In many business interruption claims, all that is requiredis a covered loss and a decrease in business during the time periodallowed by the policy. (Photo: iStock)

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Question: The insured is a foodwholesaler who submitted a business interruption claim due to HurricaneMaria. Although the insured sustained only minimal direct damagesto their food warehouse and offices, their electrical services wereinterrupted as the electrical power grid was severely affected bythe effects of the hurricane. The insured, however, was able torestore their operations immediately after the hurricane with theassistance of a backup generator, which has the capacity to handlethe insured's entire business operation. Electrical power from thepower grid was restored approximately four (4) weeks after thehurricane.

The insured is covered for business interruption under theISO Business Income (and Extra Expense) Coverage Form CP 00 30 1012. They also have coverage for Utility Services Time Element(Power Supply) CP 1545 10 12.

The insured claims that a good portion or the majority ofbusiness interruption loss was caused by following:

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         1. Roads and infrastructure were cut off or were renderedinaccessible due to the hurricane, making it difficult orimpossible for the insured to deliver (via their auto fleet) theirmerchandise to clients.
         2. Loss of sales to end clients who had to close theirbusinesses (supermarkets, restaurants…etc.) because of directdamages caused by the hurricane to their property.
         3. Lack of diesel/gas at retail stations which limited theircapacity to operate their auto fleet and distribute theirmerchandise to clients.

Please note the insured does not have coverage or does nothave a policy endorsement for Business Income From DependentProperties.

Also, it is important to consider the Business Income Coverage Form also states thefollowing policy, Business Income Coverage Form – 5. AdditionalCoverages c. Extended Business Income (1), (b), (ii), which reads…However, Extended Business Income does not apply to loss ofBusiness Income incurred as a result of unfavorable businessconditions caused by the impact of a Covered Cause of Loss in thearea where the described premises are located.

It is our opinion that there was suspension or cessation ofthe insured's business activities resulting in a business incomeloss given backup generators are not designed to operateindefinitely and they are turned off for maintenance purposes.Those losses are covered under the policy. However, we need youropinion on whether business income and extended business incomelosses resulting from what we previously stated in 1.,2. and 3 arecovered given there is no coverage for Dependent Properties and thepolicy wording cited under the Extended Business Incomespecifically excludes business income resulting from unfavorablebusiness conditions.

— Puerto Rico Subscriber

Answer: You are correct that the lossesdescribed in items 1., 2., and 3. are excluded. The roadsbeing cut off and the lack of available fuel for the vehicles isexcluded as dependent properties because they provide supplies andaccess to the business. The inability of selling products to endcustomers because they were not functioning is excluded underdependent properties and loss of income due to unfavorable businessconditions.

Related: Yourquestions answered: Business income waitingperiods

Restaurant closed due to robbery

Question: Our insured owns a small restaurant that wasrobbed at 9:30 p.m. on a Saturday. The robbers locked everyone in acooler while they emptied the cash drawer and smashed the computerthat operates the cash register and customer order system. Becausethe computer was down, the restaurant remained closed Saturdaynight and did not open again until its normal opening time of 11:00a.m. on Monday. The computer was fixed by this time. The insuredcarried an open perils business income coverage form (without extraexpense) and the extended business income option. The insurancecompany paid the business income loss for the balance of Saturdaynight and Sunday, but refused to honor the extended business incomeoption for the decrease in business the insured suffered during theweek following the robbery. Business was down one-third thatweek.

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The insurance company argues that the decrease in businessduring the week following the robbery was due to fear of bodilyinjury in the minds of potential patrons and was not caused by thetime required to repair the physical damage to the computer. Theymaintain that the short-term closing was not long enough to causethe loss of customer base intended to be covered by the extendedbusiness income option. We feel that the extended business incomecoverage should apply.

— Ohio Subscriber

Answer: All of the elements required for acovered extended business income loss are present in your insured'sloss. Business was suspended because of direct physical loss ordamage to the computer ordering system. The loss was covered by acovered cause of loss. The insurance company admitted this bypaying the business income loss suffered from Saturday night untilMonday morning. An additional loss of business income began on thedate the property was repaired and operations were resumed andended at the end of the week when the insured's operations wererestored to the condition that would have existed if no directphysical loss or damage occurred.

The insured does not have to establish the motives of thecustomers who stayed away from the restaurant because the policydoes not require it. The insurance company's presumption thatcustomers stayed away out of fear of bodily harm is irrelevant, asis the presumption that the restaurant was not closed long enoughto lose its customer base. All that is required is a covered lossand a decrease in business during the time period allowed by thepolicy. These conditions were met by your insured's extendedbusiness income loss.

Related: When does a commercial policy provide insurancecoverage for extra expenses?

