Commercial Property
Business Income Coverage Forms
CAUSES OF LOSS NOT COVERED
The Business Income policy incorporates the exclusions of the Basic
Commercial Property policy.
Ordinance; Strikes - The policy will not pay for any increase in the time to
rebuild, repair or replace the property mandated by any state or local
ordinance regulating construction or repair of buildings, nor for the
interference by strikers at the premises with the rebuilding or replacing of
damaged property. The exclusion does not apply to strikes away from
the premises, as at the premises of a building material supplier or of a
company transporting materials to be used in the rebuilding.
Pollution - The "period of restoration" discussed above which is the basis
of the time period for which coverage is provided is specifically drawn to
exclude an increased time resulting from any law that regulates the
prevention, control, repair or restoration of environmental damage.
Finished Stock - Business income policies covering manufacturing risks
specifically do not cover loss arising out of damage to "finished stock" or
the time to replace or reproduce "finished stock."
Increase of Loss Due to Cancellation of Lease, Contract or License - The
policy does not cover any increase of loss due to suspension,
cancellation or lapse of any license, lease or contract. However, if the
suspension, lapse or cancellation is caused directly by the suspension of
operations, the loss that affects the business income during the "period
of restoration" is covered.
CAUSES OF LOSS COVERED
Like the Commercial Property-Covering physical property, the Business
Income coverage can be written under one of three cause of loss
forms-basic, broad or special.
FOR HOW MUCH
As was indicated here, the extension to cover newly acquired locations
is in addition to the limit of insurance in the policy. On the other hand, the
following additional coverages do not increase the limits of liability shown
in the policy Declarations: Extended Business Income, Extra Expense,
Alterations and New Buildings, and Civil Authority.
Electronic Media and Records - There is a special limit on payment for
loss of business income due to direct physical damage to electronic
media and records.
If such property is damaged, the policy will pay only for the period
required to repair or replace other property damaged or destroyed in the
same occurrence, or 60 consecutive days from the date of the physical
damage at the premises, whichever is longer. (Longer periods of
extension are available for an additional premium.) It is important to note
that the limitation applies only to electronic media and records and not to
computers. If there is computer damage at the same time as media and
records are damaged, and the "period of restoration" (as defined in the
policy) necessary to restore the computer to operating condition extends
beyond the 60 days stipulated above, the policy will pay as long as is
required to restore property at the premises, including the computer, to
such condition as will permit the business to resume operations. The
policy is liable for the entire period.
EXAMPLE: A covered cause of loss damages a computer on June 1. It
takes until September 1 to replace the computer, and until October 1 to
restore the data that were lost in the same occurrence. The policy will pay
only for the loss during the period from June 1 to September 1 (the period
when the computer was out of commission and was being replaced or
restored to functioning condition). The loss from September 2 to October
1 (the period necessary to restore the data) is not covered because it is
more than 60 days after the loss occurred.
A covered cause of loss results in a loss of data processing records on
August 1. There is no damage to other property at the premises, but the
insured's operations are brought to a halt by the loss of the electronic
data processing programming records which take until October 15 to
replace. The Business Income coverage form will pay for the income lost
to the business only to September 29 (60 consecutive days from the date
of the loss). There is no coverage for the period September 30 to
October 15.
NOTE: This limitation does not apply to the Extra Expense coverage of the
policy.
Actual Loss Sustained - the policy covers the actual loss of business
income during the "period of restoration" as defined in the policy.
"Business income" is defined as the net profit or loss before income
taxes that would have been earned or incurred; and continuing normal
operating expenses incurred, including payroll less charges and
expenses which do not necessarily continue.
The policy speaks of "actual loss sustained" during a period after the
loss has occurred. It can be seen that the loss is measured by a
determination of what the earnings of the business would have been
after a loss if the loss had not occurred. Determining this calls for taking
into account the net income of the business before the loss as a means
of projecting the income that would have been earned and is, therefore,
often more complex than arriving at a figure for loss or damage to actual
physical property which was in existence at the time of the loss.
It should be borne in mind that when a loss or damage to property at an
insured premises occurs and gives rise to an interruption in the insured's
usual business activities, there are almost certain non-continuing
expenses which the business does not have during the suspension
period. Many leases, for example, provide that the tenant is not required
to pay rent for any periods during which the premises is unfit for use. In
most instances, the insured is able to reduce regular payroll until
business is resumed.
Expenses such as telephone, light, heat, power, water, and similar
charges may be avoidable during the time the business is not functioning,
or may be sharply reduced.
The Business Income coverage form is liable only for the actual loss
sustained and will, therefore, pay the insured the amount of the earnings
that would have been realized had no loss occurred, less the amount of
non-continuing expenses.
