Business Interruption Coverage Times Three


...endorsed onto a property policy as an additional peril triggering the existing income coverage. The challenge arises when carriers deliberately or inadvertently implement different waiting period deductibles for property and equipment breakdown income coverage.

Suppose you have a property policy with a 24-hour income deductible, and equipment breakdown coverage with a 72-hour income deductible. Suppose also that you have a common scenario where an equipment accident causes a fire and that either the accident or the fire on its own would have forced a suspension of operations.

Common practice would have the property insurer cover income losses due to the fire loss starting 24 hours after the event and lasting through the period needed to repair or replace the covered property, or through a number of days stated in the policy. Recovery may also be subject to aggregate and per- month dollar limits.

In our example the equipment breakdown insurer would be responsible for at least part of the income lost after 72 hours following the equipment accident and up until the equipment is restored to working order. Under the given terms, the property insurer could be on the hook for 48 hours of income loss between the 24-hour property deductible and the 72-hour equipment breakdown deductible.

Now inject cyber insurance into this mix.

E-commerce works in much shorter timeframes than traditional commerce. An hour of “downtime” at the wrong time, such as “Cyber Monday,” can result in millions of dollars in lost sales. For that reason declared waiting period deductibles for cyber income coverage are often far shorter than those for property and equipment breakdown coverage, often less than a day.

In our example of a fire caused by an equipment accident, it would be expected that employees would quickly evacuate, leaving sensitive information literally and virtually exposed. If a network disruption occurs and is rectified before the cyber time deductible, the “cyber” portion of the income loss could be uninsured unless it fell under the low limit for the supplemental income form coverage for “Interruption of Computer Operations” (see chart on page 10). If the loss extends into the cyber coverage period, the share of the overall income loss attributable to the network disruption must be determined.

Each of the three types of business income coverages include some type of waiting period and/or dollar deductible, which can vary greatly due to the different types of losses.