(June 2019)
The longer a business cannot serve its customers, the longer it takes to win them back (or find new ones). The business income coverage provided in Insurance Services Office (ISO) CP 00 30–Business Income (And Extra Expense) Coverage Form and CP 00 32–Business Income (Without Extra Expense) Coverage Form ends as soon as the period of restoration ends. However, the named insured’s need for income protection may not end. Additional Coverage–Extended Business Income recognizes this reality and extends business income coverage for an additional 60 days after the end of the period of restoration.
This coverage does not begin until the period of restoration ends. If repairs are delayed, this coverage does not fill that gap.
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Example: Mitch’s Furniture could have been rebuilt in four months, but an ordinance required that walls be moved, and access issues resolved. The construction takes five months. Business income coverage ends after four months. Mitch is responsible for the extra month. He resumes operations after a total of five months and his extended business income additional coverage begins. It is available for up to 60 days, until his business income limit of insurance for this occurrence is used up, or until his business recovers to its pre-loss condition, whichever comes first. |
In addition, there is no coverage for any reduction in business income that can be attributed to a negative business climate in the named insured’s local area related to the covered cause of loss.
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Example: Mitch’s Furniture opens for business but the apartments and homes in his area are not yet rebuilt. Because there are no customers, business does not resume at its former level. This type of business income reduction is not covered extended business income. |
If the loss involves rental value, coverage begins when the premises is considered available for occupancy. It ends when the level of rental value generated prior to the loss is met or after 60 days, whichever comes first. Again, there is no coverage for any reduction in business income that can be attributed to a negative business climate in the named insured’s local area related to the covered cause of loss.
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Example: Maple Development owns a multi-occupancy building in downtown Smalltown. A gas line explodes and damages four buildings, including Maple’s. It also destroys the street and sidewalks. Maple Development is repaired in three weeks and is ready for occupancy. However, none of the other previous tenants want to return and new tenants are not interested because a fiscal crisis in Smalltown delays repairs to the street and sidewalks. There is no coverage for this type of extended business income loss. |
There are times when the named insured needs more than 60 days of extended business income coverage. In these cases, it can purchase the Extended Period of Indemnity Optional Coverage included in CP 00 30–Business Income (and Extra Expense) Coverage Form and CP 00 32–Business Income (without Extra Expense) Coverage Forms. The only change is that the number of days entered under Extended Period of Indemnity on the declarations replaces the 60 days in Additional Coverage–Extended Business Income.
The Extended Period of Indemnity Optional Coverage can be used unless one of the following applies:
Coverage
The Extended Period Of Indemnity Optional Coverage replaces the 60-day limitation in Additional Coverage–Extended Business Income with 90, 120, 150, 180, 270, 365, 450, 540, 630, or 730 days. These are the only options available. Interpolation is not permitted.
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Example: Mandy owns and operates a breakfast and lunch restaurant in a downtown office building. She has a large customer base but knows they will go elsewhere if she is out of business for more than a few days. She purchases the 120-day extended period of indemnity to continue her business income after a loss. A serious fire loss closes her business for three months. Mandy's business income limit is $200,000. Her insurance company pays her loss as follows: |
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Time period |
Expected income |
Actual income |
Amount of loss |
Loss payment |
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01/01–03/31 |
$150,000 |
None |
$150,000 |
$150,000 |
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04/01–04/30 |
$50,000 |
$35,000 |
$15,000 |
$15,000 |
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05/01–05/31 |
$50,000 |
$55,000 |
None |
None |
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06/01–06/30 |
$50,000 |
$55,000 |
None |
None |
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07/01–07/31 |
$50,000 |
$45,000 |
$5,000 |
None |
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Mandy is paid for either 120 days, until the limit of insurance is used up by payments, or business activity and income returns to the level that existed before the loss, whichever occurs first. Since Mandy's operations returned to their pre-loss level in June, no additional payments are made, even though 30 days and $35,000 in limit still remain. |
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ISO rules provide a different factor for each of the optional number of days. The rate developed in the basic rating formula for business income coverage is multiplied by a factor based on the number of days selected. The surcharge factors range from 1.05 for the 90-day period to 1.55 for the 730-day period. The rules and factors are found in the ISO Commercial Lines Manual.
Related Article: Time Element Coverage Rating Considerations