Circumstances dictate extended business income coverage
Coverage Q&A: Business income coverage is triggered when the insured's loss results in the necessary suspension of operations.
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Question: The insured is a Certified Public Accountant (CPA) whose office suffered minor direct physical damage from the impact of Hurricane Maria when water seeped thru the roof and ceiling.
The insured’s office also lost electrical power as a result of the hurricane impacting the island’s power generation, transmission and distribution lines. Fallowing the event and in just a couple of days, the CPA firm was able to resume operations with the use of generator, which provided 100% of their electrical needs. The insured’s policy does have the Utility Services — Time Element endorsement with the Power Supply coverage (CP 15 45 10 12).
See also: Hurricane Maria’s destruction in pictures
The insurance company is paying for the business income loss during the ‘period of restoration’ given the insured had to close their offices to commence recovery efforts. However, the insurance company is denying coverage during the extended period of restoration or immediately after they were able to resume operations citing that their business income loss was as a result of unfavorable business conditions caused by the impact of the Covered Cause of Loss in the area where the described premises are located. The insurance company investigation has revealed that the business income loss incurred during the extended period of restoration was directly correlated or attributable to individual and/or business clients of the CPA firm who quite simply did not contract the services of the insured because they were to busy attending to other subject matters such as disaster recovery efforts.
Please let us have your comments to this subject matter.
— Puerto Rico Subscriber
Answer: The extended business income coverage ends whichever date is earlier: the date the insured restored operations to the level that would generate the business income amount that would have existed if no direct physical loss or damage had occurred; or 60 consecutive days after the date of direct physical loss or damage.
Since the business operations were not yet restored to the level that would generate the business income amount that would have existed if no direct physical loss or damage had occurred, then the extended business income coverage would apply to this loss.
However, the insurance company is correct that the extended business income as a result of unfavorable business conditions excludes coverage for the extended business income due to the economic impact of the hurricane on the area of the insured’s premises. ISO added this provision in their 06 95 edition of CP 00 30. The coverage is not designed to help the insured to recover income lost due to externally poor economic conditions following their return to operations. If the insured’s ability to return to pre-loss income levels is stunted by the surrounding community’s economic condition, the extension does not apply. The loss of income attributable to the insured’s lack of customer base in the aftermath of Hurricane Irma does not qualify as a business income loss under the extended business income coverage extension.
Restaurant closed due to robbery
Question: Our insured owns a small restaurant that was robbed at 9:30 p.m. on a Saturday. Everyone was locked in a cooler by the robbers while they emptied the cash drawer and smashed the computer that operates the cash register and customer order system. Because the computer was down, the restaurant remained closed Saturday night and did not open again until its normal opening time of 11 a.m. Monday. The computer was fixed by this time. The insured carried an open perils business income coverage form (without extra expense) and the extended business income option. The insurance company paid the business income loss for the balance of Saturday night and Sunday, but refused to honor the extended business income option for the decrease in business the insured suffered during the week following the robbery. Business was down one-third that week.
The insurance company argues that the decrease in business during the week following the robbery was due to fear of bodily injury in the minds of potential patrons and was not caused by the time required to repair the physical damage to the computer. They maintain that the short-term closing was not long enough to cause the loss of customer base intended to be covered by the extended business income option. We feel that the extended business income coverage should apply.
— Ohio Subscriber
Answer: All of the elements required for a covered extended business income loss are present in your insured’s loss. Business was suspended because of direct physical loss or damage to the computer ordering system. The loss was covered by a covered cause of loss. The insurance company admitted this by paying the business income loss suffered from Saturday night until Monday morning. An additional loss of business income began on the date the property was repaired and operations were resumed and ended at the end of the week when the insured’s operations were restored to the condition that would have existed if no direct physical loss or damage occurred.
The insured does not have to establish the motives of the customers who stayed away from the restaurant because the policy does not require it. The insurance company’s presumption that customers stayed away out of fear of bodily harm is irrelevant, as is the presumption that the restaurant was not closed long enough to lose its customer base. All that is required is a covered loss and a decrease in business during the time period allowed by the policy. These conditions were met by your insured’s extended business income loss.
Dentist abandoned practice after fire
Question: Our insured had total loss fire and is insured under a businessowner’s policy. The insured is a dentist and determined that as of this loss, she would abandon this practice as she had other locations that were more productive.
Since there was a direct loss from a covered peril, but no period of restoration to speak of, will the insured recover any policy proceeds under business income coverage?
— Iowa Subscriber
Answer: In order for business income coverage to be triggered, the insured must suffer an actual loss of business income due to the necessary suspension of operations during the period of restoration. If the dentist is not continuing the business at that location, and it is not going to be repaired or replaced, you are correct that there is no period of restoration, and there is also no loss of income due to suspension of operations, so there would be no business income coverage.
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