CP 15 45-Utility Services-Time Element

CP 15 45–UTILITY SERVICES–TIME ELEMENT

(June 2019)

 

tree limb and resulting hole 017

 

INTRODUCTION

Most businesses depend on utilities that provide water, electricity, heat, air conditioning, and communication services to conduct their operations. Many experience a major indirect loss of income or incur substantial extra expenses to continue operations in different ways or at other locations when any of these critical utility services is interrupted.

Many businesses incur extra expenses to resume operations quickly in an attempt to reduce the amount of their business income loss. They may change to an auxiliary power source or physically move to a temporary location to continue operations or provide services.

The Insurance Services Office (ISO) time element coverage forms do not insure these indirect (and often costly) exposures to loss when the interruption of power is due to a cause of loss that occurs off premises. However, coverage can be added by including CP 15 45–Utility Services–Time Element. It can apply to the Business Income Coverage Forms CP 00 30 or CP 00 32 or CP 00 50–Extra Expense Coverage Form.

Note: The separate utility exclusion in CP 10 10, CP 10 20 and CP 10 30 that that once applied to business income and extra expense utility services was eliminated in 06 07 and merged into the direct damage utility services exclusion. This exclusion eliminated all coverage for off premises utility failure. It also excludes coverage if power failure originates on premises but involves equipment the utility supplies. As a result, without this endorsement, if lightning damages a transformer a utility owns, there is no coverage for utility services, even if the transformer was on the insured’s premises.

This analysis is based on the 09 17 edition of the endorsement. Changes from the previous edition are in bold print.

SCHEDULE

This endorsement is very flexible and offers several options the named insured can select to cover the type or types of utility interruption coverage it desires. The options available are:

Communication Supply Property or Power Supply Property coverage requires that the named insured choose if it wants coverage for damage to overhead transmission lines. Downed power lines are frequently the reason for communications and power being interrupted. However, there is a significant premium charge to insure them.

The causes of loss that apply to this endorsement can differ from the causes of loss that apply to the basic time element coverage form. The named insured may decide that the basic causes of loss form is sufficient for this coverage even though the special causes of loss form applies to the basic time element coverage form.

Coverage applies only if there is a limit of insurance entered for the coverage selected and only at the scheduled location and building. This limit applies to each type of utility service and should be based on reasonable estimates of the length of time that a service interruption will result in lost income, extra expense, or both. Coinsurance does not apply to this coverage. As a result, the limit selected is not subject to a coinsurance penalty.

A business income waiting period must be entered for each scheduled premises. It can be 0, 12, 24, 48, 72, 96, 120, 144, or 168 hours and can vary by premises. If no entry is made, the waiting period is considered 0.

Note: Under prior editions, the coverage provided on this endorsement was subject to whatever waiting period was provided in the coverage form. In many cases this was not appropriate because for some businesses a utility service loss can be a very short term but extremely significant loss while others may have longer time frames.

A. Coverage

CP 15 45 extends the coverage the Business Income or Extra Expense Coverage forms provide to apply to interruption or suspension of operations at the covered premises due to interruption of a covered utility service to that premises. The interruption must result from direct physical loss or damage from a covered cause of loss on the endorsement schedule. As noted above, these causes of loss do not have to be the same causes of loss that apply to the time element coverage form that applies. The direct physical loss or damage must be to utility property located outside a covered building listed on the endorsement schedule.

 

Examples:

  • Priority Ducks schedules one location on CP 15 45 and selects Causes of Loss–Basic Form. The option selected is for Power Supply Property not including overhead transmission lines. Lightning strikes Priority’s building, resulting in a power outage. This endorsement does not apply because the property damaged is not the designated utility property located outside the covered building.
  • Priority Ducks asks for a review and second opinion on the cause of loss. It is determined that strong winds blew down power transmission lines and that caused the outage. However, CP 15 45 does not provide coverage because Priority did not purchase coverage to include overhead transmission lines.
  • Priority Ducks learns its lesson and beefs up its utility interruption coverage. It changes the covered causes of loss to Causes of Loss–Special Form. It adds Water Supply Property coverage. It also adds Communication Supply Property coverage including overhead transmission lines. It changes Power Supply Property coverage to also include overhead transmission lines. When a tornado damages the main water pumping station and blows down telephone and electrical transmission lines, Priority’s coverage applies to the resulting loss of income and extra expense to its location up to the limit of insurance.

B. Waiting Period

Whatever waiting period is stated on the schedule in this endorsement will begin when the interruption of services begins at the premises.

