Most commercial property coverage forms insure buildings and/or business personal property against direct physical loss or damage by a cause of loss. Direct physical loss is the damage actually done by the covered cause of loss and any other damage where a covered cause of loss is the proximate cause of the loss.

However, these forms provide no coverage for indirect or consequential losses which can result in significant coverage gaps. A fire that causes only minor physical damage at a dairy products manufacturer might also cause an indirect loss when the dairy must cease operations to repair and clean the operations, and then wait for the health authorities to inspect the premises and conduct the necessary tests before it can reopen. The commercial property coverage form does not cover the loss of income to the dairy products producer during the time the plant is closed.

When a newspaper's printing presses are damaged by fire the newspaper will incur significant extra expenses to continue printing the paper at another facility. The commercial property coverage form pays for the damage to the presses and building but not for those extra expenses. These are consequential or indirect losses specifically excluded under the direct damage commercial property coverage form.

Every business may find itself unable to operate for some period of time after a direct loss. There is a total or partial loss of business income or earnings when this occurs. The commercial property coverage form pays for the damage to real and personal property, including stock, but not for the interruption of operations and the consequential loss of income or extra expenses incurred to continue operations elsewhere.

The examples above may appear specialized, but almost all businesses will sustain a loss of income and added expenses in order to continue operations following a direct damage loss. Any time normal business operations are suspended, the business loses the profits it otherwise would have earned. A business will also be required to continue paying certain ongoing expenses such as taxes, interest on mortgages and other indebtedness, salaries of executives and employees under contract, maintenance expenses, rent, advertising fees, and minimum or fixed charges for services and utilities.

If a fire damages or destroys a building leased to others, the owner usually receives full reimbursement for the actual damages sustained from the commercial property coverage form. However, it loses the rental income from the building until it is restored to a tenantable condition.

The amount of loss caused by the interruption of the business is frequently much larger than the amount of direct damage to the real or personal property. A comparatively small fire can shut down a business for an extended period. In some cases, a fire that causes virtually no damage to the insured's property creates a bottleneck that brings operations to a complete halt.

In addition to the damage or destruction of physical property and the subsequent loss of income or earnings, the business's credit rating may be affected by an extended period of time with neither earnings nor income. Even businesses that operate with few, if any, credit requirements may be forced to borrow funds to continue operations and meet continuing expenses. Obtaining credit when a business is not operating is difficult, if not impossible.

The time element coverage forms were developed to fill these coverage gaps so that the business can remain viable throughout the downtime and can return to full operations after the building and personal property have been repaired. It is called time element because time is a major component of any loss settlement.

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.
Period of Restoration

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.