Demystifying Business Income Coverage, Options and Worksheets

Transcription

1 Demystifying Business Income Coverage, Options and Worksheets Presented by John Eubank, CPCU, ARM Professional Insurance Education, Inc.

2 Copyrights and Disclaimers COPYRIGHT Copyright 2014 by Professional Insurance Education, Inc. (PIE). All rights reserved. All information and content included in this material, including but not limited to (i) text, graphics, logos, icons or images; (ii) data and content compilations; and (iii) software, is the property of the copyright holders or their content or software suppliers and is protected by United States and international copyright laws. You may not modify, copy, distribute, transmit, display, publish, sell, or license any information from this material without the express written consent of PIE. You may not create derivative works, or use any information or content for commercial or public purposes without the express written consent of PIE. In addition, you may not reproduce, transmit, transcribe, store in a retrieval system, or translate into any human or computer language any part of the material in any form or by any means whatsoever without the express written consent of PIE. Such consent may be requested by contacting John Eubank at insspeak1@bellsouth.net. TRADEMARKS The trademarks, logos, service marks, graphics, and trade dress displayed are the intellectual property of PIE and other applicable parties that have licensed their property and/or material to PIE. You should assume that any product or service name is a registered mark, trademark, or service mark and the intellectual property of PIE or a third party. You are prohibited from using any of these trademarks or service marks for any purpose, including but not limited to use as metatags on other pages or sites on the World Wide Web, without the express written permission of PIE or such third parties. If PIE grants such written permission, you may not use the trademarks and service marks in any manner that (i) is likely to cause confusion among customers or the public, or (ii) disparages or discredits PIE. This content Includes Copyrighted Material of Insurance Services Office, Inc. With Its Permission. Copyright Insurance Services Office. 20 ". DISCLAIMER This material has been designed for use in training programs for insurance industry personnel throughout the United States. It is not intended to be used as a complete reference resource on the programs and coverages outlined herein. Unless indicated otherwise, the coverage discussion herein are based on various editions of "ISO standard" policy forms. Programs, coverages, rules, and coverage interpretations presented in this publication may be different from those used by individual insurance companies writing these programs. Contact individual companies for details about their interpretations of the programs outlined herein and/or their own proprietary programs and contracts. The opinions expressed in this document are just that. No warranties, express or implied, of any kind are made, intended or inferred. The information contained herein is not legal advice, nor should it be taken as such. When such legal issues arise, proper advice should be sought, where applicable and appropriate, from qualified legal counsel. INDEMNITY You agree to defend, indemnify, and hold harmless PIE and presenters, together with their respective employees, agents, directors, officers, and shareholders, from and against all the liabilities, claims, damages, and expenses (including reasonable attorney's fees and costs) arising out of your use of this material; your breach or alleged breach of this Agreement; or your breach or alleged breach of the copyright, trademark, proprietary, or other rights of PIE, presenters, or third parties.

3 John O. Eubank, CPCU, ARM is CEO and President of Professional Insurance Education, Inc. in Nashville, Tennessee. He was previously employed by the Insurance Services Office, Inc. and ISO Commercial Risk Services, Inc. as the Regional Operations Manager for the Southern Region. He left ISO in 1987 to form PIE, Inc. and since has logged gazillion miles in his insurancemanual-laden Cadillac. John Eubank John's professional affiliations include past Regional Vice President of the Society of Chartered Property & Casualty Underwriters (CPCU), PMLG of the Honorable Order of Blue Goose, International (HOBGI), member of the National Fire Protection Association (NFPA), and member of the Society of Fire Protection Engineers (SFPE). John is recognized as one of the nation's premier insurance education instructors, having served as a National Faculty member of the Society of Certified Insurance Counselors since 1976, and is a recipient of the Professional Leadership Scroll from the American Institute for Property & Liability Underwriters and the Insurance Institute of America. Since forming Professional Insurance Education, Inc. in 1987, he has served as a speaker and instructor for a wide variety of educational seminars for insurance associations in Alabama, California, Georgia, Illinois, Indiana, Kansas, Kentucky, Louisiana, Ohio, North & South Carolina, and Tennessee; Hoosier Ins. Co.; Society of CIC and the CPCU Society; National Association of Insurance Women (NAIW); and the North American Retail Dealers Association. John is available for association-sponsored and in-house training programs, though he is usually booked over a year in advance. He can be contacted at 408 Page Road, Nashville, TN 37205, , insspeak1@bellsouth.net.

