From Business Income Losses…The Insurance Policy: Common Interpretations And Measurement Illustrations by: Steven J. Meils, CPA
The Simplified Commercial Insurance Program
In 1986, ISO introduced the Business Income Coverage (and Extra Expense) Form
CP 00 30 as part of its simplified commercial insurance program. The form replaced a series of other business interruption forms in use at that time.
The program provides three basic forms and various endorsements. Form CP 00 32, introduced in 1988, is identical to Form CP 00 30 in all respects except that extra expense coverage is not provided. Form CP 00 50 provides coverage for extra expense only.
Prior to the introduction of this program, the Gross Earnings Form was the most common form in use.
The Business Income Coverage Form compared with the
Prior Standard Gross Earnings Form
The basic business income coverage was expanded and now includes items of coverage not previously provided in the standard Gross Earnings Form.
The Business Income Form, CP 00 30, provides for an extended period indemnity of not more than thirty days beyond the period of restoration. In addition, coverage for extra expense is provided. Both items are now part of the basic coverage.
Although the expression of coverage differs between the Business Income Form and Gross Earnings Form, there is no intended difference in business interruption coverage. Both approaches provide the same result.
The Business Income Coverage Form does not differentiate between mercantile or manufacturing insureds as did the prior standard gross earnings coverages. The form may be used by most commercial insureds.
The following are other noteworthy differences between the forms:
· For the purpose of applying the coinsurance condition of the policy, the minimum insurance required is now measured from the policy inception date (or last renewal), twelve months forward. The Standard Gross Earnings Form provided that required insurance was measured from the date of loss, twelve months forward. The change has the effect of making the required insurance for the purposes of the coinsurance calculation less speculative.
· Policy exclusions provided in the Gross Earnings Form are now described in the Cause of Loss Form and are not included on the Business Income Loss Form. Although certain modifications were made to the exclusions, most of the exclusions provided in the Gross Earnings Form remain applicable in the Business Income Form.
· The policy language related to the civil authority provision in the business income policy would also appear to imply broader coverage than was previously provided in the gross earnings form.
The Business Income Coverage Form compared with the
business income coverage provided in the Standard Businessowners Policy
The businessowners policy (BOP) provides business income and extra expense coverage within the businessowners property coverage form, BP 00 01. Although two versions of the BOP are available, standard or special, the business income and extra expense coverage provided by both options are the same.
The BOP is available only to certain businesses meeting eligibility requirements and its use is normally limited to service, retail, and certain rental operations.
The business income and extra expense coverage provided in the BOP is similar to that provided in the Business Income Coverage Form CP 00 30. The BOP, however, provides no limitation on the amount of loss (policy limit). Instead, a limitation is placed on the period of restoration or indemnity of twelve consecutive months. Losses beyond that period would not be covered by the BOP policy.
Prior to the 01 96 version of the BOP coverage form, the extended period of indemnity coverage and civil authority coverages were not available under the BOP form.
The unlimited coverage for ordinary payroll under the Business Income Form is not available under the 01 96 and later versions of the BOP form. Coverages for ordinary payroll were not limited to 60 days in earlier versions of the form.
