Commercial Property
Business Income Coverage Forms
The Commercial Property policy covering buildings or personal property
insures against direct physical loss by a cause of loss stipulated in the
policy (fire, lightning, windstorm, etc.). Direct loss is understood to mean
not only the damage actually inflicted by the covered cause of loss, but
also any other damage of which a covered cause of loss is the
proximate cause. Thus, under a commercial property policy which
includes fire as a covered loss, an insured also is covered for loss
caused by water used to extinguish a blaze, or by smoke from the fire,
or any directly connected result of fire such as the collapse of a
structure, or destruction of property caused by efforts to fight the fire,
etc.
There is no coverage, however, under the policy for indirect or
consequential losses. Thus, a comparatively minor fire at a milk plant
might cause a complete cessation of operation while the health
authorities inspect the premises and make necessary tests. The loss of
income to the milk producer during the time the plant is closed is not
covered under the Commercial Property policy.
The zoning laws in a particular locality may forbid rebuilding a particular
structure except with approved, more expensive materials. If fire
destroyed a portion of the building, the owner might have to demolish the
rest of the property before rebuilding. The Commercial Property policy
will pay for the damage done by the fire but not for the portion of the
building that must be demolished as a consequence of the fire.
A newspaper whose presses were damaged by fire might go to great
extra expense to have the paper printed at some outside printing plant.
Its Commercial Property policy would reimburse the newspaper for the
damage to the presses and plant but not for the extra expense to which
it is put as a result of the fire. The types of loss outlined are all
consequential and indirect and, as such, are not covered under the
Commercial Property policy.
While the losses cited above are somewhat specialized, almost every
going business enterprise, after a serious loss at its premises, may find
itself unable to continue in operation and will suffer a total or partial loss
of earnings. The Commercial Property policy will pay for the damage to
the merchandise, equipment and fixtures, but not for the consequential
interruption of operations and the loss of earnings.
If, after a loss, a business enterprise is compelled to suspend or curtail
its activities, it may stand to lose a great deal more than the value of the
property which was destroyed or damaged. During the period of
suspension, the firm will lose not only the profits it would otherwise have
earned but will also have to meet certain continuing expenses such as
taxes, interest on mortgages and other indebtedness, salaries of
executives and employees under contract, maintenance expenses, rent
(in some instances), advertising, minimum or fixed charges for services
and utilities, etc. If a building is damaged or destroyed by fire, the owner
may be entitled to full reimbursement under the Commercial Property
policy for the actual damages sustained by the structure; but it almost
always will lose the rent income until the building is restored to tenantable
condition.
In many instances, the loss caused by the interruption of business or
manufacture will far exceed the amount of the actual direct damage. A
comparatively trifling fire may shut down a business for a protracted
period. Sometimes a fire that does practically no damage to the insured's
property creates a bottleneck which brings operations to a complete halt.
For example, when fire destroyed an arcade which provided the only
entrance to a large New York theater, the theater was forced to close
down. In many manufacturing firms, damage to one piece of equipment
may bring the entire plant to a virtual standstill. In other cases, a business
may be dependent on special materials which require extensive aging or
processing or which must be imported from afar. The destruction of
such stock will cause a severe curtailment of production resulting in
extensive loss.
Over and above the direct destruction of physical property and the loss
of earnings which a fire may cause, a business may find its credit
impaired when it faces a protracted period without earnings. Even a
business which has been functioning without extensive credit may find it
necessary, when it is shut down by a casualty, to borrow money to
meet continuing expenses. It is fairly evident, of course, that a business
may experience difficulty in obtaining credit at a time when it is not in
operation.
A special form of insurance, the Business Income coverage form,
provides coverage on the loss of income due to interruption of business
by an insured peril.
