Misunderstood Property Ins. Issues (Part 1)

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Building ordinance as it relates to business income

The Cause of Loss Form is attached to a Business Income Coverage Form. Accordingly the same exclusion for ordinance or law applies to the Business Income coverage form that applied to the Building and Personal Property coverage form.

The loss incurred on Business Income is due to the potential additional time it might take to bring a building up to code. Additional time equals additional revenue loss. This situation applies more often in a partial loss than a total loss.

Ordinance or Law-Increased Period of Restoration (CP 15 31)
"A. If a Covered Cause of Loss occurs to property at the premises described in the Declarations coverage is extended to include the amount of actual and necessary loss you sustain during the increased period of suspension of "operations" caused by or resulting from the enforcement of any ordinance or law that:
1. Regulates the construction or repair of any property;
2. Requires the tearing down of parts of any property not damaged by a Covered Cause of Loss; and
3. Is in force at the time of loss"

However, coverage is not extended under this endorsement to include loss caused by or resulting from the enforcement of any ordinance or law which requires any insured or others to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of "pollutant".

"B. The Period of Restoration definition is replaced by the following:
3. "Period of Restoration" means the period of time that begins:
(1) 72 hours after the time of direct physical loss or damage for Business Income coverage; or (2) Immediately after the time of direct physical loss or damage for Extra Expense coverage; caused by or resulting from any Covered Cause of Loss at the described premises; and
b. Ends on the earlier of:
(1) The date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality; or
(2) The date when business is resumed at a new permanent location."

"Period of restoration" includes any increased period required to repair or reconstruct the property to comply with the minimum standards of any ordinance or law, in force at the time of loss, that regulates the construction or repair, or requires the tearing down of any property. The expiration date of the policy will not cut short the "period of restoration".

Ordinance or Law-Increased Period of Restoration (CLM)
"A. Ordinance or Law-Increased Period of Restoration
1. Description of Coverage
The Business Income...coverage form may be extended to cover additional loss of time necessary to replace or repair the damaged building to conform with current building laws or ordinances.

2. Rate Modification
a. Causes of Loss Other Than Earthquake multiply the time element rate by 1.2
b. Earthquake-multiply the time element rate by 2.0."

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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.