I recently attended a seminar where I heard an instructor discussing business income coverage. She was talking about the need for a concrete company to add back coverage under the commercial property coverage form for the concrete trucks parked at the described premises at night. Her reasoning was that if the trucks were then damaged while at the described premises, business income coverage would be activated.

I specifically asked if she was saying that in order to activate business income coverage there must be damage to covered property from a covered cause of loss at the described premises. She said yes. I disagree. Please advise.     

Indiana Subscriber

Business income coverage is activated by direct physical loss of or damage to property, covered or not, by any covered cause of loss at the premises described in the Declarations. The damage must be such as to cause the insured's operations to be cut back or shut down for a time, or, in other words, be such as to cause "the necessary suspension of your operations during the period of restoration". Fire damage to a landlord's building that forces the tenant's retail shop into a temporary closure is an example that is often used to illustrate the principle.

The 2002 version of ISO's business income form CP 00 30 04 02 specifies that, when named insureds occupy only a portion of the site at which the described premises are located, the term your premises means "a. The portion of the building which you rent, lease or occupy; and b. Any area within the building on or in the site at which the described premises are located, if that area services, or is used to gain access to, the described premises."

Therefore, the damage to the landlord's building that forces the tenant's retail shop into a temporary closure must be within the shop itself, or an access or service area, in order to trigger the tenant's business income insurance. For example, if a fire destroys a stairway leading to the tenant's suite of offices, forcing the tenant to suspend its business, business income coverage would be triggered. However, if damage to the landlord's building is confined to areas that do not service (such as a an unused wash room) or provide access to (such as a little-used stairwell) the tenant's premises, business income coverage would not be triggered.

But perhaps the seminar leader was on another tangent. Damage to the insured's fleet of trucks could probably bring the operations of the insured to a halt for a time; but if the trucks are kept at a premises other than that described in the declarations, their damage would not bring on the business income coverage. Instead of "add(ing) back coverage under the commercial property form for the concrete trucks parked at the described premises" (not possible in any case since vehicles licensed for use on public roads are listed as property not covered by the commercial property form), perhaps the seminar leader was counseling a change in the operation of the business that would see the trucks stored at the same premises as the main plant so as to have business income coverage if the trucks are damaged or destroyed on that premises.

An alternative would be to blanket the property coverage over both premises, the plant operations and the truck storage site, but note that this process carries its own potential problems, such as making sure that the proper amount of coverage is scheduled, so the insured should be careful if this path is chosen. In any case, the loss of business income at the truck storage site is not the issue. It is loss of business income at the plant, the described premises, when the fleet is put out of commission at the storage site that is the concern and it must be clarified that the business income coverage form does not adequately address this problem.

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