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 Business Interruption and Extra Expense
Business interruption coverage pays for income loss associated with an interruption of operations that results from a covered accident to covered equipment. Coverage is also provided for extra expenses incurred to reduce or avoid the interruption of operations, but only to the extent that the amount otherwise payable is reduced.
Extra expense coverage pays for costs in excess of normal operating expenses that are incurred by a business to continue operations without interruption, or to minimize the interruption, after an accident to covered equipment. Note, however, that income loss is not covered at all under an extra expense endorsement. Extra expense coverage is appropriate for any business that would be willing and able to continue operations, despite a covered accident, by incurring additional expenses—expenses that might even exceed the amount that the business would have earned during the period of interruption. The most frequently cited examples of businesses in this category are newspapers and dairies, whose customers would perhaps be permanently lost to competitors if continuous service were not provided. However, any organization for whom market share or customer service considerations are paramount (a hospital, for example) could fall into this category, if it would have some means of continuing operations despite a covered accident.
Some organizations need both business interruption and extra expense coverage. Many businesses that principally have business interruption exposures need extra expense coverage for their non-income-producing locations, like corporate office buildings and warehouses. Similarly, there are some organizations that have principally an extra expense exposure, but could suffer an income loss as well, if their property were damaged. A hospital, for example, would probably go to great lengths, regardless of cost, to secure and equip temporary quarters and continue to service the public. Nevertheless, it would probably lose some income as a result of patients and physicians electing to have services performed elsewhere. Also, it is sometimes difficult to know in advance whether it will be necessary or even possible to resume operations while recovery is in progress. The solution to these coverage needs is the purchase of both business interruption and extra expense coverage. A combined business interruption and extra expense coverage endorsement provides both types of time element coverage in one form, subject to a single coverage limit.
Deductible Options There are three deductible options.
When a time deductible applies, the insurer pays only for loss occurring after the specified number of hours or days immediately following the "commencement of liability."
When a dollar deductible applies, the insurer pays only the portion of the loss that exceeds the indicated dollar amount.
When a multiple of daily value deductible applies, the insurer pays only the portion of the loss that exceeds the dollar equivalent of the specified multiple of the daily business interruption value during the period of interruption. Suppose, for example, that the specified multiple is 3, and that it is determined at the end of the period of interruption that the daily business interruption value for that interruption was $10,000. The multiple of daily value deductible for that particular business interruption loss would be $30,000. Because that insured's daily business interruption value might be different for a different period of interruption, the multiple of daily value deductible for the same insured under the same policy might be a different amount for different accidents.
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