We are going through a severe drought in Puerto Rico, and the insured is purchasing water at higher rates than he would have if he were to purchase it from the Puerto Rico Water and Sewer Authority.

The insured has a Commercial Package Policy, which includes ISO form CP 00 30 10 90, Business Income Coverage and Extra Expense, and CP 04 17 07 88, Off- Premises Power Failure Direct Damage. We find no drought exclusion under the causes of loss form, CP 10 30 10 90.

Is the extra expense incurred by the insured a covered extra expense loss?

Puerto Rico Subscriber

Extra expense coverage applies under CP 00 30 during the period of restoration when a suspension of business occurs. Extra expense is a necessary expense the insured would not have incurred but for the direct physical loss or damage to property caused by a covered cause of loss. Extra expense is paid to avoid or minimize the suspension of business and to continue operations, to minimize the suspension if the insured cannot continue operations, or to repair or replace property to the extent it reduces the amount of loss that otherwise would have been payable.

From what you describe, there has been no loss or damage to covered property, but an increase in the price of water due to the drought. This is not a situation that would trigger extra expense coverage. If the business did not experience direct physical loss or damage or a period of restoration, the extra expense coverage would not apply.

The CP 04 17 endorsement applies when covered property has been lost or damaged by the interruption of water supply services to the premises. The pumping station or water mains must experience direct physical loss or damage that caused the interruption. From what you describe, the service was not interrupted, the cost just increased.

The scenario is more the cost of doing business as opposed to an insurable situation.

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