4 The Big I Virtual University The Big I Virtual University (VU) is an online education, reference, and research facility that is available for free to members of the Independent Insurance Agents & Brokers of America and on a subscription basis to others. This 4,000+ page resource includes a research library with articles, white papers, charts, checklists, policy form analysis, and other documents on insurance coverages, agency management, sales, customer service, and technology. Big I members can also access an Ask an Expert service to submit questions about insurance coverages or claims or agency management and technology issues to over 50 subject matter experts from across America. The service as responded to somewhere near 30,000 questions since its inception. The Virtual University (VU) also includes a selection of online courses, approved for CE in many states, as well as periodically offering national webinars by top industry educators. For information on online courses, go to and for information on webinars, visit the Education section at The VU publishes a bi-weekly award-winning newsletter that typically includes six or more articles on personal lines, commercial lines, agency management, sales, customer service, and technology. This newsletter is free you do not have to be a Big I member agency to subscribe and is distributed to more than 16,000 recipients in 70 countries around the world. For more information, go to or bill.wilson@iiaba.net.

5 Demystifying Business Income Coverage, Options, and Worksheets with John Eubank, CPCU, ARM and Bill Wilson, CPCU, ARM HISTORY 1986 until today: Business Income 1970 (?) 1986: Business Interruption 1940s 1970s: Time Element 1900s 1940s: U & O 18?? - Chomage Business Income is the most complicated and misunderstood form of Property and Casualty Insurance What really is it? 1. Loss of money that would have been earned if the property had not been damaged or destroyed, and/or 2. Spend extra money that would not have been spent had the property not been damaged AND 3. Loss must be attributed to a time lapse following a direct property loss 1

6 Estimated 40% of Insureds Don t Buy WHY? BI losses are intangible and difficult to conceptualize. Difficult to foresee losses and predict loss amounts. Projecting BI losses involves some educated guesswork. Insureds (not to mention many agents) don't understand it or the forms. Financial data is required that many insureds don't want to release. It is time consuming to gather financial information and hard to calculate. Many businesses may not keep the proper financial records to accurately. Mortgagees, lenders and creditors usually don't require it. Business owner have limited financial resources. Remember the most difficult and misunderstood stuff? So, now that we have an idea of why many businesses don't buy the coverage, what can we do to convince them that they SHOULD buy it? After a loss... What will your most valued EMPLOYEE think? What will your most important SUPPLIER think? What will your BANKER think? What will your foremost COMPETITOR think? What will your FAMILY think? What will YOU think? Unfortunately... 43% of businesses that experience a serious loss never reopen...28% of those that do, close within 3 years. Those are your clients! Hate to bring up E & O, but.. Simplified" Forms 1986 Revised Business Income Forms EFFECTIVE IN MOST STATES April 1, 2013 We will review the 2012 form. Any major differences between it and the 2007 form will be discussed 2

7 Another Prophetic Statement BUSINESS INCOME INSURANCE IS UNIQUE IN THAT THE LANGUAGE OF THE FORM USED TO WRITE IT PLAYS A MAJOR ROLE IN DETERMINING JUST HOW MUCH INSURANCE THE INSURED NEEDS TO BUY. UNLESS YOU THE AGENT UNDERSTAND THE FORMS CHOOSING THE CORRECT AMOUNT OF INSURANCE BECOMES AN ALMOST IMPOSSIBLE TASK FOR THE INSURED. Coverage/Definition of BI A. Coverage 1. Business Income Business Income means the: a. Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred; and b. Continuing normal operating expenses incurred, including payroll. For manufacturing risks, Net Income includes the net sales value of production. The Key To Coverage We will pay for the actual loss of Business Income you sustain due to the necessary "suspension" of your "operations" during the period of restoration". 3

