Contingent Dependent Properties Insurance: Understanding the Basics - Including Direct Versus Indirect Losses


...endorsement does not apply when the only loss to a “dependent property” is loss or damage to electronic data — including destruction or corruption of electronic data. If damage involves both electronic data and other property, the coverage ceases when the other property is repaired or replaced.

Those interested in this coverage should read the endorsement very carefully — including the definitions. “Dependent property,” for example, does not consider any of the following to be contributing locations or secondary contributing locations (discussed below): water supply services; power supply services; wastewater removal services; or communication supply services, including services relating to Internet access or access to any electronic network. Organizations that require such coverage might be able to obtain the standard ISO Utilities — Time Element endorsement CP 15 45.

Also included with this Broad Form endorsement is Secondary Contributing Locations coverage, which applies only to contributing and recipient locations. Coverage must be designated on the schedule if it is to apply. Both “secondary contributing locations” and “secondary recipient locations” are defined in the endorsement. A secondary contributing location is a location not identified in the endorsement schedule and owned or operated by a business that delivers materials or services to the contributing locations identified in the endorsement schedule.

Finally, an additional coverage applicable to the Broad Form is referred to as “miscellaneous locations.”Not considered to be a miscellaneous location, however, is a road, bridge, tunnel, waterway, airfield, pipeline or any other similar area or structure.

The insurer also will pay no more than .03 percent of the business income limit of insurance for each day’s suspension of operations due to loss arising from any one location. This coverage, however, does not include the business income limit.

Business Income FromDependent Properties — Limited Form CP 15 08

This endorsement provides basically the same coverage as the Broad Form, with the following exceptions. This Limited Form can be written when the named insured does not also purchase business income for loss stemming from direct physical loss or damage to its own business premises. This means that a separate limit applies for each of the dependent properties shown on the schedule.

Apart from those differences, this Limited endorsement also gives coverage for secondary locations — limited, of course, to contributing and recipient locations. The miscellaneous locations limits are also for no more than .03 percent of the sum of all limits shown in the schedule.

A September 11, 2001 Loss

One of the cases that was an outgrowth of the September 11, 2001 disaster involved a dispute having to do with the dependent property provision of a property policy. The case is Southern Hospitality, Inc. et al. v. Zurich American Insurance Co., 393 F.3d 1137 (10th Cir. 2004). It arose after the Federal Aviation Administration grounded all airplane flights in the United States on 9/11. As a result, a hotel...