Business Income Coverage Forms
The Commercial Property policy covering buildings or personal property
insures against direct physical loss by a cause of loss stipulated in the
policy (fire, lightning, windstorm, etc.). Direct loss is understood to mean
not only the damage actually inflicted by the covered cause of loss, but
also any other damage of which a covered cause of loss is the
proximate cause. Thus, under a commercial property policy which
includes fire as a covered loss, an insured also is covered for loss
caused by water used to extinguish a blaze, or by smoke from the fire,
or any directly connected result of fire such as the collapse of a
structure, or destruction of property caused by efforts to fight the fire,
etc.
There is no coverage, however, under the policy for indirect or
consequential losses. Thus, a comparatively minor fire at a milk plant
might cause a complete cessation of operation while the health
authorities inspect the premises and make necessary tests. The loss of
income to the milk producer during the time the plant is closed is not
covered under the Commercial Property policy.
The zoning laws in a particular locality may forbid rebuilding a particular
structure except with approved, more expensive materials. If fire
destroyed a portion of the building, the owner might have to demolish the
rest of the property before rebuilding. The Commercial Property policy
will pay for the damage done by the fire but not for the portion of the
building that must be demolished as a consequence of the fire.
A newspaper whose presses were damaged by fire might go to great
extra expense to have the paper printed at some outside printing plant.
Its Commercial Property policy would reimburse the newspaper for the
damage to the presses and plant but not for the extra expense to which
it is put as a result of the fire. The types of loss outlined are all
consequential and indirect and, as such, are not covered under the
Commercial Property policy.
While the losses cited above are somewhat specialized, almost every
going business enterprise, after a serious loss at its premises, may find
itself unable to continue in operation and will suffer a total or partial loss
of earnings. The Commercial Property policy will pay for the damage to
the merchandise, equipment and fixtures, but not for the consequential
interruption of operations and the loss of earnings.
If, after a loss, a business enterprise is compelled to suspend or curtail
its activities, it may stand to lose a great deal more than the value of the
property which was destroyed or damaged. During the period of
suspension, the firm will lose not only the profits it would otherwise have
earned but will also have to meet certain continuing expenses such as
taxes, interest on mortgages and other indebtedness, salaries of
executives and employees under contract, maintenance expenses, rent
(in some instances), advertising, minimum or fixed charges for services
and utilities, etc. If a building is damaged or destroyed by fire, the owner
may be entitled to full reimbursement under the Commercial Property
policy for the actual damages sustained by the structure; but it almost
always will lose the rent income until the building is restored to tenantable
condition.
In many instances, the loss caused by the interruption of business or
manufacture will far exceed the amount of the actual direct damage. A
comparatively trifling fire may shut down a business for a protracted
period. Sometimes a fire that does practically no damage to the insured's
property creates a bottleneck which brings operations to a complete halt.
For example, when fire destroyed an arcade which provided the only
entrance to a large New York theater, the theater was forced to close
down. In many manufacturing firms, damage to one piece of equipment
may bring the entire plant to a virtual standstill. In other cases, a business
may be dependent on special materials which require extensive aging or
processing or which must be imported from afar. The destruction of
such stock will cause a severe curtailment of production resulting in
extensive loss.
Over and above the direct destruction of physical property and the loss
of earnings which a fire may cause, a business may find its credit
impaired when it faces a protracted period without earnings. Even a
business which has been functioning without extensive credit may find it
necessary, when it is shut down by a casualty, to borrow money to
meet continuing expenses. It is fairly evident, of course, that a business
may experience difficulty in obtaining credit at a time when it is not in
operation.
A special form of insurance, the Business Income coverage form,
provides coverage on the loss of income due to interruption of business
by an insured peril.
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MY Insurance Agency
The materials on this website are meant to
be informative in nature. Due to the ever
changing and varying state laws, and the fact
some insurers offer coverage in slightly
different forms from the Insurance Services
Office (ISO) standard forms, we cannot
guarantee the accuracy of the materials on
this page.
be informative in nature. Due to the ever
changing and varying state laws, and the fact
some insurers offer coverage in slightly
different forms from the Insurance Services
Office (ISO) standard forms, we cannot
guarantee the accuracy of the materials on
this page.