Question. We are hoping you can help us in interpreting some policy language. Our insured is a small manufacturer who leased premises that were destroyed in a fire. He is insured on a CP 00 10 04 02 with broad form coverage, with the CP 00 30 04 02 business income and extra expense coverage form attached.
He established a temporary office in his own home until he was able to find a suitable space elsewhere, which took about two months.
Unfortunately, he did not have adequate business personal property coverage.
Our questions are these:Is the expense incurred to move to and set up the temporary office covered? Also, can extra expense coverage be used to replace any of the business personal property; and, if so, is the coinsurance penalty applied to this?
— Michigan Subscriber
Answer. Any extra expense incurred “to avoid or minimize the suspension of business and to continue 'operations' at a temporary location, including costs to equip and operate the … temporary location” is covered.
The additional coverage for extra expense can indeed be used to replace business personal property, but only to the extent the amount spent reduces the amount that would otherwise be payable as business income. For example, if the insured spends $50,000 extra expense dollars to purchase office furniture because of a property insurance shortage, and is able to resume operations quickly, thereby reducing his business income loss by $25,000, he is entitled to $25,000, the amount of the reduced loss.
He can't claim the entire $50,000. To receive full payment would encourage underinsurance.
Coinsurance does not apply to additional coverages, which are extra expense, civil authority, alterations and new buildings, and extended business income.
Question. We are handling a claim for a golf course that suffered damage as a result of a recent storm.
The insured has CP 15 45 04 02, Utility Services – Time Element, and CP 04 17 04 02, Utility Services – Direct Damage. Both forms have Power Supply to Property marked on the schedule.
The insured lost power for seven days and suffered business income loss, which would appear to be covered subject to the period of restoration. The insured spent $3,000 to bring in water trucks to save the greens due to lack of power and also spent $2,260 for a generator to hook up to the golf course's irrigation system in an effort to save the greens.
Would either of these costs be considered extra expenses or something else and covered under either form?
— Florida Subscriber
Answer. Bringing in water trucks and buying a generator to hook up to the irrigation system would be considered extra expenses. The expenses would serve to minimize the suspension of operations and reduce the business income loss.
The loss should be covered with the CP 15 45 and CP 04 17 in place.
Analysis brought to you by the experts at FC&S Online, the unquestioned authority on insurance coverage interpretation and analysis for the P&C industry. To find out more—or to have YOUR coverage question answered—visit www.nationalunderwriter.com/FCS.
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