No wiggle room: Determining business income losses

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Question: Could you please provide various examples of the application of the loss determination clause for business income under (a)(2) of CP 0030 10 12?

If the examples are applicable to the hotel industry, that would be even better.   

— Puerto Rico Subscriber

Answer: Section a. (2) of the loss determination clause pays for what would have been regular income had the loss not happened. The confusing part is that it does not include income that would have been earned as an increase in business due to damage to other businesses.

For example, a tornado comes through an area and damages hotels on the beach severely, leaving The Oceanfront Hotel damaged but still usable. The Oceanfront Hotel would have received the guests from the other hotels due to the storm, which would have increased its revenue. However, the Oceanfront Hotel can only collect business income loss of its normal revenue, not the increased revenue it would have received from the other hotels.

In June, the Oceanfront Hotel normally brings in $300,000, and not all rooms are full, as other hotels have their share of guests. The tornado comes through, and The Oceanfront Hotel, being the only hotel open, would have had its revenues increase to $600,000 for June. But the business can only collect the loss income for $300,000 and not $600,000.

Business income coverage is for the insured’s normal standard of business, and not taking advantage of the misfortunes of others.

Total recoverable loss question

Question: We have an insured who has a covered loss at a franchise restaurant, which has closed its operation during the period of restoration.

The insured also has an identical restaurant a few blocks away.

We have determined that the restaurant that was affected by the loss has suffered a business income loss. However, the other restaurant’s business has picked up due to the closure of the original store.

Based on this information, has the insured sustained a total recoverable loss as a result of this loss? Can we take into consideration the increase of business at the other store? Does it matter if the stores are insured under the same or independent policies?

— Ohio Subscriber

Answer: It does make a difference if the stores are insured on the same policy or independent policies. If they are on the same policy, then the increase in business at the other store can be taken into consideration because business income is the net income that would have been earned but for the loss. So, if income from the other store is making up some of the difference, that would be factored in. This would not be the case on separate policies, though, because only the net income of the store insured on that policy would be considered.

See also:

• How to navigate a business income loss claim
• Will business income insurance cover these 7 losses?
• Most small business owners lack a disaster recovery plan