Extra expenses pile up after business property damage
Coverage Q&A: The purpose of extra expense coverage is to minimize the suspension of the business and continue operations.
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Question: The insured has a loss of income with extra expense form. Their building was damaged so they rented a temporary location to continue operations until the original location is repaired. The policy identifies two types of extra expenses. One is any extra expense “other than the expense to replace property.” We refer to this as pure extra expense since there is no requirement that these expenses be limited to the extent they reduces the loss otherwise payable. The other coverage is for the extra expense to replace property, but that is limited to the extent it reduces the amount otherwise payable, i.e. the expenses must offset the BI claim.
Since the rental location is not a “replacement of property” but merely a temporary rental to continue operations, it is our position that this would fall under the pure extra expense portion and not be limited to the amount it reduces the loss otherwise payable. Please give us your opinion. Thank you.
— Michigan Subscriber
Answer: The purpose of extra expense coverage is to minimize the suspension of the business and continue operations. Since the insured rented the temporary location specifically to continue operations, we agree with you that this is indeed a pure extra expense.
Not so pretty: Beauty salon’s coverage shortfall
Question: We have a loss involving a beauty salon that purchased only $15,000 in coverage on a businessowners form, BP 00 02 01 97. The policy covers personal property as well as improvements and betterments. Therefore, they were very short of coverage for the personal property. We have established the cut off date for the necessary time to get back into business, and the insured and her attorney have submitted approximately $60,000.00 of repairs at the permanent location. Possibly, some of them are at a temporary location. Could you please comment as to whether or not this $60,000.00 would be covered under the extra expense portion of this policy?
— Kentucky Subscriber
Answer: The ISO businessowners form promises, in g.(1)(b)(ii), to pay for extra expenses incurred to avoid or minimize suspension and continue operations, including the cost to equip and operate the replacement or temporary location. The costs must have been incurred to avoid or minimize the suspension and continue operating. To repair or replace property at the permanent location, the form will pay extra expense “to the extent it reduces the amount of loss that otherwise would have been payable under” extra expense or business income (see g. (3) (a)). So, the portion of the $60,000 that was used to repair or replace property at the permanent location may be covered, but only to the extent that the amount of the loss that otherwise would have been payable is reduced. Also covered is the portion of the $60,000 in extra expense that was spent in order to avoid or minimize the period of suspension and continue operations at the temporary location.
Paying for temporary (in-home) office space
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 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.
Business owner burned by broken tanning beds
Question: The insured owns a tanning salon. He is insured on a standard commercial property form, with the CP 00 50 04 02, Extra Expense, endorsement. There is no business income endorsement.
Many of his customers pre-pay for a number of sessions, or have monthly fees directly taken from their credit cards.
He suffered a covered loss in which four out of the seven beds were rendered unfit for use. In order to keep his business alive (particularly in the light of many customers having pre-paid), he contracted with another tanning salon for his customers to use the other salon’s tanning beds. He paid the other salon $8 per person/per session, which is what his customers paid.
When he submitted this expense to the insurance carrier, however, the claim was denied. The adjuster stated this was a business income loss and not covered. May we have your opinion?
— Pennsylvania Subscriber
Answer: The extra expense coverage form states “extra expense” means “necessary expenses you incur during the ‘period of restoration’ that you would not have incurred if there had been no direct physical loss or damage to property.“ These extra expenses include those “to avoid or minimize the suspension of business and to continue ‘operations’ at the described premises, or at replacement premises or at temporary locations. “
Since the insured has, through contracting with another tanning salon to serve his customers, incurred expenses he would not otherwise have had, there is coverage. He has minimized the suspension of business through this arrangement. Further, the endorsement does not state the insured must own, rent, or lease the “replacement premises,” so the use of the other tanning salon becomes the insured’s business’s “temporary location.”
See also:
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