1. Forms
2. CP
3. CP-00-40

What the form is

The ISO Legal Liability Coverage Form CP 00 40 provides coverage for sums an insured becomes legally obligated to pay as damages because of direct physical loss or damage, including loss of use, to Covered Property. The loss must be caused by an accident and arise from a Covered Cause of Loss. 'Covered Property' typically means tangible property of others in the insured's care, custody, or control that is described in the Declarations or on the Legal Liability Coverage Schedule. This form is unique as it blends elements of property and liability insurance; it pays based on legal liability but is triggered by property damage from specified causes of loss. The insurer also has the right and duty to defend the insured against any "suit" seeking those damages.

Classes of business it applies to

This form is particularly useful for businesses that lease or occupy premises they don't own, or that regularly have custody of customers' property. Examples include:

• Tenants: Businesses leasing commercial space (offices, warehouses, retail stores) who are contractually responsible for damage to the landlord's building or fixtures. For instance, if a tenant's negligence causes a fire that damages the leased building, this form could cover the tenant's liability to the landlord.
• Bailees: Businesses that take temporary possession of customers' property for service, repair, or storage, such as dry cleaners, repair shops, or storage facilities, where they are legally liable for damage.
• Contractors: Contractors working on a client's property might use this form if their work could cause accidental damage for which they would be legally liable, although other forms like Commercial General Liability (CGL) with appropriate endorsements might also be considered.

Special considerations

• Contractual Obligations: This form is often used to satisfy insurance requirements in lease agreements or other contracts where one party assumes liability for damage to another's property. It's crucial to review the contract to ensure the coverage limits and causes of loss align with the contractual requirements.
• Care, Custody, or Control (CCC) Exclusion: Standard CGL policies often exclude coverage for damage to property in the insured's care, custody, or control. The CP 00 40 is specifically designed to address this gap for described property.
• Causes of Loss: The CP 00 40 must be used with a Causes of Loss form (Basic, Broad, or Special) which will be specified in the Declarations. The choice of Causes of Loss form is critical and should reflect the potential perils for which the insured could be held liable. For example, if a tenant could be liable for water damage from a burst pipe they are responsible for maintaining, a Broad or Special form would likely be needed.
• Limits of Insurance: The insured selects the limit of insurance, and coinsurance typically does not apply to this form. The limit should be adequate to cover the potential value of the property for which the insured could be held liable.
• Not a Substitute for First-Party Property Insurance: This form covers the insured's legal liability for damage to property of others. It does not directly insure the property itself against all risks for the benefit of the property owner, like a standard Building and Personal Property Coverage Form (CP 00 10) would for an owner.
• Electronic Data: The form typically excludes coverage for electronic data unless specifically added or modified by endorsement. Recent revisions may provide some coverage for electronic data integrated with building systems.

Key information for agents and underwriters

• Risk Assessment: Underwriters need to carefully assess the nature of the property in the insured's care, custody, or control, its value, and the potential for loss. The terms of any contracts creating liability are paramount.
• Pricing: Rates for this coverage are typically lower than for direct first-party property insurance because coverage only applies if the insured is legally liable. For example, ISO rating methodology might apply a factor (e.g., 25% for buildings, 50% for personal property) to the standard property rates.
• Coverage Gaps: Agents should ensure clients understand that this form covers legal liability, not all damage to the non-owned property. If a contract requires the tenant to insure the building as if they were the owner, this form alone might not suffice, and other solutions like naming the tenant as an insured on the landlord's policy or a manuscript endorsement might be needed. It's also important to compare this coverage with what might be available under a CGL policy's 'Damage To Premises Rented To You' coverage, which is often limited in perils (e.g., fire only) and amount.
• Defense Costs: A significant benefit of this form is that it includes the insurer's duty to defend the insured against suits alleging liability for damage to the covered property. This is a key difference from simply adding 'property of others' coverage under a standard property form.
• Alternatives: Depending on the exposure, other coverages like Bailee's Customer Insurance (for personal property of customers) or simply increasing the 'Damage to Premises Rented to You' limit on a CGL (though often inadequate for significant exposures) might be considered. However, the CP 00 40 is often the most appropriate solution for broader legal liability exposures for damage to real or personal property of others as defined in the form.