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Business Income Loss: Is an Endorsement Considered Part of the Policy?

An insured lost income due to an ice storm. Their commercial property policy has an enhancement for business income and extra expense. The claim was denied as coverage isn't "included in the policy."
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business income loss: is an endorsement considered part of the policy?

An ice storm left an insured without power for five days, leading them to suffer a loss of income. They have a commercial property policy—ISO CP0010, a program policy with a specialized property enhancement that includes business income and extra expense limit of $300,000, and a business income sublimit of $25,000 for lack of utility services.

However, the adjuster is declining coverage because the policy states: "Coverage for your business income and extra expense, if included in the policy, is extended to include…" The adjustor is considering “the policy" as the standard policy without the endorsement. I believe the endorsement is part of the policy.

Q: Is the enhancement endorsement not considered part of the policy? 

Response 1: The policy plus the endorsement is the contract. Why would the insured purchase endorsements if they weren't part of the contract? 

Based on the endorsement, if the insured purchased indirect coverage, the endorsement extends coverage for utility service to any premises listed in the declarations. Tell the adjuster to read the endorsement form, which includes the sections listed below, and then put in writing where the policy, including the endorsement, does not provide coverage.

II. Elite Enhancement Endorsement Conditions

  1. Applicability of Coverage

Coverage provided in forms attached to your policy is amended by this endorsement where applicable

VIII. The following is added and supersedes any wording to the contrary under the CAUSES OF LOSS—SPECIAL FORM

B. Utility Services (Applicable to Business Income (and Extra Expense) Coverage)

1. Coverage for your Business Income and Extra Expense, if included in the policy, is extended to include loss or damage that you incur due to the interruption, caused by a Covered Cause of Loss, of “Water Supply Services", “Communication Supply Services", or “Power Supply Services" to the premises described on the declarations.

Response 2: I think you're looking in the wrong place. Here's the key question: Does the base policy include business income and extra expense coverage? 

You say the base policy contained specialized wording, but if it's anything like the ISO form, it does include business income and extra expense coverage. If those are included in the base policy, then that coverage is extended or expanded to provide broader coverage for loss of utility services, such as the situation you described.

Response 3: If this endorsement is properly attached to the policy—meaning the form is attached and the schedule of forms and endorsements shows the endorsement as applicable— the endorsement changes the policy. Unfortunately, it is too common for adjusters to fail to review the entire policy in making coverage determinations. Of course, any analysis is not valid when not considering the policy and all its endorsements.

Response 4: You must have the coverage on the main part of the policy. The endorsement is very clear—it expands coverage if you have coverage. 

Response 5: It sounds as if the adjustor is reading the policy correctly. The phrase "If included in the policy" means that the business interruption and extra expense coverage would have had to be part of the package.

If that coverage part was written as part of the package, then the extensions would apply. In addition, the loss has to occur on the insured property, unless an endorsement for off-premise power failure was written. 

Business income and extra expense are very tricky coverages and the subjects of a large percentage of errors & omissions claims, both where the coverage is not written at all and where it is written incorrectly, incompletely or without the client's documented understanding.

If you confirmed your understanding of the coverages with the underwriter originally and documented that conversation carefully, there might be hope of taking this claim "up the chain of command" of the carrier.

This question was originally submitted by an agent through the Big “I" Virtual University's (VU) Ask an Expert Service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.

Thursday, January 21, 2021
Commercial Lines