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3. CP-03-29

Form CP 03 29: Deductibles By Location

1. What the form is

The CP 03 29, Deductibles By Location endorsement, is a commercial property insurance form that allows for different deductible amounts to be applied to different specified locations covered under a single policy. It also permits varying deductibles for different buildings at one or more locations. This endorsement provides insureds with greater flexibility in structuring their property insurance program, enabling them to tailor deductibles based on the specific risk characteristics and financial considerations of each property. Essentially, it modifies the standard policy provision where a single deductible typically applies per occurrence, regardless of the number of locations or buildings affected. With this endorsement, deductibles apply separately to each scheduled location or building damaged in a single event.

2. Classes of business it applies to

This endorsement is valuable for a wide range of businesses that own or manage multiple properties with varying risk profiles or values. Examples include:

• Real estate investment trusts (REITs) or property management companies: These entities often have diverse portfolios with properties in different geographical areas, subject to varying natural catastrophe exposures (e.g., hurricane-prone coastal properties versus inland properties). They might choose a higher deductible for a high-risk coastal property to manage premium costs, while maintaining a lower deductible for a less exposed inland property.
• Manufacturing companies with multiple plants: A company might have a large, high-value manufacturing facility and several smaller warehouses. They could opt for a higher deductible on the main plant due to its robust construction and risk mitigation measures, and lower deductibles on the warehouses.
• Retail chains or franchise operations: Businesses with numerous retail outlets can use this endorsement to set deductibles based on the sales volume, inventory values, or crime exposure of each store. A flagship store in a high-traffic urban area might have a different deductible than a smaller store in a suburban strip mall.
• Municipalities or school districts: Public entities with various buildings (e.g., administrative offices, schools, maintenance facilities) can utilize this form to apply different deductibles based on the age, construction, and occupancy of each structure.
• Businesses with a mix of building types at a single location: A resort complex, for example, might have a main hotel building, several guest cottages, and a maintenance shed. The CP 03 29 allows for different deductibles on each of these structures.

3. Special considerations

• Defining "Location": It's crucial to clearly define and schedule each "location" or "building" to which a specific deductible will apply. The endorsement allows flexibility in defining a location, which can be an entire premises or specific buildings within a premises. This ensures accurate application of deductibles at the time of a loss.
• Per Occurrence vs. Per Location/Building: While the standard policy deductible applies once per occurrence, the CP 03 29 makes the scheduled deductible(s) apply separately to each designated location or building that sustains damage from a single event. This could result in multiple deductibles being applied if one occurrence damages multiple scheduled locations/buildings. This is a key distinction from forms like the CP 03 20 (Multiple Deductible Form), where typically the highest single deductible applies if multiple locations are involved in one occurrence.
• Interaction with Other Deductible Endorsements: This endorsement may interact with other deductible provisions in the policy, such as specific wind/hail or earthquake deductibles. The policy language and specific endorsements must be reviewed carefully to understand how deductibles will be applied in various loss scenarios. For example, the CP 03 29 does not apply to flood or earthquake deductibles if those coverages are added by their respective endorsements; those perils will be subject to the deductibles described in their specific forms.
• Blanket vs. Specific Limits: The endorsement can be used with policies that provide coverage on a specific or blanket basis. However, if used with blanket coverage, care must be taken to ensure the intended application of deductibles aligns with the overall coverage structure. Even with blanket coverage over multiple locations, all coverages at a specific scheduled location must generally have the same deductible under this endorsement, though deductibles for specific perils like windstorm/hail or theft can differ if scheduled.
• Minimum Deductibles: Insurers may have minimum deductible requirements for certain perils or types of properties, which could limit the extent to which deductibles can be lowered, even with this endorsement.

4. Key information for agents and underwriters

• Pricing and Risk Assessment:
  • Underwriters will assess the risk profile of each scheduled location or building individually when this endorsement is used. Factors like construction, occupancy, protection (e.g., sprinkler systems, alarms), and exposure (COPE data) for each specific property will influence the acceptability of different deductible levels and the overall premium.
  • Higher deductibles on higher-risk properties can lead to premium credits for the insured, but underwriters must ensure the retained risk is still acceptable. Conversely, lower deductibles on lower-risk properties might be offered with a smaller premium impact.
  • The potential for multiple deductibles applying in a single widespread event (e.g., a hurricane damaging several scheduled coastal properties) should be considered in the aggregate exposure assessment.
• Coverage Gaps and E&O Prevention for Agents:
  • Agents must clearly explain to insureds how deductibles will apply with this endorsement, particularly the per location/building application in a single occurrence. Misunderstanding this could lead to dissatisfaction at the time of a claim.
  • Ensure the schedule of locations and their corresponding deductibles is accurate and reflects the insured's intentions. Any ambiguity can lead to disputes.
  • Review if this endorsement is the most suitable option compared to other deductible structures (e.g., a single policy deductible, or the Multiple Deductible Form CP 03 20). The key difference is that CP 03 29 applies deductibles separately per location/building even in one occurrence, while CP 03 20 might apply only the highest deductible.
• Underwriting Guidelines:
  • Underwriters should establish clear guidelines for the maximum spread of deductibles allowed across locations. Extreme variations might indicate an attempt to inadequately insure certain high-risk properties.
  • The rationale for requesting different deductibles should be understood. Is it driven by legitimate risk differentiation and risk management strategy, or merely an attempt to reduce premium without adequate risk retention capacity?
  • Ensure that the scheduled values for each location are accurate, as this can impact the appropriateness of the selected deductible levels and coinsurance calculations if applicable.
  • The endorsement allows for flexibility, but all coverages at a given location generally must share the same deductible, with exceptions for perils like windstorm/hail or theft if specifically scheduled with different deductibles.