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Business Interruption and Business Income Coverages

Profits - Insures against loss directly resulting from necessary interruption of business caused by destruction or damage to buildings, equipment or stock by an insured peril. Coverage is limited to loss of gross profit due to (a) reduction in turnover and (b) increase in cost of working. Indemnity is for the period beginning with the occurrence of a peril insured and ending when the gross profit has been restored to normal, subject to the maximum indemnity period. It has the advantage over other business interruption forms as the other forms cease to cover when the facility is restored and the doors open for business. Insureds should be encouraged to err on the side of overestimating profits as a premium adjustment is available to refund premium for coverage in excess of the required amount (subject to a maximum of 50% of the premium paid). A provision in the "Measure of Recovery" clause has the effect of requiring 100% co-insurance.

Gross Earnings - Mercantile or Non-Manufacturing - Coverage applies for non-manufacturing businesses. Insures against loss directly resulting from necessary interruption of business caused by destruction or damage to buildings, equipment or stock by an insured peril. Coverage is limited to the time that it would take to rebuild the damaged property with due diligence and dispatch; hence once the doors reopen for business, coverage ceases. However, unlike the profits form, there is no indemnity period stipulated. Insureds should be encouraged to err on the side of overestimating profits as a premium adjustment is available to refund premium for coverage in excess of the required amount (subject to a maximum of 50% of the premium paid). Coinsurance can either be 50% or 80% unless ordinary payroll coverage is excluded or limited. If excluded or limited, coinsurance must be 80%.

Rent or Rental Value - Covers loss of rental income resulting from an insured business interruption loss. Coverage is for the period beginning with the occurrence of the damage and ending not later than such length of time, not exceeding 12 consecutive calendar months, as would be required with exercise of due diligence and dispatch to rebuild, repair or replace the lost or damaged property. Rental income is the sum of money paid or payable to the insured by tenants (hence rental value before vacancy allowance) plus a fair rental value of any portions occupied by the insured. If 50% co-insurance is chosen, the limit for insurance should be the estimated rental income for the six months period commencing twelve months after the effective date of the coverage. If 100% co-insurance is chosen, the limit for insurance should be the estimated rental income for the twelve months period commencing twelve months after the effective date of the coverage.

Gross Rentals - Covers loss of rental income resulting from an insured business interruption loss. Coverage is for the period beginning with the occurrence of the damage and ending not later than the end of the maximum indemnity period specified in the Declarations, during which the results of the business shall be affected in consequence of the damage. Rental income is the sum of money paid or payable to the insured by tenants (hence rental value before vacancy allowance). Where the maximum indemnity period is 12 months (the default), the limit chosen for insurance should be the estimated rental income for the one- year period commencing 12 months after the effective date of the coverage.

Extra Expense - Covers the extra expense of continuing business operations interrupted by an insured business interruption loss. Coverage is for the period beginning with the occurrence of the damage and ending not later than such length of time, as would be required with exercise of due diligence and dispatch to rebuild, repair or replace the lost or damaged property. Limitations apply for each month (defined as 30 consecutive days). Default limitations are 40% for first 30 days; 70% for first 60 days; 90% for first 90 days.

Profits - Insures against loss directly resulting from necessary interruption of business caused by destruction or damage to buildings, equipment or stock by an insured peril. Coverage is limited to loss of gross profit due to (a) reduction in turnover and (b) increase in cost of working. Indemnity is for the period beginning with the occurrence of a peril insured and ending when the gross profit has been restored to normal, subject to the maximum indemnity period. It has the advantage over other business interruption forms as they cease to cover when the facility is restored and the doors open for business. Insureds should be encouraged to err on the side of overestimating profits as a premium adjustment is available to refund premium for coverage in excess of the required amount (subject to a maximum of 50% of the premium paid). A provision in the "Measure of Recovery" clause has the effect of requiring 100% co-insurance.

Business Income - Covers loss of business income resulting from an insured business interruption loss. Coverage is for the period beginning with the occurrence of the damage and ending not later than such length of time, not exceeding 12 consecutive calendar months, as would be required with exercise of due diligence and dispatch to rebuild, repair or replace the lost or damaged property. Business income is revenue less variable operating expenses adjusted for opening and closing inventories of stock and work in progress. Variable operating expenses are purchases (net of discounts), packing materials, delivery and freight (other than by own vehicles) and ordinary payroll. The limit chosen for insurance should be the estimated business income for the one-year period commencing 12 months after the effective date of the coverage. Insured’s should be encouraged to err on the side of overestimating business income as a premium adjustment is available to refund premium for coverage in excess of the required amount (subject to a maximum of 50% of the premium paid). Coinsurance is 80% and cannot be changed.

Rental Income - Covers loss of rental income resulting from an insured business interruption loss. Coverage is for the period beginning with the occurrence of the damage and ending not later than such length of time, not exceeding 12 consecutive calendar months, as would be required with exercise of due diligence and dispatch to rebuild, repair or replace the lost or damaged property. Rental income is the sum of money paid or payable to the insured by tenants (hence rental value before vacancy allowance) plus a fair rental value of any portions occupied by the insured. The limit chosen for insurance should be the estimated rental income for the one-year period commencing 12 months after the effective date of the coverage. Insured’s should be encouraged to err on the side of overestimating rental income as a premium adjustment is available to refund premium for coverage in excess of the required amount (subject to a maximum of 50% of the premium paid). Coinsurance is 80% and cannot be changed.

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