(June 2019)
Each school has its own academic year. It expects to begin and end its academic term on specific dates and to operate during certain time frames. If it cannot open and begin instruction on the first day of the term, it loses its income for the entire term. In addition, it may incur a significant business income loss if there is any concern or “fear” that it may not open at the appointed time.
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Example: The Foxfire Academy school year begins in the last week of August. However, Foxfire cannot open until November because of a fire that occurred during the summer. Prospective students do not want to postpone their education by a complete semester and most transfer to different schools. Foxfire realizes that its only option is to close for the year and reopen the following August. |
The Insurance Services Office (ISO) recognized the unique loss situation that educational institutions face and developed CP 15 25–Business Income Changes–Educational Institutions. This endorsement has provisions to make four changes to the business income coverage form. Two of them are automatic and apply any time the endorsement is added. The other two are triggered and apply only if appropriate entries are made on the endorsement schedule.
The schedule identifies the insured premises or location and includes a description of each school term during any one-year period. For example, some schools have terms that include the entire period from August to May. Others treat each semester or quarter as a term. Each school defines “term” differently. The insured educational institution selects whether limited coverage applies and the length (expressed in months) of any recovery period extension for each listed premises or location.
3. The definition for period of restoration in the business income coverage form is replaced.
a. There is a 72-hour waiting period (or deductible) after a covered loss before business income coverage begins.
Extra expense coverage is not subject to the waiting period.
Note: Beginning extra expense coverage immediately makes sense because expenditures for extra expense usually mean that the named insured is trying to resume its usual operations as quickly as possible.
b. The end of the period of restoration is the important change. Coverage does not end until the day before the beginning of the next school term entered on the endorsement schedule. However, this applies only if the damage to the school has either been repaired or rebuilt or the school has moved and now conducts operations at a new location.
The period of restoration does not include any additional time needed because of the enforcement of or the compliance with laws or ordinances for either of the following:
The policy expiration date does not affect the period of restoration.
Note: The rest of the definition is unchanged. This means that coverage does not end simply because the repairs are complete. It means that coverage ends when the students return for the start of the new term.
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Example: Continuing the example above, Foxfire Academy runs from August through May and the business income coverage applies for the same period. If there is a covered loss, the period of restoration continues until the following August, even if repairs are completed in November. The business income loss is paid until the start of the next school term, provided the limits Foxfire purchased are adequate. |
The extended
business income additional coverage provided in the CP 00 30 and CP 00 32 is
designed to allow a business to catch up with business lost during their
downtime. Because schools don’t “gradually” increase students over the course
of the year, this extension must be replaced with something a little different.
It states that if the repairs or replacement to the damaged premises are not
completed more than 60 days prior to the start of the school term, the business
income loss will continue to be paid throughout that school term.
This is needed
because of fear. Parents want to lock the school of their choice into place
early on. If a school is not ready to open but promises they will be open, a
parent may shy away from signing their child up. If the building does open up
on time, parents are not prone to change plans that are set, and deposits made.
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Example: Millicent Day School sustained a covered loss in May and is on track to reopen in August. Everything is on schedule for all repairs to be complete by July 31. However, enrollment does not proceed as desired because some parents do not want to enroll their children in a school that only “promises” to be ready. As a result, enrollment is down almost 25% when the school does open on time. This extended business income coverage pays the difference in business income due to the enrollment shortfall until the end of the school term. |
This is an
optional coverage that allows the insured more options to tailor the policy to meet
its needs. The insured must indicate on the Schedule how many months are needed
after the period of restoration for the school to be back to full enrollment.
This replaces the Extended Business Income entirely. It does not have the less
than 60-day rule nor does it end at the end of the school term. The insured
chooses the number of months. It is important to note that payment is only made
if there continues to be a loss of income situation during the time period
selected.
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Example: Accolades College is a four-year institution. A tornado in April destroys most of the campus but the students complete their course work through correspondence and using computers. However, it takes a full year to repair and rebuild the campus. Most students transfer to other colleges in order to complete their degree work. When Accolades reopens, the freshman class is about the same size as those of previous years, but the upper classes are considerably smaller than before. This results in a significant business income loss and this trend continues for two more years. Accolades’ time element coverage includes a 24-month extension of the recovery period. As a result, Accolades continues to be paid for the loss of revenue from the upper-class students for 24 months or until the income loss ends, whichever occurs first. |
a. If the named insured selects Limited Coverage, a revised definition of operations reduces coverage. The new definition considers operations as only tuition, room and board, laboratory, and similar types of fees. Research grant activity, athletic events, bookstores, and other activities not directly related to tuition are not considered operations.
b. If business income coverage includes rental value, operations also means the tenancy of the school premises.
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Example: Perception College provides numerous services for its students. Dry cleaning, book sales, a movie theater, a bowling alley, and horseback riding are examples. However, none of these activities is provided if the students do not arrive. Perception does not want coverage for these services because it does not consider them to be profit centers. It chooses limited coverage instead and reduces the required limit of insurance. |