Form CP 10 33: Theft Exclusion
What the form is:
The CP 10 33 Theft Exclusion endorsement modifies the Commercial Property Causes of Loss - Special Form (CP 10 30). Its primary purpose is to exclude coverage for loss or damage caused directly by or resulting from theft. However, the endorsement carves out specific exceptions to this exclusion. Coverage remains for:
- Loss or damage due to looting that occurs at the time and place of a riot or civil commotion.
- Damage to the building caused by the act of breaking in or exiting by burglars. This is an important distinction, as it applies to building damage even if the insured does not own the building but has it scheduled as covered property.
Furthermore, if an act of theft results in a separate Covered Cause of Loss (as defined in the policy), the policy will pay for the loss or damage caused by that subsequent covered peril. For example, if thieves damage a fire suppression system during a theft and a fire ensues, the fire damage may be covered. The 2012 revision of this endorsement added a schedule to specify the locations to which the exclusion applies.
Classes of business it applies to:
This endorsement is not specific to particular industries but is used in situations where the insurer or the insured wishes to remove theft coverage from a Special Form policy. This might be due to several factors:
- High-Risk Locations or Occupancies: Businesses located in areas with high crime rates or those dealing in easily stolen goods (e.g., electronics stores, jewelry stores, liquor stores) might have this endorsement applied if the underwriter deems the theft risk too high for standard pricing or if the insured wishes to reduce premium.
- Cost Savings: An insured might opt for this exclusion to lower their premium, especially if they believe their theft risk is low or if they have other means of managing theft risk (e.g., robust security systems, self-insurance for minor thefts).
- Duplicate Coverage: If the insured has separate theft coverage, perhaps through an Inland Marine policy or a Crime policy that provides more specialized or broader theft protection, this endorsement can be used to avoid paying for redundant coverage in the Commercial Property policy.
- Vacant Properties: Properties that are vacant or unoccupied for extended periods often present a higher theft and vandalism risk. Underwriters may require this exclusion on such properties.
Real-world example: A warehouse storing valuable but easily transportable goods in a high-crime neighborhood might have the CP 10 33 added by the insurer if the theft risk is deemed unacceptable without significant, costly protective safeguards. Alternatively, the business owner, confident in their state-of-the-art security system and seeking premium savings, might request the exclusion.
Special considerations:
- Interaction with CP 10 30: The CP 10 33 directly amends the CP 10 30 Causes of Loss - Special Form. The Special Form typically provides "all-risk" coverage, meaning it covers losses from any cause not specifically excluded. The CP 10 33 adds theft to the list of exclusions.
- Building Damage vs. Contents Damage: It's crucial to note the exception for "building damage caused by the breaking in or exiting of burglars." This means that while the stolen items themselves would not be covered, the damage to doors, windows, or walls during the break-in would be. However, this exception does not typically extend to damage to business personal property (contents) caused during the break-in, such as a damaged cash register or security system, if those items were damaged as part of the theft event itself and not as a separate covered cause of loss.
- Resulting Covered Cause of Loss: The provision stating that if theft results in another Covered Cause of Loss, that resulting loss is covered, requires careful analysis. For instance, if thieves turn off power to a building to disable an alarm, and this leads to food spoilage due to a change in temperature, the spoilage might still be excluded if "change in temperature" itself is an excluded peril or not a covered cause of loss under the policy, even though it resulted from the theft.
- Looting during Riot or Civil Commotion: This exception provides a sliver of theft-related coverage back to the policyholder, but it is specific to the context of a riot or civil commotion.
- No Coverage for Stolen Property: The primary effect of this endorsement is that the value of any property actually stolen will not be reimbursed, subject to the specific exceptions.
Real-world example: A restaurant has the CP 10 33 endorsement. Burglars break in, damaging the back door and stealing cash and inventory. The damage to the door would be covered under the exception for building damage. However, the stolen cash and inventory would be excluded by the CP 10 33. If the burglars also vandalized the premises by spray-painting walls (an act distinct from the theft itself), that vandalism damage might be covered as a resulting Covered Cause of Loss (vandalism).
Key information for agents and underwriters:
- Pricing Impact: Adding the CP 10 33 typically results in a premium credit or a lower base rate for the Commercial Property policy, as it significantly reduces the insurer's exposure. The amount of credit will depend on the perceived theft exposure of the risk.
- Risk Assessment: Underwriters will carefully assess the nature of the insured's business, the type and value of property, location, existing security measures, and loss history before deciding to offer terms with or without this exclusion. For some high-risk businesses, this endorsement might be mandatory for the underwriter to offer coverage at all.
- Coverage Gaps: Agents must clearly explain the implications of this exclusion to the insured. It creates a significant gap in coverage for one of the more common causes of loss. Agents should discuss alternative ways to cover theft, such as a separate Commercial Crime policy, if the insured has a significant theft exposure they wish to cover.
- Underwriting Guidelines:
- Insurers may be more willing to remove or not apply this exclusion if the insured has robust, monitored central station alarm systems and other protective safeguards.
- For certain classes of business (e.g., those with minimal theft exposure or highly secure premises), the underwriter may not feel this endorsement is necessary.
- Conversely, for risks with poor loss history related to theft, or those in demonstrably high-theft areas without adequate protection, this endorsement might be a condition of providing any property coverage.
- Alternatives to Full Exclusion: While the CP 10 33 is a broad theft exclusion, sometimes an underwriter might consider alternatives like a higher theft deductible or sub-limits for theft coverage rather than a full exclusion, depending on the specifics of the risk and the insurer's appetite.
- Schedule of Locations: Since the 2012 revision, the endorsement includes a schedule to specify which locations the exclusion applies to. This is important for insureds with multiple locations, as the exclusion might not apply to all of them.
Real-world example: An underwriter reviewing an application for a new retail business in an urban area with a recent spike in burglaries might require the CP 10 33 endorsement. The agent should then explain to the client that while this makes the property policy more affordable, they will have no coverage for stolen inventory unless they secure a separate Crime policy. The agent might also explore if the underwriter would consider removing the exclusion if the insured installs a certified central station alarm and security camera system.