Thus, assume an insured operates a store with average weekly sales of
$10,000, and that this gross revenue is normally distributed as follows:
Salaries and other expenses which
would continue after a loss............ $2,000.00
Cost of merchandise ................ $5,000.00
Wages and other expenses which
would not continue ....................... $1,500.00
Net profit ................................... $1,500.00
$10,000.00
If a fire causes total suspension of the business for one week, the
insured will be entitled to collect $3,500, arrived at as follows:
Total revenue that would have been
realized had no loss occurred ......... $10,000.00
LESS expenses that do not continue
and cost of merchandise ................. $ 6,500.00
ACTUAL LOSS SUSTAINED ............... $ 3,500.00
It can be seen that if the insured collects $3,500, the actual loss
sustained, the insured will be able to pay the expenses that must be met
and will also have the profit normally enjoyed. The insured is in the same
financial position he would have been in had no loss occurred.
The policy covers only such earnings that actually would have been
realized by the business had no loss occurred. If there would have been
no earnings during a particular period, there would be no recovery under
the policy.
Thus, if an insured has a loss at a time when not producing or selling, as
during a slack season or a strike, or when business is temporarily at a
standstill, the insured is not entitled to any recovery under Business
Income coverage.
On the other hand, if the loss occurs when business activity is at a
height, the policy will pay the full amount of the actual loss sustained
during the period of suspension. Furthermore, a plant may sustain a loss
when it is in a slack season, but if the period of time required to rebuild,
repair or replace would carry into what would normally be the active
period, the policy will pay for the loss of earnings during what would
have been the "busy" season.
The Business Income coverage form, as was pointed out above, pays
not only for the loss of profits, but also for all loss of earnings. For this
reason, a business which is not earning any net profit may still require
business income insurance to cover the expenses which it would have
to meet even after loss curtails operations. As a matter of fact, a
business which has been operating without profit, or even at a loss, may
experience greater difficulty in meeting continuing expenses than one
which has been yielding a good profit and may, therefore, stand in
greater need of this form of insurance than its more fortunate competitor.
It is extremely important to understand that the Business Income
coverage form will not necessarily indemnify the insured for all the loss
he may sustain. As was pointed out, the policy covers the loss of
business income, but only for the length of time it would take to restore,
rebuild or replace the damaged property (the "period of restoration"). An
insured may find after restoration of the damage that he has lost
customers (that cannot be recovered) to a competitor, or that a valuable
contract or lease is not being renewed. There is no coverage for any
such loss which extends past the time which it would take to rebuild or
replace (except for the extra indemnities spelled out in the policy. See
WHAT IS COVERED-Extended Business Income, Extra Expense, Civil
Authority, discussed here).
Business Income Coverage Forms
CAUSES OF LOSS NOT COVERED
The Business Income policy incorporates the exclusions of the Basic
Commercial Property policy.
Ordinance; Strikes - The policy will not pay for any increase in the time to
rebuild, repair or replace the property mandated by any state or local
ordinance regulating construction or repair of buildings, nor for the
interference by strikers at the premises with the rebuilding or replacing of
damaged property. The exclusion does not apply to strikes away from
the premises, as at the premises of a building material supplier or of a
company transporting materials to be used in the rebuilding.
Pollution - The "period of restoration" discussed above which is the basis
of the time period for which coverage is provided is specifically drawn to
exclude an increased time resulting from any law that regulates the
prevention, control, repair or restoration of environmental damage.
Finished Stock - Business income policies covering manufacturing risks
specifically do not cover loss arising out of damage to "finished stock" or
the time to replace or reproduce "finished stock."
Increase of Loss Due to Cancellation of Lease, Contract or License - The
policy does not cover any increase of loss due to suspension,
cancellation or lapse of any license, lease or contract. However, if the
suspension, lapse or cancellation is caused directly by the suspension of
operations, the loss that affects the business income during the "period
of restoration" is covered.
CAUSES OF LOSS COVERED
Like the Commercial Property-Covering physical property, the Business
Income coverage can be written under one of three cause of loss
forms-basic, broad or special.
FOR HOW MUCH
As was indicated here, the extension to cover newly acquired locations
is in addition to the limit of insurance in the policy. On the other hand, the
following additional coverages do not increase the limits of liability shown
in the policy Declarations: Extended Business Income, Extra Expense,
Alterations and New Buildings, and Civil Authority.
Electronic Media and Records - There is a special limit on payment for
loss of business income due to direct physical damage to electronic
media and records.
If such property is damaged, the policy will pay only for the period
required to repair or replace other property damaged or destroyed in the
same occurrence, or 60 consecutive days from the date of the physical
damage at the premises, whichever is longer. (Longer periods of
extension are available for an additional premium.) It is important to note
that the limitation applies only to electronic media and records and not to
computers. If there is computer damage at the same time as media and
records are damaged, and the "period of restoration" (as defined in the
policy) necessary to restore the computer to operating condition extends
beyond the 60 days stipulated above, the policy will pay as long as is
required to restore property at the premises, including the computer, to
such condition as will permit the business to resume operations. The
policy is liable for the entire period.
