Disasters Raising Questions of Insurance Adequacy



...coverage is limited to the space occupied exclusively by the tenant, no coverage applies except for the period of civil authority coverage. For coverage beyond that time period to apply, the description of premises would have to be broad enough to include service areas needed for access to the insured’s premises.

It should be noted also that in some cases a question of interpretation of the definition of premises will arise. Does it extend to the entire building including public and service areas, or is it limited to the area within the building exclusively occupied by the insured?

Unless the description clearly identifies the intent to cover beyond the insured’s own space, the insurer may well contend that the coverage is limited to loss from property damage within that space, and deny coverage for damage to property outside the insured’s premises that prevents occupancy of the insured’s space.

The insured, on the other hand, can argue that any ambiguity in interpretation of the definition of described premises should be resolved in their favor, allowing coverage. The argument can also be made that the tenant’s personnel “occupy” the public area as well as the area of exclusive occupancy. If the description of premises says simply “premises occupied by” rather than “premises occupied exclusively by,” a case can be made for the more inclusive coverage.

The insured’s lease of the premises may also shed light on this question. If it clearly extends the insured’s right of occupancy to include use of public areas, the argument for the broader interpretation of coverage will be enhanced.

In this regard, the description of premises in business income and extra expense forms currently includes service areas needed for access to the insured’s premises.

Loss Recovery Time

Remember also that in a major hurricane or earthquake, resources for rebuilding quickly become hard to obtain. So extra time will be needed to restore operations, and the amount of business income coverage should be increased accordingly, possibly with use of a higher coinsurance percentage at a slightly reduced rate, to hold down the cost.