Form CP 03 10: Deductible - Applicable To Loss From Any One Occurrence
1. What the form is
The CP 03 10, "Deductible - Applicable To Loss From Any One Occurrence," is a standard endorsement used in Commercial Property insurance policies. Its primary purpose is to clearly state the single deductible amount that will apply to a covered loss arising from any one occurrence. This means that regardless of how many different items of property are damaged or destroyed in a single event, the insured will only be responsible for one deductible amount as specified in the policy declarations. This form works in conjunction with the main property coverage form, such as the CP 00 10 Building and Personal Property Coverage Form, to establish how the deductible is applied before the policy pays out for a claim. The form clarifies that if the adjusted amount of loss (after considering factors like coinsurance) is less than or equal to the deductible, the insurer will not pay. If the adjusted loss exceeds the deductible, the insurer will subtract the deductible from the adjusted loss and pay the remaining amount, up to the applicable limit of insurance.
2. Classes of business it applies to
The CP 03 10 is broadly applicable across most classes of business that carry Commercial Property insurance. It's not specific to any single industry but rather is a foundational component of how deductibles are handled. Examples include:
- Real Estate Owners: Owners of commercial buildings, such as office buildings, retail centers, or apartment complexes, will have this deductible provision apply to losses affecting their structures. For instance, if a fire damages multiple units in an apartment building, only one deductible would apply to the entire occurrence.
- Manufacturing Businesses: A manufacturing plant could suffer damage to its building, machinery, and inventory from a single event like an explosion. The CP 03 10 would ensure one deductible applies to the total loss.
- Retail Stores: If a storm causes roof damage leading to water damage of merchandise and fixtures inside a retail store, this form dictates a single deductible for all related property damage.
- Service Businesses: An accounting firm whose office equipment and tenant improvements are damaged due to a burst pipe would have one deductible applied to the claim.
- Warehousing and Logistics: Damage to a warehouse structure and the goods stored within due to a covered peril like a windstorm would be subject to a single occurrence deductible.
Essentially, any business that insures its buildings or business personal property under a standard commercial property policy will likely have this deductible concept apply, often formalized by or reflected in the principles of the CP 03 10 if a standard deductible is chosen.
3. Special considerations
There are several important points to consider regarding the CP 03 10:
- Definition of "Occurrence": While the form states the deductible applies "per occurrence," the policy itself may not always explicitly define "occurrence" in the context of property damage. This can sometimes lead to disputes, especially in situations involving ongoing or widespread damage (e.g., vandalism over a period of time, or a storm affecting multiple insured locations). Generally, an occurrence is considered a single event or a series of closely related events. For example, vandalism occurring over several days might be debated as one or multiple occurrences.
- Multiple Locations/Items: The form specifies that even if an occurrence involves loss to more than one item of Covered Property with separate Limits of Insurance, the losses will not be combined to determine the application of the deductible. However, the deductible will only be applied once per occurrence. If a policy lists multiple locations, each with its own deductible amount on the declarations, a loss affecting multiple locations from a single event might involve applying the deductible for each location, unless a form like CP 03 29 (Deductibles By Location) or similar language specifies otherwise (e.g., only the largest deductible applies).
- Interaction with Other Deductible Forms: The CP 03 10 represents a standard, fixed-dollar deductible per occurrence. It's important to distinguish it from other deductible endorsements that might apply, such as:
- CP 03 20 (Multiple Deductible Form): Allows for different deductible amounts to apply to different types of property or perils.
- CP 03 21 (Windstorm or Hail Percentage Deductible): Applies a percentage deductible (based on the limit of insurance or value of the property) specifically to windstorm or hail losses. This often results in a higher deductible for these specific perils.
- CP 03 29 (Deductibles By Location): Allows for different deductible amounts to be scheduled for different insured locations.
When these more specific deductible forms are used, they typically override or modify the standard deductible for the perils or locations they address.
- Coinsurance: The deductible is applied after any reduction in the loss amount due to a coinsurance penalty. If the insured has not maintained adequate insurance to value as required by the coinsurance clause, their claim payment will be reduced before the deductible is subtracted.
A real-world example: A hailstorm (a single occurrence) damages the roofs of three separate buildings insured under the same policy. If the policy has a standard CP 03 10 deductible of $5,000, only one $5,000 deductible applies to the total damage across all three buildings. However, if the policy also includes CP 03 21 (Windstorm or Hail Percentage Deductible) with a 2% deductible per building, and each building is insured for $500,000, then a $10,000 deductible (2% of $500,000) might apply to each building separately, depending on the specific wording of CP 03 21.
4. Key information for agents and underwriters
- Pricing: The deductible amount chosen significantly impacts the premium. A higher deductible means the insured retains more risk, which generally leads to a lower premium, and vice-versa. Agents should counsel clients on selecting a deductible level that aligns with their risk tolerance and financial capacity to absorb a loss.
- Risk Assessment: For underwriters, the standard per-occurrence deductible is a baseline. However, for properties with higher exposure to specific perils (e.g., windstorm in coastal areas, theft in high-crime areas), underwriters may require or recommend higher specific deductibles using forms like CP 03 21 or CP 10 33 (Theft Exclusion). This helps manage the insurer's exposure to frequent or severe losses.
- Coverage Gaps: Agents should ensure clients understand that the deductible is an out-of-pocket expense for every covered loss. It's crucial to explain how the "per occurrence" deductible works, especially if the client has multiple properties or types of property that could be affected by a single event. Misunderstanding this can lead to dissatisfaction at the time of a claim.
- Underwriting Guidelines: Underwriters will consider the requested deductible amount in relation to the overall risk profile of the insured. A very low deductible on a high-risk property might be unacceptable or lead to a significantly higher premium. Conversely, a very high deductible might be appropriate for a financially strong insured with a robust risk management program. The CP 03 10 provides a straightforward approach, but underwriters will still assess the overall adequacy of the deductible in managing the exposure.
- Clarity in Communication: It is vital for agents to clearly explain that "any one occurrence" means just that – one deductible for a single event, regardless of the extent of damage or number of items involved (unless other specific deductible endorsements apply). This helps set proper expectations.
For example, when underwriting a commercial building in a coastal area, an underwriter might accept a standard $2,500 per occurrence deductible for most perils using CP 03 10 principles, but mandate a 5% windstorm/hail deductible (using CP 03 21) due to the heightened hurricane risk. The agent's role is to explain this layered deductible structure to the insured.