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Commercial Lines Rating Series: Part 8 – Causes of Loss – Special Form

February 3, 2015

Causes of Loss – Special Form

Special Cause of Loss provides coverage for risks of direct physical loss unless excluded or limited.

Theft coverage is included when using the limit of insurance (LOI) rating method, but it can be excluded.

The Watercraft Exclusion modifies coverage under Special Form. It excludes watercraft damage to retaining walls that are not part of a building, bulkheads, pilings, piers, wharves, or docks.

When rating a policy with special form, specifically rated properties as well as class rated properties are eligible. The amount of insurance and the coinsurance percentage must be the same for each cause of loss rated.

Property in offices may be written as a separate item under Special Causes of Loss and the remaining property may be written under Basic or Broad Causes of Loss forms.

There are also some eligibility requirements for Special Form:

  • Coinsurance must be at least 80% for property damage and 50% for time element Coverages.
  • Certain kinds of risks are not to be written on a Special Form policy:
    For buildings and personal property:
      • Farm or farming operations
      • Grain elevators, grain tanks, and grain warehouses
      • Nuclear reactor plants and installations
      • Neon, automatic, or mechanical electric outdoor signs erected or in the course of construction
      • Risks rated using the Rating Plan for Highly Protected Risks or Superior Risks
    For stock (unless incidental to the principal business):
      • Dealers in live poultry or live animals, etc.
      • Dealers in plants or shrubbery, florist greenhouses, nurseries
      • Wholesale fresh fruit and vegetable dealers

To develop the premium for a Special Form policy, you will need to rate:

  • Group I Causes of Loss
  • Group II Causes of Loss


  • Special Causes of Loss

Basic Group I (BGI) and Basic Group II (BGII) loss costs are determined in the same way as a Basic Form policy, regardless of whether the risk is class rated or specifically rated.

Here is an example of what the special form loss costs might look like using the LOI rating method:

Building coverage

Loss Cost: .044 (includes theft coverage)

To exclude theft from building coverage, apply a factor of .88 to the building rate.

Personal Property coverage

Special Form Loss costs:

Occupancy Category Loss Cost
Residential Apartments and Condominiums
Mercantile — High
Mercantile — Medium
Mercantile — Low
Motels and Hotels
Institutional — High
Institutional — Low
Industrial and Processing — High
Industrial and Processing — Low
Service — High
Service — Low
Territory (County) Territorial Multiplier
Balance of State

Factors to exclude theft from Personal Property coverage:

Occupancy Category Theft Exclusion Factor
Residential Apartments and Condominiums
Motel-Hotel Risks
Contractors Risks
All Other Risks

Applying rate factors:

BGI and BGII loss costs

  • The same rate factors, applied in order for a Basic form policy, also apply to a Special form policy when rating BGI and BGII.

Special Form loss costs
Apply applicable rate factors in the following order:

  • Company filed loss cost multiplier
  • Territory multiplier
  • Coinsurance adjustment, if applicable
  • Theft exclusion factor
  • Limit of Insurance relativity factor, if LOI rating method is used (interpolated)
  • Factors or charges required by individual rules
  • Taxes unless local requirements dictate otherwise
  • Payment plan factor

Apply additive factors before applying multiplicative factors unless a rule states otherwise.

“Formula” to rate a policy with Special Causes of Loss without factors or charges dictated by individual rules — using (LOI) methodology.

Group I:

Building coverage and Contents coverage

  • Basic Loss Cost X Company Loss Cost Multiplier X Protection Class Multiplier (if class rated) X Territory Multiplier (if class rated) X Coinsurance X Interpolated LOI Relativity Factor = Final Rate.
  • Final Rate X Limit of Insurance per 100 = Group I premium.

Group II:

Building coverage and Contents Coverage

  • Basic Loss Cost X Company Loss Cost Multiplier X Coinsurance X Interpolated LOI Relativity Factor = Final Rate.
  • Final Rate X limit of Insurance per 100 = Group II premium.

Note: Territory and Protection Class multipliers do not apply to Group II.

Special Cause of Loss:

Building coverage and Contents coverage

  • Basic Loss Cost X Company Loss Cost Multiplier X Territory Multiplier X Coinsurance X Theft Exclusion Factor (if applicable) X Interpolated LOI Relativity Factor = Final Rate.
  • Final Rate X Limit of Insurance per 100 = Special Causes of Loss Premium.

Note: Protection Class Multiplier does not apply.

The complete Special Form Rule (Rule 72) is found in Division Five of the Commercial Lines Manual.

Subscribers, full rating training for your staff is included in your WSRB package at no additional cost! Call Terry Krueger at 206-273-7153 or email

Article by: Terry Krueger, Subscriber Services Administrator

Check out more articles from our Commercial Lines Rating Series!

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