Business Income

The business income coverage form is part of the Commercial Property Program and is the most commonly used time element form. The common policy conditions, commercial property conditions and causes of loss forms described in the Features Common To Commercial Property Forms And the Property- Insurance for Buildings and Personal Property topics apply to this coverage.

WHAT IS COVERED
The business income coverage form indemnifies the insured for the actual loss of business income during the period of restoration, as defined below. In order for coverage to apply, the interruption of business must be caused by direct physical loss or damage by a covered peril or cause of loss to covered property at the location listed on the declarations or within 100 feet of it.

Period of Restoration
The period of restoration defines when coverage applies. It begins 72 hours after the direct physical loss or damage occurs and ends on the date the property is repaired so that normal business operations can resume. Coverage applies to the loss of business income during the period of restoration and includes certain defined supplemental benefits. It also offers a number of other specific optional benefits discussed below. The 72-hour waiting period acts in a way similar to a deductible. The waiting period does not apply to any extra expense coverage.

Business Income
Business income is the net profit or loss before income taxes that would have been earned or incurred, including continuing normal operating expenses, if no loss had occurred. Payroll is included but other charges and expenses that do not necessarily continue after a loss are not. It covers the loss of a landlord’s rents and also the rents a tenant must pay if a lease requires that rent payments continue even when the premises is untenantable due to a loss at the location. This measure of loss is discussed more fully later in this topic.

Coverage does not apply for loss for the entire period until the property is actually restored. It applies only for the amount of time the repairs should take. The insured may decide not to repair the damage or restore the property to the way it was before the loss. In any event, the liability of the insurance company ends when the business should resume operations if repaired with reasonable speed using materials of similar kind and quality.

The insurance company’s obligations end when the business is restored or should be restored, even if the insured needs additional time to restore its sales volume or production back to pre-loss levels.

There is no coverage for any continuing reduction in sales, loss of customers, good will, contracts or valuable employees. This is the case even if any of these cannot be recovered, except for the limited extended period of indemnity coverage specifically provided and explained below.

The measure of loss is the estimated future earnings beginning on the date of loss and ending on the date the damaged building, machinery or equipment is restored or should be restored. While past earnings of the business are used as guidance in determining the value of the loss, it is the value of the estimated future earnings that are covered.

The period of indemnity is not limited by the coverage expiration date. If the insured peril or covered cause of loss occurs while coverage is in force, the insured can collect for the length of time needed to repair the damage, even if it goes past the expiration date.

WHAT ELSE IS COVERED–ADDITIONAL COVERAGES
Extended Business Income
If the restoration period ends and business has not returned to the level that existed before the loss, coverage applies to the actual loss sustained during an additional period of up to 60 days. Coverage ends when business operations return to their pre-loss levels, after 60 days, or when the business income limit is used up whichever comes first. Other periods of indemnity for extended business income, up to 360 days, are available for an additional premium charge.

Extra Expense
Two business income forms are available. One is without extra expense and the other includes extra expense. When the without form is selected extra expense coverage applies for only those extra expenses the insured incurs to reduce the period of restoration, such as the extra costs to continue operations at either the insured location or another. It also covers other expenses incurred if business operations cannot continue. Extra expenses incurred to replace property and to restore information on valuable papers or records damaged in a covered loss are also covered. These expenses are included as part of the business income loss and are covered up to the limit of insurance.

The Business Income (And Extra Expense) Coverage Form includes extra expense coverage that is nearly identical to the extra expense coverage described below combined with business income. This form does not require that the extra expense reduce the business income loss.

Civil Authority
Even if the insured’s premises did not sustain direct loss or damage, direct physical damage by an insured peril or a covered cause of loss at another location may require civil authorities to deny access to the insured’s undamaged premises. The denied access lasts until repairs to the other location are completed or tests and investigations are finished. The other location must be within a mile of the covered location for this provision to apply. Coverage applies for loss of business income for up to four weeks after the date civil authorities deny access to the insured’s premises.

Alterations and New Buildings
Business income coverage pays for loss of business income resulting from direct physical loss or damage by a covered peril or cause of loss at the described premises to new buildings, whether complete or under construction, and alterations and renovations to existing buildings or structures. It also pays if loss of income occurs because of covered direct damage to supplies or building materials on or within 100 feet of the premises used in construction or alteration and incidental to the occupancy of the new building.

If direct loss by a covered peril or cause of loss delays the start of operations, the period of restoration begins on the date operations were scheduled to start if the loss had not occurred.

Interruption of Computer Operations
Coverage applies for business income and/or extra expense due to direct damage of computers resulting in an interruption. It is subject to different causes of loss and a $2,500 annual aggregate limit of insurance.

WHAT ELSE IS COVERED–EXTENSIONS
As an incentive for the insured to insure to value, the following extensions are provided if the policy is written at either 50% or higher coinsurance or on a reporting basis: