Commercial Property Update

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Time Element 2000 Changes

Business Income CP 0030 and CP0032 - premises definition
The time element coverage forms provide for business income and extra expense coverage when a suspension of business operations is caused by a covered physical loss at the "described" premises. This is of concern to a tenant where a part of the building they do not occupy is damaged and they suffer a bodily injury loss as a result.

A broadened definition of "premises" is included, which states:
Your premises means:
(1) The portion of the building which you rent, lease or occupy; and
(2) Any area within the building or on the site at which the described premises are located, if that area services, or is used to gain access to, the described premises.

Note: The definition does not indicate that if any area of the building not occupied nor utilized for services or access is damaged that coverage will apply.

Business Income CP0030 and CP0032 - sales value of production
There is language added to the time element coverage forms, clarifying that for manufacturing risks, Net Income includes the net sales value of production. There is no substantial change in coverage, only a clarifying statement.

For manufacturers, the business income exposure is the sales value of production. Manufacturers may produce inventory far in advance of sales, thus actual sales may remain at normal levels during the proof of physical restoration. But reduction in the sales value of production is sustained during the period of time when operations are suspended during the process of physical restoration.

Thus the loss of income (which becomes apparent at a later time) is directly attributable to the period of restoration (period of basic Business Income coverage).

Business Income CP0030 and CP0032 - maximum period of indemnity
The change applying to the maximum period of indemnity imposes the 120-day maximum recovery to both Business Income and Extra Expense. Previous form series imposed the limitation on Business Income only.

Business Income CP0030 and CP0032 - suspension
Business Income coverage is triggered by the necessary "suspension" of "operations" during the "period of restoration." The suspension must be caused by direct physical loss of or damage to the property at the described premises due to a covered peril.

The term "suspension", due to lack of policy definition, has been interpreted by some courts to mean a compete cessation of operations. The revised form has inserted a definition of "suspension".

"Suspension" means:
a. The slowdown or cessation of your business activities; or
b. That a part or all of the described premises is rendered un-tenantable if coverage for Business Income including "Rental Value" or "Rental Value" applies.

Cancellation of Contract
With respect to business income coverage, the Causes of Loss Forms (CP 1010, CP 10 20, and CP 1030) had all excluded coverage on loss caused by suspension, lapse, or cancellation of a license, lease, or contract. Such loss is covered only if the suspension, lapse, or cancellation is directly caused by the suspension of operations (now re-defined).

Coverage had not applied to any extended period of indemnity that was triggered in the Business Income section with the Extended Period of Indemnity option. Language has been broadened to state as follows:

Cancellation of Contract
We will not pay for:
(4) Any increase of loss caused by or resulting from:
(b) Suspension, lapse or cancellation of any license, lease or contract. But if the suspension, lapse or cancellation is directly caused by the "suspension" of "operations," we will cover such loss that affects your Business Income during the "period of restoration" and any extension of the "period of restoration" in accordance with the terms of the Extended Business Income Additional Coverage and the Extended Period of Indemnity Optional Coverage or any variation of these.

Civil Authority Increased Coverage Period CP 15 32
The Civil Authority Increased Coverage Period form was first introduced in 2000. Under the Civil Authority clause in the time elements forms, coverage is provided for up to three weeks in the event that access to the described premises is prohibited by order of civil authority.

The new form provides the option of replacing the three-week coverage period with a longer period. The ISO manual provides for coverage periods of 60, 90, and 180 days.

Extended Period of Indemnity time limitations
The Extended Period of Indemnity can now go to 720 days.

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Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and Insurance Skills Center, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.