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Texas Subscriber

The covered direct physical loss to the insured property is the trigger for business income coverage. In the CP 00 30 business income and extra expense form, the insurer promises to pay the net income that would have been earned and continuing normal operating expenses, including payroll.

There is no descriptive or restrictive language in the form detailing what "normal operating expenses" are comprised of. And, although the adjuster may think that this "operating expense" does not continue because there is nothing to manage, this is not necessarily the case. For example, when property is completely destroyed, then maintenance expense—money paid to an outside firm—for building and machinery might discontinue. However, these expenses might well continue if the property is only partially destroyed and if the insured is obligated by contract to continue payment.

The ongoing management fees may be viewed in the same light. If the management fee does not discontinue in event of a covered loss, it therefore is a part of the normal operating expense covered by business income.

The second part of the business income coverage is for extra expense. The CP 00 30 defines extra expense as "necessary expenses [the insured] incur[s] during the 'period of restoration' that [the insured] would not have incurred if there had been no direct physical loss or damage." Further, the extra expense must be for the purpose of avoiding or minimizing the suspension of business and allowing the insured to continue "operations" at the described premises.

The management company's function in this instance is to supervise the leased space construction; since the management company is presumably in a better position to expedite the restoration of the damaged building, the adjuster cannot arbitrarily disallow the fee. If the management company's intervention minimizes the suspension of business by making sure the premises are restored quickly to the preloss condition, then the fee is covered.

The adjuster's citing of exclusion 4.c.(2) is inappropriate, since this exclusion is prefaced by the language (under 4. special exclusions) that "the following provisions apply only to the specified coverage forms." Exclusion 4.c.(2) relates to the legal liability coverage form; specifically the insured's assumption of liability in a contract or agreement. The exclusion precludes coverage, for example, for a hold harmless agreement in which the insured assumes liability rightfully belonging to another. It is not applicable in this situation.