EXAMPLE: A covered cause of loss damages a computer on June 1. It
takes until September 1 to replace the computer, and until October 1 to
restore the data that were lost in the same occurrence. The policy will pay
only for the loss during the period from June 1 to September 1 (the period
when the computer was out of commission and was being replaced or
restored to functioning condition). The loss from September 2 to October
1 (the period necessary to restore the data) is not covered because it is
more than 60 days after the loss occurred.
A covered cause of loss results in a loss of data processing records on
August 1. There is no damage to other property at the premises, but the
insured's operations are brought to a halt by the loss of the electronic
data processing programming records which take until October 15 to
replace. The Business Income coverage form will pay for the income lost
to the business only to September 29 (60 consecutive days from the date
of the loss). There is no coverage for the period September 30 to
October 15.
NOTE: This limitation does not apply to the Extra Expense coverage of the
policy.
Actual Loss Sustained - the policy covers the actual loss of business
income during the "period of restoration" as defined in the policy.
"Business income" is defined as the net profit or loss before income
taxes that would have been earned or incurred; and continuing normal
operating expenses incurred, including payroll less charges and
expenses which do not necessarily continue.
The policy speaks of "actual loss sustained" during a period after the
loss has occurred. It can be seen that the loss is measured by a
determination of what the earnings of the business would have been
after a loss if the loss had not occurred. Determining this calls for taking
into account the net income of the business before the loss as a means
of projecting the income that would have been earned and is, therefore,
often more complex than arriving at a figure for loss or damage to actual
physical property which was in existence at the time of the loss.
It should be borne in mind that when a loss or damage to property at an
insured premises occurs and gives rise to an interruption in the insured's
usual business activities, there are almost certain non-continuing
expenses which the business does not have during the suspension
period. Many leases, for example, provide that the tenant is not required
to pay rent for any periods during which the premises is unfit for use. In
most instances, the insured is able to reduce regular payroll until
business is resumed.
Expenses such as telephone, light, heat, power, water, and similar
charges may be avoidable during the time the business is not functioning,
or may be sharply reduced.
The Business Income coverage form is liable only for the actual loss
sustained and will, therefore, pay the insured the amount of the earnings
that would have been realized had no loss occurred, less the amount of
non-continuing expenses.
Thus, assume an insured operates a store with average weekly sales of
$10,000, and that this gross revenue is normally distributed as follows:
Salaries and other expenses which
would continue after a loss............ $2,000.00
Cost of merchandise ................ $5,000.00
Wages and other expenses which
would not continue ....................... $1,500.00
Net profit ................................... $1,500.00
$10,000.00
If a fire causes total suspension of the business for one week, the
insured will be entitled to collect $3,500, arrived at as follows:
Total revenue that would have been
realized had no loss occurred ......... $10,000.00
LESS expenses that do not continue
and cost of merchandise ................. $ 6,500.00
ACTUAL LOSS SUSTAINED ............... $ 3,500.00
It can be seen that if the insured collects $3,500, the actual loss
sustained, the insured will be able to pay the expenses that must be met
and will also have the profit normally enjoyed. The insured is in the same
financial position he would have been in had no loss occurred.
The policy covers only such earnings that actually would have been
realized by the business had no loss occurred. If there would have been
no earnings during a particular period, there would be no recovery under
the policy.
Thus, if an insured has a loss at a time when not producing or selling, as
during a slack season or a strike, or when business is temporarily at a
standstill, the insured is not entitled to any recovery under Business
Income coverage.
On the other hand, if the loss occurs when business activity is at a
height, the policy will pay the full amount of the actual loss sustained
during the period of suspension. Furthermore, a plant may sustain a loss
when it is in a slack season, but if the period of time required to rebuild,
repair or replace would carry into what would normally be the active
period, the policy will pay for the loss of earnings during what would
have been the "busy" season.
The Business Income coverage form, as was pointed out above, pays
not only for the loss of profits, but also for all loss of earnings. For this
reason, a business which is not earning any net profit may still require
business income insurance to cover the expenses which it would have
to meet even after loss curtails operations. As a matter of fact, a
business which has been operating without profit, or even at a loss, may
experience greater difficulty in meeting continuing expenses than one
which has been yielding a good profit and may, therefore, stand in
greater need of this form of insurance than its more fortunate competitor.
It is extremely important to understand that the Business Income
coverage form will not necessarily indemnify the insured for all the loss
he may sustain. As was pointed out, the policy covers the loss of
business income, but only for the length of time it would take to restore,
rebuild or replace the damaged property (the "period of restoration"). An
insured may find after restoration of the damage that he has lost
customers (that cannot be recovered) to a competitor, or that a valuable
contract or lease is not being renewed. There is no coverage for any
such loss which extends past the time which it would take to rebuild or
replace (except for the extra indemnities spelled out in the policy. See
WHAT IS COVERED-Extended Business Income, Extra Expense, Civil
Authority, discussed here).
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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.