8 Definitions 6. "Suspension" means: a. The slowdown or cessation of your business activities; or b. That a part or all of the described premises is rendered untenantable, if coverage for Business Income Including "Rental Value" or "Rental Value" applies. Definition 5. "Rental Value" means Business Income that consists of: a. Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred as rental income from tenant occupancy of the premises described in the Declarations as furnished and equipped by you, including fair rental value of any portion of the described premises which is occupied by you; and b. Continuing normal operating expenses incurred in connection with that premises, including: (1) Payroll; and (2) The amount of charges which are the legal obligation of the tenant(s) but would otherwise be your obligations. Definition 2. "Operations" means: a. Your business activities occurring at the described premises; and b. The tenantability of the described premises, if coverage for Business Income Including "Rental Value" or "Rental Value" applies. 4

9 Definition 3. "Period of restoration" means the period of time that: a. Begins: (1)72 hours after the time of direct physical loss or damage for Business Income Coverage; or (2) Immediately after the time of direct physical loss or damage for Extra Expense Coverage; caused by or resulting from any Covered Cause of Loss at the described premises; and 72 Hours 1995 ISO introduced a 72-hour waiting period There were two endorsements to buy back the 72 hours CP to buy back 48 of the 72 hours and; CP to buy back all of the 72 hours CP was withdrawn in the 2007 revisions, and CP was revised. POR Definition (Cont d) b.ends on the earlier of: (1) The date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality; or (2) The date when business is resumed at a new permanent location. 5

10 POR Definition (Cont d) "Period of restoration" does not include any increased period required due to the enforcement of or compliance with any ordinance or law that: (1)Regulates the construction, use or repair, or requires the tearing down, of any property; or (2)Requires any insured or others to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of "pollutants". The expiration date of this policy will not cut short the "period of restoration". And Don t Overlook The Last Sentence It might establish the policy limits! Note there is no coverage for the delay due to enforcement of any ordinance or law. This coverage should added by CP Also there is no coverage for pollutant clean up, and NO way to buy this coverage. Another Definition 4."Pollutants" means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed. 6

11 Back To The Coverage Grant The "suspension" must be caused by direct physical loss of or damage to property at premises which are described in the Declarations and for which a Business Income Limit of Insurance is shown in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss. With respect to loss of or damage to personal property in the open or personal property in a vehicle, the described premises include the area within 100 feet of such premises. Covered Cause of Loss Suspension must be from a Covered Cause of Loss. NO Flood or Earthquake coverage then NO Business Income/Extra Expense! Damage must be at the described premises, or to personal property within 100 feet of the described premises, or in a vehicle. (doesn t say it has to be insured property or that the insured owns the vehicle). What If The Insured Is A Tenant Form--- With respect to the requirements set forth in the preceding paragraph, if you occupy only part of the site at which the described premises are located, your premises means: (a) The portion of the building which you rent, lease or occupy; and (b) Any area within the building or on the site at which the described premises are located, if that area services, or is used to gain access to, the described premises. 7

12 What if the insured is a tenant? Form--- With respect to the requirements set forth in the preceding paragraph, if you occupy only part of a building, your premises means: (a) The portion of the building which you rent, lease or occupy; (b) The area within 100 feet of the building or within 100 feet of the premises described in the Declarations, whichever distance is greater (with respect to loss of or damage to personal property in the open or personal property in a vehicle); and (c) Any area within the building or at the described premises, if that area services, or is used to gain access to, the portion of the building which you rent, lease or occupy. Extra Expense 2. Extra Expense a. Extra Expense Coverage is provided at the premises described in the Declarations only if the Declarations show that Business Income Coverage applies at that premises. b. Extra Expense means necessary expenses you incur during the "period of restoration" that you would not have incurred if there had been no direct physical loss or damage to property caused by or resulting from a Covered Cause of Loss. We will pay Extra Expense (other than the expense to repair or replace property) to: (1) Avoid or minimize the "suspension" of business and to continue operations at the described premises or at replacement premises or temporary locations, including relocation expenses and costs to equip and operate the replacement location or temporary location. (2) Minimize the "suspension" of business if you cannot continue "operations". We will also pay Extra Expense to repair or replace property, but only to the extent it reduces the amount of loss that otherwise would have been payable under this Coverage Form. Additional Limitation-Interruption of Computer Operations There is no coverage for business income or extra expenses related to the destruction or corruption of electronic data. There is an exception under Additional Coverage Interruption of Computer Operations. The form provisions describe electronic data. Electronic data that is an integral part of the building heating, ventilating, air conditioning, elevator, lighting, or security systems is not subject to this limitation, or in other words it is fully covered. (10 12 change) 8

