INTRODUCTION

Typically, business income coverage reimburses the insured for income lost while repairing damaged covered property. The clock starts when the property is damaged and ends once repairs are complete. However, as with many common assumptions, an insured might be unexpectedly caught off guard by coverage gaps that become evident only after a loss.

This analysis uses the 09 17 edition of the endorsement. Changes from the previous edition are highlighted in bold print.

PERIOD OF RESTORATION DEFINED

The period of restoration in the flowing forms is defined by a time limit for coverage.

· CP 00 30–Business Income (and Extra Expense) Coverage Form

· CP 00 32–Business Income (without Extra Expense) Coverage Form

· CP 00 50–Extra Expense Coverage Form

In all of these forms, coverage ends either when the property at the specified premises should be repaired, rebuilt, or replaced, or when the business reopens at a new location. However, this becomes more complex when completion must occur within a reasonable time and using materials of similar quality.

Another limitation in the restoration period definition is that if it is extended to comply with ordinances or laws concerning the building's construction, use, or repair, there is no coverage during this extended period. This remains true even if demolition of the property becomes necessary.

Example: Marks Medical Group is located in a 90-year-old building. Vandals set a fire that damaged half of the structure. Marks Medical applies for a building permit and is informed that all hallways must be widened and the bathrooms updated to meet current Americans with Disabilities Act (ADA) standards.

Coverage for the building upgrades is provided under CP 04 05–Ordinance or Law Coverage. However, Marks Medical is surprised to discover there is no coverage for the six additional weeks of lost income.

CP 15 31–ORDINANCE OR LAW–INCREASED PERIOD OF RESTORATION

The CP 15 31 form is used to address the coverage gap within the period of restoration definition.

Period of Restoration

When a covered loss to a scheduled building triggers the business income and/or extra expense coverage, this endorsement extends the restoration period to comply with the applicable ordinance or law for the duration needed to meet the minimum standards of that law or ordinance.

Example: Replicated, Inc. owns a three-story frame building in Middlebury. A windstorm damages the top two floors, but the bottom floor can be salvaged. According to a Middlebury town ordinance, all downtown buildings must be constructed with at least non-combustible materials. As a result, Replicated must demolish the entire building.

Instead of just meeting the minimum requirements, Replicated chooses to rebuild using fire-resistant materials, adding two weeks to the construction timeline beyond the initial two months needed for compliance. The additional two weeks of lost income are not covered because they surpassed the minimum standards required by the ordinance.

The extension is subject to all the following:

1. The ordinance or law must regulate building construction, building repair, building demolition, or use/occupancy requirements.

2. The ordinances or laws enforced must have been in place at the time of the loss. If the endorsement schedule indicates yes for the Post-Law Ordinance or Law Option, then item 3. below is applicable in place of this item.

3. The ordinances or laws being enforced must have been in place at the time of the loss or revised or added after the loss but before work begins on the building. Additionally, the law or ordinance must require compliance for a building permit or occupancy permit to be granted.

Example: The Middlebury town council has been working on changing its construction requirements. Coincidentally, just days after the Replicated loss, the final version of these requirements was enacted. One key change was updating the minimum construction standard from masonry noncombustible to fire-resistant. As a result, Replicated is now covered for the additional time required to rebuild using fire-resistant materials.

It is common for insureds to seek pollution coverage in every insurance policy. The coverage provided by this endorsement does not include pollution, fungus, or mold, even if an ordinance or law requires cleaning up a contaminated or affected building. Additionally, there is no coverage for costs related to any testing or responding in any way to pollutants at any site.

Example: The Middlebury town ordinance requires testing all buildings for lead and asbestos prior to demolition. However, CP 15 31 will not cover the additional time needed to complete these tests.

Definition

A new definition for Fungus has been added. This includes any form of fungus, mold, or mildew, as well as any mycotoxins, spores, scents, or by-products produced or released by fungi.

OTHER CONSIDERATIONS

This endorsement depends entirely on the coverage it is attached to, as it lacks its own limit or time extension. This means that adjustments to the basic coverage might be needed to use this endorsement effectively.

Example: Replicated Inc. has Extended Business Income Coverage with a $100,000 limit on a 1/6 monthly limitation form. When the loss occurs, Replicated cannot use the building for six months, and they need an additional two months to comply with the town ordinance.

Although Replicate’s coverage includes an extended business income period of up to six months and covers the entire duration, it uses its full limit within the first six months, leaving no coverage for the subsequent two months.