We have an interesting coverage situation: The insured is a production facility that was shut down for two months due to a covered loss. During that period of time, they continued to purchase and warehouse raw materials as their market is very competitive and they feared losing their suppliers should they discontinue regular purchases. Without access to their regular raw material suppliers, their production would have been severely restricted upon reopening. In fact, although they have a 60-day EPOI, when repairs were complete, they opened at full production and there was NO EPOI claim.

The insured did not have income from operations during this period and the carrier did not issue business income payments for some months after the end of the POR.

The coverage issue is that the financing cost, warehousing and transportation costs were paid after the end of the POR. The policy (CP0030) only provides coverage for Extra Expense incurred during the Period of Restoration. It is undisputed that these purchases prevented an estimated $2M loss of income claim during the EPOI.

It appears the insured did the correct thing to preserve their business and significantly reduced their business income claim, yet this appears to be excluded by the policy.

Your thoughts?

Maryland Subscriber

The extra expense portion of CP 00 30 provides coverage as follows:

b. The amount of Extra Expense will be determined based on:

(1) All expenses that exceed the normal operating expenses that would have been incurred by "operations" during the "period of restoration" if no direct physical loss or damage had occurred.

We will deduct from the total of such expenses:

(a) The salvage value that remains of any property bought for temporary use during the "period of restoration", once "operations" are resumed; and

(b) Any Extra Expense that is paid for by other insurance, except for insurance that is written subject to the same plan, terms, conditions and provisions as this insurance; and

(2) Necessary expenses that reduce the Business Income loss that otherwise would have been incurred.

From the information you provided, the financing cost, warehousing and transportation costs permitted the insured to continue their operations and reduce the amount of the loss that would have otherwise occurred. The policy does not state that the extra expense must be paid during the period of restoration, only that the expenses be incurred during that time period. Based on the information you've provided, these are valid extra expenses that should be covered by the policy.