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Your questions answered: Business income waiting periods.

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Question: Coverage is provided under CP 00 10 04/02, special cause of loss form. There are 36 premises on the policy, all providing business income-only coverage with extra expense coverage. BI/EE coverage with rents Form is CP 00 30 04 02. Applicable deductible, per the Property Declarations page, is $1,000.

Insured has a covered loss to which we have applied the $1,000 deductible. However, the agent is contesting application of the deductible stating only the 72-hour waiting period should apply as a deduction. The BI/EE form does not mention a deductible, though the CP 00 10 04 02, does and the $1,000 deductible is spelled out on the Property Declarations page. Your thoughts?

-- Virginia Subscriber

Related: Insurance coverage for business income

Answer: The property deductible of $1,000 would apply to the property perils, and the waiting period of 72 hours would apply to the business income and extra expense coverages. For the locations that only have business income and extra expense coverages, only the 72-hour waiting period per occurrence would apply.

Waiting period and deductible differences

Question: Our insured had a business income loss that resulted in a 28-hour closure. The property deductibles section of the policy states that no deductible applies to business income and extra expense coverage. However, the policy also states that the business income coverage is only available during the period of restoration, which does not begin until 24 hours following the time of direct physical loss. We think these two provisions are in conflict. What are your thoughts?

-- Ohio Subscriber

Answer: The deductibles section of the policy refers to the monetary deductible amount that the insured agrees to pay in the event of a covered loss. The 24 hours prior to the beginning of the period of restoration for the business income loss is a waiting period during which the coverage does not apply. Because the waiting period is not a deductible, the two provisions are not in conflict.

Related: Doing the math for business income claims

Business incomes and property damage deductibles

Question: Our insured has a large $2 million property deductible. However, the period of restoration begins immediately after the loss. Must the insured prove that the deductible for direct damage will be exceeded, before the carrier will pay for the loss of business income?

-- Kentucky Subscriber

Answer: Generally, business income policies do not require that the property deductible be exceeded in order to be triggered. BI policies often have a time deductible--usually seventy-two hours--before they kick in, but if the period of restoration on your policy begins immediately, then there is no time deductible either. As long as a the elements necessary to trigger the policy occur -- direct physical damage that causes a suspension of operations during the period of restoration--then the $2 million property deductible would not have to be met.

Time deductible vs. monetary deductible

Question: Business Income Coverage Form, CP 00 30, does not contain a deductible clause. If there were a covered cause of loss that caused suspension of operations, but the damage to coverage A and/or B did not exceed the deductible (presuming a large deductible), would the remainder of the deductible apply to the business income loss (assuming all losses are from a single occurrence)? On the other hand, is there just never a deductible under the Business Income Coverage Form?

-- Oklahoma Subscriber

Answer:Business income generally does not have a monetary deductible. The only deductible that normally applies is a time deductible, such as coverage not being triggered until 72 hours following a covered loss.

Fighting the clock

Question: An insured has had a partial business income loss and we are uncertain what to expect of the loss adjustment with the seventy-two hour time deductible now in our contract. The coverage is written with a monthly limit of $50,000 for the first month. As the loss is partial, is it the amount of actual loss for the first three days that is deducted, or is the deductible amount apportioned for the month? Furthermore, since the loss occurred on a Friday night and the insured does not operate on Saturday and Sunday, when does the seventy-two hour deductible begin? Is it seventy-two hours of normal operation that is deducted, or is our insured just lucky because the firm will really experience only the effect of a one-day deductible on this loss? Can you clarify this?

-- Dominican Republic Subscriber

Answer: According to the terms of the Insurance Services Office form for business income coverage, recovery is keyed to a defined "period of restoration." For business income (not extra expense), that definition says the period does not begin until seventy-two hours "after the time of direct physical loss or damage". Thus, whether partial closure or complete shutdown occurs, there is no recovery of any business income loss during the first seventy-two hours. If there is no loss of business income during the period, or a reduced loss occurs because the business is normally closed during all or part of the time of the "period of restoration," the insured is fortunate.

Extra expense is treated differently because the object is to do whatever is necessary to get the business up and running again. If by immediate action, such as hiring an emergency crew of workers and paying for express delivery of goods and materials, the period of interruption can be reduced, insured and insurer both benefit.

See also: Expenses incurred to minimize loss should be covered How to calculate deductibles for multiple related losses The trouble with estimating additional living expenses (ALE)
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Publication:Property and Casualty 360
Date:Dec 13, 2017
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