C. Duration of Coverage

The period of restoration wording does not apply to the coverage provided by this endorsement and is replaced by similar wording under the Duration of Coverage Section.

Loss that is sustained and expenses that are incurred in the following time period are covered:

The time period begins for business income at the expiration of the waiting period and for extra expense when the interruption occurs at the described premises.

Note: The loss does not begin until the premises has an interruption – not when the accident or whatever caused the interruption begins at the source of the utility. These may be the same or could be very different and it is important especially in the application of the waiting period.

 

Example: The main power plant was struck by fire and Marvin’s Fine Food loses power. Its backup generators immediately kick in such that Marvin’s does not lose power until six hours later. Marvin’s business income waiting period does not begin until the generator power ceases. The good news is that Marvin’s extra expense is immediate so the money he spends keeping the generator going would be paid.

 

The time period ends when the insured’s operations are resumed. This is at the earlier of the resumption by any means or by the resumption of operations with reasonable speed after the utility service has been restored.

The duration of the coverage time period is not impacted by the expiration date of the policy.

 

 

D. Exception

The coverage provided does not apply if the utility service interruption damages, destroys, or corrupts electronic data, as the basic coverage form defines it. Coverage for electronic data is available in Electronic Data Processing coverage forms or policies.

Related Articles:

AAIS Electronic Data Processing Equipment and Business Computer Forms

ISO Computer Systems Coverage Form

E. Utility Services  

This section of the endorsement lists and describes the eligible covered property for each utility service.

1. Water Supply Services

This means water mains and pumping stations that supply water to the covered premises.

2. Wastewater Removal Property

This is not a system whose primary function is to drain stormwater. It is utility property such as sewer mains, pumping stations, and other facilities that remove wastewater and sewage from the premises this endorsement lists and describes. This term includes any facility that holds, treats, or disposes of wastewater or sewage.

However, heavy rainfall or flooding may cause water or sewage discharge that results in service to the premises being interrupted. In that case, there is no coverage for that interruption.

3. Communication Supply Property

This is property that supplies communication services to the covered premises. Examples are telephone, radio, microwave, or television services. Communication (including fiber optic) transmission lines, coaxial cables, and microwave radio relays (excluding satellites) are also covered.

Overhead transmission lines are included only if checked as covered on the endorsement schedule.

4. Power Supply Property

This means property that supplies electricity, steam, or gas to the covered premises. It includes transformers, transmission lines, utility generating plants, substations, and switching stations but is not limited to just these.

Overhead transmission lines are included only if checked as covered on the endorsement schedule.

F. Transmission Lines

A line used to transmit communication service or power is a transmission line. When a term such as “distribution line” is used to describe a line, it is a transmission line according to this endorsement’s terms.

G. Coinsurance

The Coinsurance Additional Condition in the time element coverage form that applies does not apply to the coverage this endorsement provides.

H. Limit of Insurance

The limit of insurance on the endorsement schedule is the only limit that applies to the coverage this endorsement provides.

Note: The limit of insurance is part of (not an addition to) the limit of insurance the basic time element coverage form provides. It is a sub-limit within the total limit of insurance. As a result, a given business may have to determine if its overall business income limit is sufficient.

 

Example: Priority Ducks' business income coverage limit is $100,000. CP 15 45’s limit is $25,000. A major loss that results from a covered cause of loss includes an on-premises business income loss and an off-site utility services business income loss in addition to direct damage to the location. The claim investigation reveals that the total amount of business income loss to the location is $115,000. Priority is sure that this loss is fully covered because of the two limits of insurance. It is very unhappy when it learns that the $25,000 limit is part of the $100,000 business income limit, not in addition to it, and receives a check for only $100,000.

RATE AND PREMIUM CALCULATION

ISO publishes loss costs for water supply property, wastewater removal property, power supply property, and communications supply property coverage. It also publishes loss costs for overhead transmission lines. These loss costs apply to only public utilities. Each insurance company develops its own loss costs and rates when this coverage is written on private utility services property. All loss costs are multiplied by the specific insurance company’s loss cost multiplier and then multiplied by the business income waiting period factor to determine the final effective rate. The limit of insurance for the coverage options selected is multiplied by the final effective rate for the covered causes of loss and added together to arrive at the final premium for the endorsement.

Note: The 72-hour waiting period factor is 1.00. Lesser waiting time period factors are above 1.00 while waiting periods in excess of 72 hours are below the 1.00.