Valuing Business Income Exposures: A Case for Blanket Business Income Insurance

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...coverage is in its place. The entire blanket limit of liability becomes available to the insured for a loss at any single location, thereby providing additional coverage for both property and time element losses that would otherwise be unavailable if specific amounts of insurance were written instead. If the values for any listed specific location are less than what is actually required for that location — but the values for the aggregate locations are adequate — then the coverage from the other locations can help eliminate an underinsurance problem at that specific location.

Caution must be taken in establishing the blanket limit of liability. The limit should be established by computing the total values for the entire operation at all locations, not by using the highest value at any one location. The coinsurance requirement will be applied based on the insured’s overall values at all locations and not just at the specific location that sustained the physical damage. The use of an agreed amount endorsement will significantly simplify any loss adjustment, since operating results at all locations are not taken into account.

It is ironic at times how some insurers approach loss adjustments for businesses with multiple locations which they have not insured under a blanket policy. If the business sustained a loss at one location, many insurers believe that the business would be entitled only to make claim for business interruption losses sustained at that location, and that it would not be entitled to make claim for a falloff of net profit at the undamaged locations which were insured separately.

Nevertheless, the insurers often want credit for any additional sales that may be generated from the undamaged location or locations, even though they maintain that the insured would not be entitled to a claim for lost sales at any undamaged location. This problem is, of course, eliminated with the use of a blanket limit of liability policy.

A Case Study

As professional loss consultants, we represented a major railroad freight company that experienced both property and time element losses arising out of the Midwest Flood of 1993. Their case serves as a striking example of both the importance and necessity of blanket coverage.

Because this specific railroad transports freight throughout the United States through its integrated railroad network, disruption in any one area can ultimately affect all links of their highly interconnective system. Following the flood of 1993, congestion and delays were experienced by this railroad — not only over physically damaged lines in the Midwest — but also throughout their entire system.

The railroad’s risk manager, in conjunction with their insurance broker, designed and had in place an insurance program that incorporated blanket property and business interruption/extra expense coverage for all locations. It became apparent during the adjustment process that this good wisdom and foresight in the development of the blanket insurance program was...

"The use of an agreed amount endorsement will significantly simplify any loss adjustment, since operating results at all locations are not taken into account."


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