1. Forms
2. CP
3. CP-10-32

Form CP 10 32 - Water Exclusion Endorsement

1. What the form is

The CP 10 32 - Water Exclusion Endorsement was a mandatory endorsement for Commercial Property policies designed to replace and clarify the existing water exclusion found in the Commercial Property Coverage Part or Standard Property Policy. Its primary purpose, particularly emphasized after events like Hurricane Katrina, was to clearly define the types of water-related damage that are not covered by the standard property policy, rather than to fundamentally broaden or restrict the exclusion. This endorsement applied across the entire Commercial Property Coverage Part, meaning it superseded the water exclusion in any attached Causes of Loss form. Key aspects of this endorsement included specifying exclusions for damage from flood, surface water, waves (including tidal waves and tsunamis), tides, tidal water, overflow of any body of water, and spray from these, regardless of whether driven by wind (including storm surge). It also addressed mudslide or mudflow, water that backs up from sewers or drains (including from a sump pump), and water under the ground surface. A significant clarification was that these exclusions applied whether the cause was an act of nature or "otherwise caused," providing examples such as the failure of a dam, levee, or seawall. The endorsement also introduced an exclusion for damage caused by "waterborne material" carried by any of the excluded water types or mudflow. However, it preserved coverage for ensuing losses from fire, explosion, or sprinkler leakage if these were Covered Causes of Loss, even if the initial event was an excluded water peril.

It is crucial to note that the language of the CP 10 32 endorsement was incorporated into the standard Causes of Loss forms (e.g., CP 10 10, CP 10 20, and CP 10 30) in the 2012 revisions of the ISO Commercial Property program. Consequently, the CP 10 32 endorsement itself was withdrawn as its provisions became an integral part of these core forms.

2. Classes of business it applies to

The CP 10 32, during its active use, and its incorporated language today, applies broadly to virtually all classes of business insured under a Commercial Property policy. Its impact is particularly significant for:

• Coastal Businesses: Properties located in coastal areas are highly exposed to perils like storm surge, tidal water, and waves, all of which are explicitly addressed by the exclusion. For example, a beachfront hotel or a seafood restaurant on a pier would find these exclusions highly relevant.
• Businesses in Flood-Prone Areas: Any commercial operation situated in a designated flood zone (e.g., near rivers, lakes, or in low-lying areas) would be directly affected by the flood and surface water exclusions. This could range from manufacturing plants near a river to retail stores in urban areas with poor drainage.
• Properties with Basements or Subterranean Levels: The exclusion for "water under the ground surface pressing on, or flowing or seeping through foundations, walls, floors..." is pertinent for businesses with basements, underground parking, or other below-grade structures. An example would be a downtown office building with an underground parking garage.
• Businesses Reliant on Municipal Water/Sewer Systems: The exclusion for water that backs up or overflows from a sewer, drain, or sump pump directly impacts businesses susceptible to municipal system failures or blockages. Restaurants, retail establishments, and light industrial facilities could all face this risk.
• All Commercial Properties: Given the comprehensive nature of the water exclusion, it effectively applies to all commercial insureds by carving out significant water-related perils from standard coverage, thereby underscoring the need for separate flood insurance or specialized endorsements where available and appropriate.

3. Special considerations

Several special considerations are important when dealing with the (now incorporated) language of the CP 10 32:

• Withdrawal of the Form: As the CP 10 32 endorsement has been withdrawn, policy language regarding water exclusions should now be reviewed directly within the applicable Causes of Loss form (e.g., CP 10 30 10 12 or later editions). Relying on an outdated standalone CP 10 32 can lead to misunderstandings.
• "Otherwise Caused" Language: The phrase "whether any of the above...is caused by an act of nature or is otherwise caused" is a significant element. It means, for instance, that a flood caused by a dam failure (a man-made event) is excluded, just as a flood from a hurricane (act of nature) would be.
• Concurrent Causation: The language aims to prevent coverage when an excluded water event is a concurrent cause of loss. However, disputes can still arise, particularly in complex scenarios involving multiple perils (e.g., wind vs. water damage during a hurricane).
• Need for Flood Insurance: The broad nature of the flood and surface water exclusion emphasizes the critical need for businesses in at-risk areas to secure separate Flood Insurance policies, typically through the National Flood Insurance Program (NFIP) or private flood insurers.
• Sewer and Drain Backup: While the endorsement excludes sewer and drain backup, limited coverage for this peril can often be bought back via a specific endorsement, subject to availability and underwriting.
• Storm Surge: The explicit inclusion of "storm surge" as an excluded peril, whether driven by wind or not, is a key clarification, especially for coastal properties.

4. Key information for agents and underwriters

Agents and underwriters should be acutely aware of the following when dealing with the principles of the (now incorporated) CP 10 32:

• Risk Assessment: Thoroughly assess the property's exposure to water damage. This includes reviewing flood maps (FEMA zones), historical loss data for the area, elevation of the property, proximity to bodies of water, and the condition of local infrastructure like levees or dams. For coastal risks, storm surge models are also critical.
• Coverage Gaps and Client Counseling: Agents have a crucial role in explaining these significant exclusions to clients. It's vital to highlight that the standard Commercial Property policy does not cover damage from flood, storm surge, and many types of water backup. The availability and importance of separate Flood insurance, and potentially endorsements for perils like sewer backup, must be discussed.
• Underwriting Guidelines: Underwriters will use this exclusion as a baseline. For properties with high water exposure, underwriters may decline coverage, impose higher deductibles for other covered perils, or require specific mitigation efforts (e.g., flood vents, elevating critical equipment). The presence of these clear exclusions helps maintain the viability of the broader commercial property market.
• Pricing Considerations: The explicit exclusion of catastrophic water perils like flood and storm surge allows for more stable and affordable pricing of standard commercial property policies. These high-hazard perils are typically addressed through separate, specifically priced coverages.
• Focus on Current Forms: Always refer to the water exclusion language within the current edition of the applicable Causes of Loss form (e.g., CP 10 10, CP 10 20, CP 10 30) rather than the historical CP 10 32 endorsement. While the intent and many specifics carry over, it's the policy in force that dictates coverage.
• Distinction from Other Water Damage: It's important to differentiate these broad water exclusions from other types of water damage that may be covered, such as sudden and accidental leakage from a plumbing system within the building (subject to other policy terms and conditions). The "water under the ground surface" exclusion is often a point of contention and needs careful interpretation based on the specific facts of a loss and prevailing case law.