Business Income Insurance

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AT01-3R 3020

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...consecutive weeks of coverage, beginning 72 hours after the time of loss to property away from the insured’s premises for business income insurance, and immediately for extra expense insurance. Except for the newly added 72-hour waiting period, this is an improvement over the two weeks of coverage formerly offered. The current clause also applies to loss or damage to property “other than at the described premises.” Previously it applied to property “adjacent to” the insured’s property, a much more limited provision.

The September 11 World Trade Center disaster brought into play the need for this coverage. Following the collapse of the towers, a substantial area around the towers was cordoned off, preventing access by tenants of adjacent buildings even though their premises had sustained no actual damage.

Whether this three-week time period would be adequate in any given case would be hard to say. It would depend on what the potential exposures from nearby properties were. If, during a drought, brush or forest fires might rage unabated though not damaging the insured’s property, perhaps the Civil Authority time limit could be exceeded. The World Trade Center disaster provided an illustration of this problem.

The business income rules do not provide for extending the time limit. Underwriters might be prevailed upon to extend it, although requests for extension might be viewed as “adverse selection,” and a substantial added premium called for, if the coverage were made available. This is especially true since the World Trade Center disaster provided chilling evidence of the need for Civil Authority coverage under the business income insurance.

With regard to the second question, the Civil Authority Clause applies only to property lost or damaged by a cause of loss covered under the business income or extra expense insurance. This leaves unprotected some major exposures, notably earthquake and flood. If time element coverage is added for these exposures, check to be sure that they include Civil Authority coverage.

Had the World Trade Center disaster been determined to be an act of war rather than terrorism, and excluded under the war risks exclusion common to business income coverage, there would be no Civil Authority coverage either.

Obtaining the Proper Coverage

As demonstrated throughout this article, prudent business owners need to evaluate all potential losses that could befall them. They need to think beyond their premises and guard against less obvious threats such as losses at other businesses that may affect them, how inflation can change their valuations and how their own earnings can affect the outcome of a claim. Recovering financially after a loss requires more than just basic insurance. Today’s insureds need a customized plan suited for your specific needs.

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