13 Additional Coverages-This coverage form has four additional coverages: a. Civil Authority If a covered cause of loss damages premises other than the named insured's to an extent that the civil authority restricts access to the insured premises. Coverage applies for up to four consecutive weeks. Business income coverage begins 72 hours after the restriction begins, but extra expense is not subject to a waiting period and ends after four weeks or when the civil authority business income coverage ends, whichever is later. It only applies for up to one mile from the damaged property. The one mile may not be sufficient under certain conditions. You could use CP Civil Authority Changes to increase the distance past one mile. 2 nd Additional Coverage b. Alterations and New Buildings CP gives the named insured some automatic business income coverage for new buildings. It also extends coverage for damage to alterations and additions to existing buildings. The named insured can collect income it would have earned from the time the new structure would have been ready if the covered loss or damage did not occur. Coverage also extends to time lost due to damage to or destruction of construction equipment or building materials within 100 feet of the premises. Coverage also applies if extra expenses are incurred because occupancy is delayed. 3 rd Additional Coverage c. Extended Business Income (1) Business income generally does not usually return to its preloss level when repairs are complete and business operations resume. It usually takes some time to attract new tenants, regain lost clients, or return to the previous level of manufacturing output. This additional coverage provides an extra 60 days (was 30 days prior to forms) to cover income lost during the time between resuming operations and reaching the previous level of income. However, there is no coverage for any reduction in income that unfavorable business conditions cause. There is an option for additional time (up to almost 2 years) for an additional premium charge. (2) If the loss involves rental value, coverage begins on the date repairs are complete and ends after 60 days or when the tenant actually moves in, whichever is first. Again, coverage does not apply if the lack of rental income is due to poor business conditions caused by the same cause of loss. 9

14 4 th Additional Coverage d. Interruption of Computer Operations This additional coverage provides $2,500 unless there is a higher limit on the declarations. This coverage does not extend to electronic data that is an integral part of the building's heating, ventilation, etc. because it is not subject to the Additional Limitations. (10 12 addition) The $2,500 limit of insurance is an annual aggregate. This additional coverage ends when the period of restoration ends Coverage Extension This coverage extension applies if the BI coverage is written at 50% or higher. It automatically covers business income and extra expense at newly acquired locations. The $100,000 limit per location applies to covered property at all newly acquired locations for up to 30 days. Coverage does not apply to property at fairs or exhibitions. Premium for the new acquisition is calculated as of the date the property is acquired. This limit can be increased. (10 12 addition) Coinsurance does not apply to this coverage extension. LIMITS OF INSURANCE The most the insurance company pays for a single occurrence is the limit on the declarations. Extra expense coverage, alterations and new buildings, civil authority, and extended business income additional coverages are all part of the business income limit on the declarations and do not increase that limit. The Coverage Extension-Newly Acquired Locations and Additional Coverage-Interruption of Computer Operations have their own limits. These limits apply in place of the business income limit. 10

