligibility requirements

Like on the Broad Causes of Loss form, the Special Causes of Loss form requires that coinsurance be at least 80% for property damage and 50% for time-element coverages. Be aware that certain risks cannot be covered under the Special form (Rule 72.C.). These include:

  • For buildings and personal property
    • Farm or farming operations
    • Grain elevators, grain tanks and grain warehouses
    • Nuclear reactor plants and installations
    • Neon, automatic or mechanical electric outdoor signs erected or in the course of construction
    • Risks rated using the Rating Plan for Highly Protected Risks or Superior Risks
  • For stock (unless incidental to the principal business):
    • Dealers in live poultry or live animals
    • Dealers in plants or shrubbery, florist greenhouses or nurseries
    • Wholesale fresh fruit and vegetable dealers

 

Related:
When to Use the Broad Causes of Loss Form


To develop the premium for a Special form policy, you will need to rate:

Group I Causes of Loss
Group II Causes of Loss
Special Causes of Loss

Basic Group I (BGI) and Basic Group II (BGII) loss costs are determined in the same way as a Basic form policy, regardless of whether the risk is class or specifically rated.

Here’s what the Special form loss costs might look like using the LOI rating method:

Building coverage

Loss cost: .056 (includes theft coverage).

To exclude theft from building coverage, apply a factor of .88 to the building rate.

Personal Property coverage

Special form loss costs:

Occupancy Category

Loss Cost

Residential Apartments and Condominiums

.187

Offices

.177

Mercantile – High

.246

Mercantile – Medium

.210

Mercantile – Low

.161

Motels and Hotels

.120

Institutional – High

.120

Institutional – Low

.079

Industrial and Processing – High

.210

Industrial and Processing – Low

.177

Service – High

.192

Service – Low

.147

Contractors

.268

Territory (County)

Territorial Multiplier

King

1.206

Pierce

1.111

Balance of State

1.000

 

Factors to exclude theft from Personal Property coverage:

Occupancy Category

Theft Exclusion Factor

Residential apartments and Condominiums

.60

Motel-hotel Risks

.60

Contractors Risks

.20

All Other Risks

.40

 

 

Related:
WSRB's Essential Guide to Commercial Property Risk Assessment

 

Applying rate factors

BGI and BGII loss costs: When rating these for a Special form policy, apply the same rate factors in the same order as for a Basic form policy.

Special form loss costs: Apply applicable rate factors in the following order:

  • Company filed loss cost multiplier
  • Territory multiplier
  • Coinsurance adjustment, if applicable
  • Watchman service and/or burglar alarm system modification
  • Theft exclusion factor
  • Limit of Insurance relativity factor, if LOI rating method is used (interpolated)
  • Factors or charges required by individual rules
  • Taxes, unless local requirements dictate otherwise
  • Payment plan factor

Remember to apply additive factors before applying multiplicative factors unless a rule states otherwise.

The “formula” to rate a policy with Special Causes of Loss without factors or charges dictated by individual rules — using (LOI) methodology would look like this:

Group I: Building coverage and Contents coverage
  • Basic Loss Cost X Company Loss Cost Multiplier X Protection Class Multiplier (if class rated) X Territory
  • Multiplier (if class rated) X Coinsurance X Interpolated LOI Relativity Factor = Final Rate.
  • Final Rate X Limit of Insurance per 100 = Group I premium.

Group II:  Building coverage and Contents Coverage

  • Basic Loss Cost X Company Loss Cost Multiplier X Coinsurance X Interpolated LOI Relativity Factor = Final Rate.
  • Final Rate X limit of Insurance per 100 = Group II premium.

It is important to note that Territory and Protection Class multipliers do not apply to Group II.

Special Causes of Loss:  Building coverage and Contents coverage
  • Basic Loss Cost X Company Loss Cost Multiplier X Territory Multiplier X Coinsurance X Theft Exclusion
  • Factor (if applicable) X Interpolated  LOI Relativity Factor = Final Rate.
  • Final Rate X Limit of Insurance per 100 = Special Causes of Loss Premium.

Note that the Protection Class Multiplier does not apply to Special Causes of Loss.

You will find the complete Causes of Loss — Special Form Rule (Rule 72) in Division Five of the Commercial Lines Manual.

This concludes our Commercial Rating Series, which we designed to cover the foundations of this often-complex topic.

Guy-reading-insuranceEDGE

InsuranceEDGE


Like our blog? Check out InsuranceEDGE. We curate the week’s must-read stories from top industry sources. You stay informed and save time.

START READING

You May Also Like

These stories on policy rating

Sign up for our blog