11. All ordinary payroll expenses or the amount of payroll expense excluded (if Form CP 15 10 is

attached)

The subject policy does not have form CP 15 10 attached. (Form CP 15 10, Payroll Limitation Or Exclusion, excludes or limits payroll coverage.) As such, our calculation deducted all ordinary payroll from the operating expenses. The carrier did not deduct any ordinary payroll, based on their interpretation that if the form CP 15 10 is not attached to the policy, payroll is not subject to deduction from the operating expenses.

In essence, they have interpreted the language as follows:

·If the form CP 15 10 is attached, all ordinary payroll or the amount excluded shall be deducted.

·If the form CP 15 10 is not attached, all ordinary payroll or the amount excluded shall not be deducted.

We firmly assert that this is an incorrect interpretation and goes against the intent of ISO when drafting the form.

The use of the word "or" is a specific separation of the two options.

Either all ordinary payroll expense shall be deducted or the amount of payroll expense excluded shall be deducted. The simple interpretation of the language in parentheses is that it pertains only to the second portion of this sentence regarding payroll excluded by the policy.

The CP 15 10 form excludes or limits ordinary payroll coverage. Therefore, its placement after "or the amount of payroll expense excluded" is clearly intended to apply only to amounts that are excluded by the form.

The carrier has taken a position that the item in parentheses—"if Form CP 15 10 is attached"—applies to the entire section 11, determining that if the form is not attached, no payroll shall be deducted.

This does not make sense based on the common interpretation of the language. If that was the intent of the writers, they would simply have written unless form CP 15 10 is attached, no payroll shall be deducted from the calculation or all ordinary payroll and/or the amount of payroll excluded by form CP 15 10 shall be deducted only if form CP 15 10 is attached.

This section is clearly intended to allow for a deduction of payroll from the calculation. The only differences is whether it is all or part. The form CP 15 10 may not exclude all payroll. Therefore, by applying only what the form excludes, the insured would be placed back in the position of deducting all payroll from the calculation.

Based on your review of the policy form, should all ordinary payroll be deducted from the "should have" calculation if CP 15 10 is not attached to the policy?

Michigan Subscriber

We agree with your assessment of the policy for the reasons you outline. The coinsurance portion of CP 00 30 04 02 clearly states that all ordinary payroll expense is to be deducted in determining operating expenses for the purpose of applying the coinsurance condition. Alternately, if CP 15 10 is attached, the amount deducted is the amount excluded on that form. Whether or not the endorsement is attached, something will be deducted. As you stated, the "or" is very important in that provision.

In determining operating expenses, ordinary payroll is included when determining the amount of business income. By applying CP 15 10, the insured controls what amount/period of time ordinary payroll is included in that calculation. So, when determining the amount to deduct for applying the coinsurance condition, it is either all ordinary payroll—the amount that is included in the unendorsed business income calculation—OR the amount that the insured chose to exclude.