The owner of a car dealership was frustrated with their insurer due to a couple of incidents that occurred after an area snowstorm. The dealership's roof suffered storm damage but that didn't cause an issue. The dealership's problem was the snowstorm eliminated access to its location, so customer traffic ceased. Naturally, this significantly reduced car sales revenue. The dealership's insurer paid for the roof but rejected the income loss claim. The insurer's position was that the damaged roof did not interrupt the business so no direct damage contributed to the dealership's income loss. The dealership sued to recover its lost revenue.

Click here to see how a court viewed the insurance company's reasoning in denying the dealership's request to be reimbursed for the loss of sales due to a storm blocking customer access.

Commercial insurance policies offer a wide range of protection and many sources of loss are eligible for protection, including a reduction of business income. However, this is an important requirement. Business income losses must result from a tangible loss to covered property. Further, the tangible (also called a direct) loss must be a type that is eligible for coverage under the given policy.

Consider a company that loses income because an incident interrupts its operations. The business is insured under a Commercial Property Policy. Scenario A, the interruption is due to a fire. Scenario B, the interruption is due to the business getting bomb threats for more than a week. While both instances result in a measurable loss of business income due to temporary closure of business, one scenario won't be eligible to recover the financial loss.

Click here for an excerpt of wording on coverage found in the ISO Time Element Coverage Overview in PF&M.

Establishing that a business has lost significant income and that loss is tied directly to a covered physical loss is fairly straightforward. These losses are protected under Time Element Policies. It may seem that a given time element loss amount merely depends on determining daily sales and how long regular operations are affected. Time Element loss calculations take a bit more work and there are a variety of considerations.

For one thing, losses are usually based on a net loss that determines loss amounts by considering operation costs that don't continue during halted operations, such as utilities. Losses may have a greater level of contingency, caused by damage suffered by a supplier, may vary due to a business cycle, or have a greater affect because they occur during seasonal peaks.

Click here for to see different aspects of Time Element protection discussed under Gordis Property and Casualty found in Advantage Plus.

Time Element or business income coverage is at the heart of, literally, millions of discussions across our planet. The COVID 19 Pandemic has affected the insurance market as seriously as it has any facet of business. The primary requirement that business income loss be tied directly to a covered, physical loss first occurring has been established for many years. That fact is constantly being challenged in agencies, business premises, lobbies of insurance regulators and in the courts. The pandemic has raised the stakes so high for many businesses and their insurers. Due to various factors, untold numbers of businesses have had their operations severely curtailed or completed halted due to the pandemic and responses to control its spread. Besides the serious human toll, the disease has also been an economic catastrophe.

Regardless of policy language, many businessowners are arguing that the lack of coverage for closures runs in direct contrast to their protection expectations. A flood of litigation is in progress, including a secondary deluge of appeals after initial decisions. The pressure to find coverage sources is so great, regulators and legislators are taking action to create it, including rules requiring retroactive coverage.

While public relations, political, and legal battles over the issue are likely to continue for years, this situation is illustrative. It is an epic reminder of the importance in clearly communicating what polices are intended to cover.

Click here to see an article discussing various issues swirling around the pandemic. It's from the June 2020 issue of Rough Notes Magazine.