15 Loss Conditions These are the duties the named insured and the insurance company owe to one another. The company can void coverage if the named insured does not honor its duties. The insurance company can be sued if it breaches the contract. These are very similar to other property, and will be only briefly reviewed. 1. Appraisal If the named insured and the insurance company disagree on the amount of a claim, either can make a written demand for an independent appraisal. 2. Duties in the Event of Loss a. Notify the police if it is possible that a law may have been broken. b. Promptly notify the insurance company of the loss c. Take all reasonable steps to protect damaged covered property from further loss d. Give the insurance company permission to inspect the damaged property e. Send a signed and sworn proof of loss f. Cooperate with the insurance company g. Resume operations as soon as possible if it plans to remain in business. 3. Insured may be examined under oath Loss Determination Remember this prophetic statement? BUSINESS INCOME INSURANCE IS UNIQUE IN THAT THE LANGUAGE OF THE FORM USED TO WRITE IT PLAYS A MAJOR ROLE IN DETERMINING JUST HOW MUCH INSURANCE THE INSURED NEEDS TO BUY. UNLESS YOU UNDERSTAND THE FORMS CHOOSING THE CORRECT AMOUNT OF INSURANCE BECOMES AN ALMOST IMPOSSIBLE TASK FOR THE INSURED. This section may help determine the correct limit and is broken into four parts: The four parts are a. The amount of Business Income loss will be determined based on: (1) The Net Income of the business before the direct physical loss or damage occurred; (2) The likely Net Income of the business if no physical loss or damage had occurred, but not including any Net Income that would likely have been earned as a result of an increase in the volume of business due to favorable business conditions (3) The operating expenses, including payroll expenses, necessary to resume "operations" with the same quality of service that existed just before the direct physical loss or damage; and (4) Other relevant sources of information, including: (a) Your financial records and accounting procedures; (b) Bills, invoices and other vouchers; and (c) Deeds, liens or contracts. 11

16 Extra Expense The extra expense loss amount is based on the following: Expenses the named insured incurs that are more than normal operating expenses. And any other expense that is both necessary and that reduces the business income loss Loss Conditions (Cont d) Resumption Of Operations We will reduce the amount of your: (1) Business Income loss, other than Extra Expense, to the extent you can resume your "operations", in whole or in part, by using damaged or undamaged property (including merchandise or stock) at the described premises or elsewhere. (2) Extra Expense loss to the extent you can return "operations to normal and discontinue such Extra Expense. If you do not resume "operations", or do not resume "operations" as quickly as possible, we will pay based on the length of time it would have taken to resume "operations" as quickly as possible. This usually isn t the way it works. 4. Loss Payment We will pay for covered loss within 30 days after we receive the sworn proof of loss, if you have complied with all of the terms of this Coverage Part, and: We have reached agreement with you on the amount of loss; or An appraisal award has been made. 12

17 Additional Condition - Coinsurance Just like direct damage coverage coinsurance is a rating credit in the premium calculation that the named insured receives in exchange for its promise to maintain a certain limit. It is also the penalty applied if the named insured does not maintain the required limit. The penalty is applied the same as direct damage---the old did/should X loss = Payment. Coinsurance is more difficult to apply to business income losses. This is because it is based on the future income, and time to restore operations. The coinsurance percentages available are 50%, 60%, 70%, 80%, 90%, 100%, or 125%. Coinsurance does not apply to extra expense. Extra expense losses are not reduced because of any coinsurance penalty. Optional Coverages If shown as applicable in the Declarations, the following Optional Coverages apply separately to each item. The Additional Condition, Coinsurance, does not apply or is suspended at the described premises to which this Optional Coverage applies. Maximum Period Of Indemnity The most we will pay for the total of Business Income loss and Extra Expense is the lesser of: (1) The amount of loss sustained and expenses incurred during the 120 days immediately following the beginning of the "period of restoration"; or (2) The Limit of Insurance shown in the Declarations 13

18 Monthly Limit of Liability Recovery is limited to a specified fraction of the Limit of Insurance for each 30-day Period of Time Fractions are 1/3, 1/4, 1/6 YOU DON'T GET COVERAGE EXTENSION BECAUSE NO COINSURANCE This would NOT be a good idea for properties with wide seasonal fluctuations. From time to time some people have said that the 3, 4 or 6 limits the recovery to a maximum of 3 months, 4 months or 6 months. Due to the controversy I contacted ISO with the question and this is their answer. No, the fraction does not limit the period of indemnity. Business Income Agreed Value This option allows the named insured to benefit from the coinsurance credit applied to the rating without being concerned about incurring a corresponding coinsurance penalty. The named insured completes and signs a business income worksheet CP and submits it to the insurance company. The company's underwriter reviews the worksheet and agrees to accept the values and calculations. Any loss that occurs during the policy year is adjusted without regard to the coinsurance condition. However, the agreed value clause lapses and the coinsurance condition reinstates if a new worksheet is not provided every 12 months or any other required time period. Rating factor is 1.1 Extended Period of Indemnity This optional coverage amends Extended Business Income in the 2012 form. It changes the 60 days after business operations resume to the number of days entered on the declarations. The insured does not get the 60 days, plus those in the declarations. It may be used for businesses that may continue to experience a continuing loss as they work toward rebuilding their clientele and contract bases. 14

19 Special Exclusions in Cause of Loss Form Applicable to BI/EE Since the loss that triggers Business Income or Extra Expense must result from a covered cause of loss, all the provisions and exclusions in the Basic, Broad or Special forms apply. In addition there are Special Exclusions that are identical in the three cause of loss forms that also apply. Special Exclusions We will not pay for: (1) Any loss caused by or resulting from: (a) Damage or destruction of "finished stock" or (b) The time required to reproduce "finished stock". This exclusion does not apply to Extra Expense. Use CP Manufacturers Selling Price (2) Any loss caused by or resulting from direct physical loss or damage to radio or television antennas (including satellite dishes) and their lead-in wiring, masts or towers. Use CP Radio or Television Antennas Business Income or Extra Expense Special Exclusions (Cont d) (3) Any increase of loss caused by or resulting from: (a) Delay in rebuilding, repairing or replacing the property or resuming "operations", due to interference at the location of the rebuilding, repair or replacement by strikers or other persons; or (b) Suspension, lapse or cancellation of any license, lease or contract. But if the suspension, lapse or cancellation is directly caused by the "suspension" of "operations", we will cover such loss that affects your Business Income during the "period of restoration" and any extension of the "period of restoration" in accordance with the terms of the Extended Business Income Additional Coverage and the Extended Period Of Indemnity Optional Coverage or any variation of these. (4) Any Extra Expense caused by or resulting from suspension, lapse or cancellation of any license, lease or contract beyond the "period of restoration. (5) Any other consequential loss. No endorsement to buy back exclusions 3, 4 & 5 15

20 Now the confusing exclusion same in the 2007 & 2012 Editions e. Utility Services The failure of power, communication, water or other utility service supplied to the described premises, however caused, if the failure: (1) Originates away from the described premises; or (2) Originates at the described premises, but only if such failure involves equipment used to supply the utility service to the described premises from a source away from the described premises. Failure of any utility service includes lack of sufficient capacity and reduction in supply. Loss or damage caused by a surge of power is also excluded, if the surge would not have occurred but for an event causing a failure of power. But if the failure or surge of power, or the failure of communication, water or other utility service, results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss. Communication services include but are not limited to service relating to Internet access or access to any electronic, cellular or satellite network. Endorsement Offer CP Be sure to use the 2007 endorsement only with the 2007 or 2012 coverage forms!!!!!!!!!! CP This endorsement provides coverage for the loss of business income or extra expense caused by interruption of service to the described premises resulting from physical loss or damage to a property off premises that supplies power, water or communications to the insured premises ISO revised Utility Service Time Element endorsement CP to add a new category of utility service: wastewater removal property. With respect to the coverage provided under this endorsement, wastewater removal property is a utility system for removing wastewater and sewage from the described premises, other than a system designed primarily for draining storm water. The utility property includes sewer mains, pumping stations and similar equipment for moving the effluent to a holding, treatment or disposal facility, and includes such facilities. Coverage does not apply to interruption in wastewater removal service caused by a discharge of water or sewage due to heavy rainfall or flooding. 16

21 Trivia Question As we have gone thru CP I have highlighted in red the statement in the form at the described premises How many times was it? a) 10 b) 25 c) 18 d) Answer Think it is REALLY important to accurately describe the premises? There are two fields of thought if it is a tenant! My Opinion I think the 2012 form makes it very clear.. With respect to the requirements set forth in the preceding paragraph, if you occupy only part of a building, your premises means: (a) The portion of the building which you rent, lease or occupy; (b) The area within 100 feet of the building or within 100 feet of the premises described in the Declarations, whichever distance is greater (with respect to loss of or damage to personal property in the open or personal property in a vehicle); and (c) Any area within the building or at the described premises, if that area services, or is used to gain access to, the portion of the building which you rent, lease or occupy. 17