Business not yet in operation

Question: My insured is a major bank that is lookinginto lending a large sum of money to a concessionaire that willoperate in a yet-to-open professional hockey stadium. The loan willbe secured by the expected stream of income the concessionaire isexpected to earn. What kind of business income options should Irecommend that the bank request from the concessionaire to makesure the bank continues to receive its payments if theconcessionaire cannot operate due to an insured loss suffered bythe stadium. Keep in mind that a major loss could close the stadiumfor as much as three years.

— MassachusettsSubscriber

Answer: No ISO form would provide thecoverage the bank needs the borrower to carry, but a manuscriptpolicy could be devised from ISO forms. There are really threeproblems involved. First, the concessionaire needs a steady streamof income over three years from which to pay the bank. A businessincome policy incorporating wording similar to the ISO monthlylimit of indemnity option found in the optional coverages sectionof the business income coverage form CP 00 30 10 12 might be used.Instead of choosing one third or one fourth of the policy limit asthe monthly limit, an amount equal to the loan repayments could bepaid at one thirty-sixth a month over three years. That type ofcoverage would provide the required stream of income to satisfy thebank.

The second problem is that professional hockey is played only inseason, limiting the concessionaire's cash flow to certain monthsof the year. You might recommend coverage similar to ISO's tuitionand fees endorsement, which operates by changing the extendedbusiness income clause to apply only to certain months of the year.The endorsement would cause the policy to pay for the actual lossof business income the insured sustained during the hockey seasonthat follows the date the property is actually repaired.

Related: Expenses incurred to minimize loss should becovered

Finally, do not forget coverage similar to that included in ISOforms CP 15 08 10 12 and CP 15 09 10 12 (businessincome from dependent properties — broad and limited formsrespectively). It provides coverage if the stadium is damaged butthe concessionaire's facilities in the stadium are not. The stadiumwould be considered a leader location, which is defined in the ISOform as “property operated by others whom you depend on to:.. d.Attract customers to your business.”

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Coverage for insured tenant

Question: I have an insured that is aretail auto tire dealer with coverage written on a BP 0003.

The insured leases the premises. There areunderground fuel tanks on the premises; the insured does not ownthe tanks. The property owner owns the tanks and is now required bythe state to remove the tanks. The property owner told our insuredthe business will need to be shut down for two to four days whilethe tanks are being removed. Is there coverage for our insured, thetenant, for loss of income due to being shut down?

— Iowa Subscriber

Answer: In order to trigger businessincome coverage, there must be direct, physical loss or damage tothe property caused by a covered cause of loss, such as windstormor hail. In the situation you describe, removal of fuel tanks isnot a covered cause of loss causing the business suspension, so thecoverage is not triggered.

Related: The importance of checking insurance provisions ina commercial lease

Dentist abandons practice after fire

Question: Our insured had total fireloss and is insured under a businessowners policy. The insured is adentist and determined that as of this loss she would abandon thispractice as she had other locations that were moreproductive.

Since there was a direct loss from a covered peril, but noperiod of restoration to speak of, will the insured recover anypolicy proceeds under business income coverage?

— Iowa Subscriber

Answer: In order for business incomecoverage to be triggered, the insured must suffer an actual loss ofbusiness income due to the necessary suspension of operationsduring the period of restoration. If the dentist is not continuingthe business at that location, and it is not going to be repairedor replaced, you are correct that there is no period ofrestoration, and there is also no loss of income due to suspensionof operations, so there would be no business income coverage.

One location's loss is another's gain

Question: We have an insured who has a covered loss at a franchise restaurant, whichhas closed its operation during the period of restoration. Theinsured also has an identical restaurant a few blocksaway.

We have determined that the restaurant affected by the losshas suffered a business income loss. However, the otherrestaurant's business has picked up due to the closure of theoriginal store.

Based on this information, has the insured sustained a totalrecoverable loss as a result of this loss? Can we take intoconsideration the increase of business at the other store? Does itmatter if the stores are insured under the same or independentpolicies?

— Ohio Subscriber

Answer: It does make a difference ifthe stores are insured on the same policy or independentpolicies. If they are on the same policy, then the increase inbusiness at the other store can be taken into consideration becausebusiness income is the net income that would have been earned butfor the loss. So, if income from the other store is making up someof the difference, that would be factored in. This would not be thecase on separate policies, though, because only the net income ofthe store insured on that policy would be considered.

Loss of business from a bomb threat

Question: Would a bomb threat that necessitates the evacuation ofinsured premises, thus shutting down the insured's operations,be a covered claim under the standard business income coverageform?

— PennsylvaniaSubscriber

Answer: Business income coverage under thestandard business income coverage form (CP 00 30 10 12) istriggered by a suspension of operations “caused by direct physicalloss” of or damage to property at the premises described in theDeclarations. Absent physical damage, there is no coverage forsuspension of operations caused by threats.

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