Our insured is an apartment complex. Each building is insured separately with separate business income coverage on each building.

The insured sustained a serious fire loss at one of the buildings that has an average 6 percent vacancy rate. The insured moved three of the tenants from that damaged building to another building in the complex that has a 22 percent average vacancy rate. The insurance company wants to discount the business income loss since the insured was able to accommodate the displaced tenants in one of the other separately insured buildings in the complex.

The insured argued that he is losing the opportunity to rent the units in the undamaged building, and I agree. My additional argument is that since each building is insured separately with separate business income limits, the insurance company should not be allowed to try to discount the business income loss to the damaged building. If the insured did not have enough business limits on the damaged building, the insurance company would not allow the insured to move some of his business income from the undamaged building to the damaged building, so the insurance company should not be allowed to reduce the business income loss by moving to this other undamaged building. Your thoughts?

Pennsylvania Subscriber

We agree with you. Since each building is insured separately, only the building that suffered the loss should be considered regarding that loss. If the tenants moved to another building not owned by the insured, that would not reduce the business income loss. Since each building is treated separately, that is essentially what happened, but the tenants moved to an unrelated building that also happens to be owned by the insured. If the complex were insured as one property, we do not think this argument could be made, but for the one particular building on its own business income policy, a loss of income occurred. The income of the property where the tenants moved may have increased, but because it is a separately insured building and that building's income is not reflected in the insured building's business income limit, the insurer should not reduce the business income loss.

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