(June 2019)
The common understanding of business income coverage is that it provides the insured with the income lost while the damaged covered property is being repaired. It begins when the property is damaged and ends when the property is fixed. Unfortunately, as with most common understandings, an insured may be very surprised with the coverage gaps revealed when a loss actually occurs.
This analysis is based on the 09 17 edition of the endorsement. Changes from the previous edition are in bold print.
The definition of period
of restoration in CP 00 30–Business Income (and Extra Expense) Coverage Form,
CP 00 32–Business Income (without Extra Expense) Coverage Form, and CP 00
50–Extra Expense Coverage Form provide a time boundary for coverage. Under all
of these forms, coverage ends on either
the date when the property at the described premises SHOULD BE repaired,
rebuilt, or replaced, or when the business reopens at a new location. This
wording becomes even more problematic with the requirement that repairs,
rebuilding, or replacing must be accomplished at a reasonable pace and with materials
of similar quality.
A further limitation in the definition of the period of restoration is that if the period is extended because of a need to comply with ordinances or laws that regulate the construction, use, or repair of the building there is no coverage during that extended time. This applies even if the property must be torn down.
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Example: Muesling Medical Group occupies a 90-year-old building. Vandals start a fire that damages half of it. Muesling applies for a building permit and is informed that all hallways must be widened, and bathrooms brought up to current A.D.A. guidelines. There is coverage for the building upgrades thanks to CP 04 05–Ordinance or Law Coverage. However, Muesling is surprised when it learns that there is no coverage for the additional six weeks of lost income. |
CP 15 31–Ordinance or Law–Increased Period of Restoration can fill the ordinance or law gap in coverage within the definition of period of restoration.
A. When a physical damage loss that triggers the business income and/or extra expense coverage occurs this endorsement extends the period of restoration in the applicable time element coverage form. The extension applies to only that amount of time that is needed so that the minimum standards of a law or ordinance can be met.
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Example: Replicated, Inc. owns a three-story frame building in the town of Middlebury. A windstorm destroys the upper two stories, but the bottom floor can be salvaged. A Middlebury town ordinance requires that all buildings in the downtown area be built of at least masonry noncombustible construction. This means that Replicated must tear down the entire building based on the ordinance. Replicated, Inc. decides to rebuild the building with fire resistive material instead of the minimum required masonry noncombustible. The upgrade increases the building time by two weeks beyond the 2 months needed to simply upgrade to meet code. The additional two weeks of lost income is not covered because it exceeds the minimum standards. |
The extension is subject to all of the following:
1. The ordinance or law must regulate building construction,
building repair, building demolition or use/occupancy requirements.
2. The ordinances and laws being enforced must have been in place
at the time of the loss. If the Post-Law
Ordinance or Law Option in the endorsement schedule is marked yes, item 3.
below applies instead of this item.
3. The ordinances and laws being enforced must have been in place at
the time of the loss or be revised or added following the loss but prior to the
start of work on the building. The law or ordinance must require compliance in
order for a building permit or occupancy permit to be issued.
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Example: The Middlebury town council had been working on changing its construction requirements. Coincidently, just days after the Replicated loss the final version of the construction requirements were enacted. One of the changes was to change the minimum construction standard from masonry noncombustible to fire resistive. Due to this change, Replicated is covered for the added time needed to rebuild with fire resistive construction. |
It is not unusual for an insured to seek pollution coverage in every insurance coverage form or policy. The coverage this endorsement provides does not include any coverage for pollution, fungus, or mold, even if an ordinance or law requires cleaning up a contaminated or affected building. In addition, there is no coverage for the costs associated with any testing or response to pollutants at any site.
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Example: The Middlebury town ordinance requires that all buildings be tested to determine if lead or asbestos is present before they can be demolished. This endorsement does not cover the additional time for such testing. |
Fungus is defined. It is the same definition as the one used when the term fungus is used in other forms.
This endorsement is totally dependent on the coverage to which it is attached. It does not have a unique limit or time extension. This means that modifications to the basic coverage may be needed in order to utilize this endorsement effectively.
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Example: Replicated, Inc. has coverage with a $100,000 limit on a 1/6 monthly limitation form. When the loss occurs, Replicated cannot use the building for six months plus two more months because it must comply with the town ordinance. Even though it has coverage for the extended time period, Replicated uses its full limit in the first six months and there is nothing left to pay for the additional two months. |