22 Other Forms/Endorsements 1. The leasehold interest coverage form CP covers a loss suffered by a building tenant when a premises lease that has very favorable rental rates is canceled as a result of damage to the premises from a covered cause of loss, and the insured must therefore lease replacement premises at significantly greater expense. Picture the World Trade Center disaster. Other Forms/Endorsements 2. CP Business Income Landlord As Additional Insured (Rental Value) ISO introduced in 2007 a new optional endorsement providing coverage for loss of rental income for a landlord (the Additional Insured) under a tenant's policy. This broadens coverage under a policy to which it is attached. This coverage option addresses the situation where a tenant's lease requires the tenant to provide insurance for loss of rental value for the benefit of the landlord. ISO Rule 51. M. Applies. Other Endorsements CP Discretionary Payroll Expense. The Loss Determination Clause contained in the Business Income Coverage Forms CP and CP states that the amount of Business Income loss will be based in part upon "the operating expenses, including payroll expenses, necessary to resume 'operations' with the same quality of service that existed just before the direct physical loss or damage". There is also CP Ordinary Payroll Limitation or Exclusion. 18

23 Other Endorsements CP Business Income From Dependent Properties Broad Form CP Business Income From Dependent Properties Limited Form This endorsement provides coverage under either of the business income coverage forms for a covered loss that occurs at a listed dependent property that suspends operations at the insured's location. This includes specifically listed or described contributing, recipient, manufacturing and leader locations. Very important that you ask your insured IF they are dependent on any one else. You will be surprised! CP uses the same policy limit, while CP allows for a limit different from the policy limit. The coverage provided in CP and CP is identical. A 2012 Change In the dependent property endorsements, ISO is adding an option for covering certain secondary dependencies. An example of a secondary dependency is the scenario in which the insured's supplier (a dependent property identified in the Schedule of the current endorsement) is unable to deliver products/services due to interruption in the business of an entity (for example, a manufacturer) upon which the supplier depends. Endorsement CP Ordinance or Law Increased Period of Restoration This endorsement extends coverage to include the amount of actual or necessary loss sustained by the insured during the increased period of suspension of operations caused by or resulting from the enforcement of any law or ordinance regulating the construction or repair of covered property. It also redefines the period of restoration to recognize the enforcement of such laws or ordinances. These issues must be considered any time that CP Ordinance or Law Direct Damage Coverage is added to the policy. 19

24 New 2012 Endorsement CP Food Contamination (Business Income and Extra Expense) A new option to cover extra expenses and business income losses arising out of food contamination. Following are some noteworthy features of the new endorsement: Coverage is limited to loss of income due to closure of the business and to certain expenses. Liability for bodily injury is not covered. Covered expenses provided: Cost of cleaning equipment Cost of replacing food Medical testing and vaccination Advertising expense Separate limits of insurance apply to advertising expense and all other coverage under the endorsement. These limits apply on an annual aggregate basis. My Favorite CP Business Income Premium Adjustment The correct business income limit is difficult to estimate at the beginning of the policy year because it is based on projected business conditions. This endorsement allows the insured to use a higher limit based on more optimistic projections because the limit and premium charged are both adjusted at the coverage expiration date. If the business conditions projected are overly optimistic, the excess premium charged the insured is returned. The advantage of using this approach is that the insured only pays for the limit of insurance needed based on their actual sales. This is the BEST way to write Business Income! Last Big Deal CP Exclusion Of Loss Due To By-Products Of Production Or Processing Operations (Rental Properties) MANDATORY for Rental Property. This endorsement makes it explicit that there is no coverage for property damage or business interruption resulting from any substance released in the course of production or processing operations performed at the rental premises described in the Schedule. There is no rate modification for use of this endorsement. 20

25 The End 21