November 2007, Volume 11
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131.9-4

BROCHURE: UNDERSTANDING TIME ELEMENT COVERAGE

(March 2007)

Can you afford to be closed for business and have your operations suspended while repairs to your building or personal property are being made after a loss? The answer for you as well as for most other businesses is probably a resounding "NO!" That is the reason the Insurance Services Office (ISO) developed the Business Income (And Extra Expense) Coverage Form. It provides coverage for loss of business income and extra expense at the premises listed and described on the declarations, if the loss to covered property is the direct result of the occurrence of a covered cause of loss in the causes of loss form attached and applying to the policy or coverage form.

Consult the policy for definitions and limitations. The terms of this brochure do not represent contract terms. The policy is subject to company underwriting practices.

COVERAGE

This coverage pays for the income you lose as a result of your building or personal property sustaining direct physical loss or damage by a covered cause of loss. It also pays the extra expenses you incur to continue operations at another location while your premises are being repaired or to reduce the business income loss at your location that results from the physical loss or damage to covered property there.

BUSINESS INCOME

Business income is your net income before income taxes, either a profit or a loss, that you would have earned, and continuing normal operating expenses you incur. It includes payroll. Net income also includes the net sales value of your production if you are a manufacturing risk. Coverage can apply to your business income including rental value, business income other than rental value or rental value alone.

EXTRA EXPENSE

Extra expense applies if a limit for business income is shown on the declarations. Extra expense is the necessary expenses you incur during the period of restoration that you would not incur if there were no direct physical loss or damage to covered property by a covered cause of loss. You make extra expense payments to either keep your business operating or to reduce the amount of time your operations are suspended.

DURATION OF BUSINESS INCOME COVERAGE

You are the most qualified party to evaluate and decide on the amount of time for which coverage is to apply, as well as the terms on which payments are to be made. Coverage is available for periods as short as three months or for as much as a full year and you choose the approach and length of time that best applies to your operations. However, always remember that your coverage ends when the limit you purchase is exhausted by loss payments or when your business operations return to normal, whichever occurs first.

COVERED CAUSES OF LOSS

Three causes of loss forms are available to you. The basic and broad forms list the causes of loss covered. The special form covers any cause of loss not excluded.

  • Causes of Loss–Basic Form includes fire, lightning, explosion, windstorm, hail, smoke, aircraft or vehicles, riot or civil commotion, sprinkler leakage, vandalism, sinkhole collapse and volcanic action.
  • Causes of Loss–Broad Form is an intermediate level form that includes breakage of glass, falling objects, weight of snow, ice or sleet and water damage in addition to the causes of loss included in the Causes of Loss–Basic Form.
  • Causes of Loss–Special Form provides coverage for any cause of loss not excluded or limited.

EXCLUSIONS

Exclusions are part of every insurance policy. You should always review them carefully and thoroughly because they can broaden, restrict or affect your coverage. Be aware of these exclusions before a loss occurs so you have time to purchase additional insurance or establish cash reserves to handle such losses.

ADDITIONAL LIMITATION–INTERRUPTION OF COMPUTER OPERATIONS

Be aware that business income coverage does not apply when a suspension of your operations is caused by destruction or corruption of, or loss or damage to, your electronic data. Extra expense coverage does not apply to any action you take to eliminate or minimize a suspension of operations caused by destruction or corruption of, or loss or damage to, your electronic data.

ADDITIONAL COVERAGES

The following additional coverages are included as described in the coverage form without an additional premium charge. Review each one to understand the coverage provided and the limitations or restrictions that apply. Note that payments made under these coverages are part of the limit of insurance, not in addition to it.

  • Civil Authority
  • Alterations and New Buildings
  • Extended Business Income
  • Interruption of Computer Operations

COVERAGE EXTENSION

New locations you acquire or build, excluding fairs and exhibitions, are automatically covered if your insurance coverage is written at 50% or higher coinsurance. The limit of insurance is $100,000 and the acquisition must be reported to the insurance company within 30 days after the date you acquire it or construction begins. Note that this limit of insurance is in addition to the limit of insurance, not part of it.

LIMITS OF INSURANCE

The most the insurance company pays you in any one occurrence is the limit shown on the declarations. Payments made to you under coverage for alterations and new buildings, civil authority, extra expense or extended business income are part of the limit of insurance and not in addition to it. However, the limit that applies for the coverage extension for your newly acquired locations is in addition to the limit of insurance.

LOSS CONDITIONS

These conditions explain the obligations you and the insurance company owe one another when a loss occurs.

  • The appraisal loss condition explains how you and the insurance company finally agree on the amount of net income and operating expense or the amount of loss in case both of you initially disagree.
  • The duties in the event of loss or damage condition explains what you must do after a loss in order to preserve property, save it from further damage, maintain coverage and resume all or part of your operations as soon as possible.
  • The loss payment condition explains to you how the insurance company handles and pays losses. It answers questions about the amount of business income loss, the amount of extra expense, your resumption of normal business operations and the consequences if you do not resume operations promptly or at all.
  • The loss payment condition also informs you that the insurance company must pay covered losses to you within 30 days after receiving a properly prepared and executed proof of loss from you, as long as you have met all other coverage terms.

ADDITIONAL CONDITION–COINSURANCE

The coinsurance condition explains how coinsurance works when your limit of insurance is inadequate, the way the penalty affects you and the operating expenses you can deduct in order to apply the coinsurance condition.

OPTIONAL COVERAGES

The following optional coverages are available to you if the appropriate entry is made on the declarations.

  • Maximum Period of Indemnity
  • Monthly Limit of Indemnity
  • Business Income Agreed Value
  • Extended Period of Indemnity

DEFINITIONS

Always thoroughly review all definitions in a policy or coverage form. Coverage can be broadened, restricted or affected in other ways by the definitions provided in this section.

ENDORSEMENTS

A number of optional endorsements are available that can be used to customize these basic coverage forms to meet the specific insurance needs of certain customers.

Note to subscribers: Please refer to PF&M Section 131.7-3, Time Element Coverage Endorsements Checklist, for a list of endorsements to consider.

REPRINT PERMISSION

PF&M subscribers in any manual or electronic form are permitted to reprint any portion of this brochure for their commercial insurance customers. Other uses require permission by The Rough Notes Company, Inc.