PF&M AT A GLANCE

Time Element Coverage Forms Overview

Time element insurance covers loss of earnings or income when business operations are interrupted, curtailed or suspended as the result of an insured loss to covered property. For example, if an apartment building burns down and has coverage for loss from fire, the time element insurance would cover the interruption of the flow of rental income dollars while the apartment building is being repaired or rebuilt.

Insurance Services Office (ISO) has four basic, core coverage forms that provide time element coverage.

Business Income (and Extra Expense) Coverage, Form CP 00 30. This is the most frequently used form. It provides reimbursement for both lost income and extra expenses incurred as a result of direct damage to insured property caused by a covered peril or cause of loss. Extra expense covers costs incurred to continue operations from another location. Example: Tony’s Comic Book Shop burns to the ground. Tony loses significant income from walk-in business that occurs at the site he occupied. While the shop is being rebuilt, he rents space at another location so he can continue to feed his regulars’ habit when the new comics come out every Wednesday.

Business Income (Without Extra Expense) Coverage, Form CP 00 32. This form provides the same business income coverage as above, except that it provides essentially no extra expense coverage. This form is appropriate for operations that are shut down by a covered peril or cause of loss but do not expect to have any unusual or unanticipated extra expenses. The apartment building mentioned above would be an example where extra expense coverage would not be needed.

Extra Expense Coverage, Form CP 00 50. This form provides coverage only for extra expenses incurred and applies to operations that will not close if a covered loss occurs. These businesses, such as newspaper publishers and hospitals, must continue in operation and will incur any extra expense necessary to continue operations, elsewhere if necessary, without interruption. Example: An insurance agent’s office is severely damaged by fire. A full and complete set of backup files is maintained at another location. The agent will not lose any income because of the loss of the office but will need to rent temporary office space, furniture, equipment and communications services to maintain operations. Additional costs to notify clients and insurance companies and other expenses to maintain operations will also be incurred.

Leasehold Interest Coverage, Form CP 00 60. This is usually for the tenant who has a long-term lease with an attractive (below market) lease arrangement. The coverage is for the financial benefits attributable to the lease for the time remaining on the lease and applies only if the lease is canceled because of direct damage to the property as a result of a covered peril or cause of loss.

In addition, a number of optional endorsements are available to customize these basic coverage forms to meet the specific insurance needs of certain customers.

Insured losses are not always the only cause of time element losses. Events such as strikes, a new highway taking away traffic flow, loss of supply and so forth, all can cause a business to lose income. Standard time element insurance policies generally do not provide coverage for such events; however, manuscripted policies are available for industries that experience unique business interruption risks.

The Business Income Report/Work Sheet (CP 15 15) can help the insured, agent and the insurance company to determine the appropriate policy form and proper limit of insurance to be carried for the coverage selected. This work sheet contains detailed instructions and steps to take to arrive at a sound figure to use for the limit.

Please note that this is only a brief and simplified overview of this large and complex coverage area. A more complete and detailed discussion of the various time element coverage forms can be found in the PF&M Analysis from The Rough Notes Company, Inc.

Agency OnLine subscribers can refer to PF&M Section 131.1, Time Element Coverage Forms Overview, PF&M Section 131.4-2, Time Element Coverage Forms Analysis and PF&M Section 131.4-3, Time Element Program Endorsements And Their Uses for more detailed discussions and additional information on this subject. This area also includes underwriting and rating information and tips, worksheets to determine appropriate limits and analyses of a number of the forms mentioned above that have specialized or unique applications. *