1. Forms
2. CP
3. CP-10-45

What the form is

The CP 10 45, titled Earthquake and Volcanic Eruption Coverage (Sub-Limit Form With Percentage Deductible), is an endorsement to a commercial property policy. Its primary purpose is to add coverage for direct physical loss or damage to insured property caused by earthquake and volcanic eruption. A key feature of this form is that it provides this coverage on a sub-limit basis, meaning the maximum amount payable for earthquake or volcanic eruption losses is a specific, lower limit than the overall policy limits for other covered perils. This endorsement also specifies that a percentage deductible will apply to losses from these perils. Importantly, the CP 10 45 eliminates the coinsurance requirement specifically for the earthquake and volcanic eruption coverage, as the coverage is based on a pre-agreed sub-limit.

Classes of business it applies to

This endorsement is suitable for a wide range of commercial enterprises that wish to obtain some financial protection against earthquake and volcanic eruption perils but may find insuring their property to its full value for these specific risks to be cost-prohibitive or unnecessary. It is particularly relevant for:

• Businesses located in geographical areas with known seismic activity.
• Property owners who want to manage their insurance premiums by selecting a lower limit for catastrophic earthquake events.
• Organizations that have conducted a risk assessment and determined that a sub-limit of coverage is adequate for their earthquake exposure.

Special considerations

Several important points should be considered when using the CP 10 45 endorsement:

• Mandatory Schedule: This endorsement must be used in conjunction with the CP DS 06 – Earthquake – Volcanic Eruption Coverage schedule (Sub-limit Form). This schedule is where the specific sub-limit(s) of insurance for earthquake and volcanic eruption coverage for designated premises or locations are detailed.
• Not a Stand-Alone Form: The CP 10 45 does not replace the need for a standard Causes of Loss form (e.g., CP 10 10, CP 10 20, or CP 10 30). One of these broader forms must still be attached to the policy to define other covered perils.
• Earth Movement Exclusion: While this endorsement provides coverage for earthquake and volcanic eruption, it only modifies the earth movement exclusion in the base policy to the extent of the coverage provided by this endorsement. Other types of earth movement (not meeting the definition of earthquake or volcanic eruption as defined) remain excluded.
• Percentage Deductible: The deductible is a percentage of a specified value (often the value of the insured property at the time of loss or the earthquake sub-limit itself) and can result in a significant uninsured portion of the loss.
• Sprinkler Leakage Clarification: Revisions, such as in the 10 12 edition, clarified that the earthquake percentage deductible does not apply to loss caused *only* by sprinkler leakage that results from an earthquake or volcanic eruption.
• Aggregate Limits: Coverage may be subject to an annual aggregate limit, meaning the total amount paid for all earthquake/volcanic eruption losses within a policy year will not exceed this aggregate.

Key information for agents and underwriters

Agents and underwriters should be aware of the following when dealing with the CP 10 45:

• Pricing Advantage: The sub-limit approach allows insureds to obtain earthquake coverage at a potentially more affordable premium compared to insuring to full limits, making it an attractive option for some clients.
• Risk Assessment: Underwriters must carefully evaluate the seismic exposure of the insured property, considering its location, construction type, and age. The chosen sub-limit should be reviewed in relation to the total insurable value of the property. This form helps insurers manage their overall catastrophic exposure by limiting liability per occurrence.
• Coverage Limitations: Agents must clearly communicate that the sub-limit is the maximum amount recoverable for an earthquake or volcanic eruption loss, regardless of the actual extent of damage if it exceeds this sub-limit. The implications of the percentage deductible should also be thoroughly explained.
• Underwriting Diligence: It is crucial to ensure the CP DS 06 schedule is accurately completed, clearly identifying all premises or locations to be covered under the sub-limit and the specific sub-limit amount(s). The absence of a coinsurance penalty for this coverage is a significant feature, but it underscores the importance of the agreed-upon sub-limit being adequate for the insured's desired level of protection.