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Insurance; The Devil is in the Detail • July 1, 2005

General Form and Special Form Insurance:

General Form and Special Form Insurance:

 What is the difference? Is it worth paying for?

By P.J. Tradelius, Cal North Insurance Brokerage

Insurance is a contract between you, the named insured, and the insurance company covering an agreed upon property for certain types of losses.  The “causes of loss,” also known as the “covered perils”, determines if the insuring contract or policy will pay for any claim. The events a policy will pay for are referred to as Coverage Form.  Every property policy must have a Coverage Form, and must describe the covered causes of losses.

The causes of loss are categorized in two primary forms: General Form (Basic Form) and Special Form. General Form (Basic Form) coverage will pay for most of the basic types of losses an investment property owner/mortgagor will be concerned about.  Examples of covered causes of loss are: fire, lighting, windstorm, hail, aircraft, riot, vehicles, explosion, smoke etc. Always refer to your policy for the exact covered causes of loss.

Special Form coverage will contain the same causes of loss as the General Form but now includes water damage to the property.  Special Form coverage may  also be described as “losses caused by direct physical loss except as specifically limited or excluded [by the policy].” To simplify and address the needs of the investment property owner, Special Form coverage may pay for losses resulting from water damage caused by leaking roof, windows, broken pipes/plumbing etc.  Again, always refer to your policy and insuring contract for the exact covered causes of loss.

So which coverage form is for you, General Form or Special Form?  Let’s consider price first.  General From can be less expensive than Special Form by 10% or more.  In these turbulent times for insurance premiums, you may elect to forego the more comprehensive Special Form policy for the less expensive General Form policy.  Many investors realize water damage can be inexpensive to repair and choose to pocket the additional premium. However some investors prefer to have coverage for any circumstance.  For them, peace of mind is worth the additional premium.

Eligibility is a factor for Special Form coverage too.  Insurance companies do not step in front of moving trains.  If your building has limited updates in regards to plumbing, the carrier may not offer Special Form coverage.  Typically carriers would like to see copper plumbing, updates to the building systems, and regular maintenance in order to offer the Special Form coverage.  In some cases, the carrier will offer Special Form only after an inspection has taken place. 

With many new insurance companies entering into the Commercial Property market in California, NOW is the time to review your options.  You may be able to improve your coverage and/or reduce you premiums. At Cal North Insurance Brokerage we specialize in Investment Property Insurance by working with the building owners and carriers to determine the optimal solution for both. Call us today for a quick evaluation of your current policy and review your options.

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