From Business Income Losses…The Insurance Policy: Common Interpretations And Measurement Illustrations by: Steven J. Meils, CPA
The business interruption insurance contract has been long in development and has undergone many changes since its introduction almost a century ago. For almost as long, the contract with its unique insurance and accounting concepts has been a source of confusion for professionals responsible for its practical application.
The Insurance Services Office, Inc. (ISO) Business Income Coverage Form (CP 00 30) is the last major revision of the business interruption insurance contract and now serves as the standard business interruption coverage form in the industry. The ISO is a trade association of stock and mutual property and casualty insurance companies. The business income forms analyzed in this web log are prepared on an advisory basis by ISO for its members.
Although many important changes in coverage occurred with the introduction of the business income form in 1986, the coverage provided, as with earlier business interruption forms, remains integrally related to property insurance coverage. Furthermore, the form retains its character as a contract of indemnity with a clear measurement objective. In attaining that objective, the loss evaluator must approach the circumstances of a loss and resulting loss measurements in a rational and systematic manner. This naturally includes the utilization of principles and practices that are conducive to economic loss measurement. The loss evaluator must also give the proper consideration to other policy provisions that may expand, limit, or exclude coverage or recovery.
Having recently been revised, the business income form now deals with its topic in greater specificity than any of its predecessor forms did. Nevertheless, there will be those who seek to interpret the form in ways that provide them maximum advantage; or in ways that are inconsistent with the contract measurement objectives. Professionals with a working knowledge of the form will be in the best position to see that the contract objectives are attained. Neither more than nor less than the coverage promised should be provided.
Because so many insurers provide coverage (or close variations thereof), it should not be surprising that insurers may respond to losses in different ways based upon varying interpretations of the form. Throughout this web log, the author considers policy coverage and measurement issues that frequently arise in practice. In doing so, he resolves issues based on common interpretations in the industry and in a manner consistent with the underlying indemnity measurement objective. Clearly, however, there are differing schools of thought concerning those issues in the industry.
