Wednesday, June 11, 2014

How to Add Business Interruption Coverage for Vehicles and Mobile Equipment

New ISO endorsements let you add business income and extra expense coverages to your clients' commercial auto coverage.

Reprints By Arthur Flitner, The Institutes

Have you ever had an insured who wanted to buy business interruption coverage on a vehicle or mobile equipment operated away from the insured’s premises?

If you did not have access to an insurer with a proprietary form for this purpose, you might have lost the account.

Insurance Services Office, Inc. (ISO) has introduced endorsements for adding business income and extra expense coverages to a commercial auto coverage part, a commercial property coverage part, or a businessowners policy.

For a commercial auto coverage part, use endorsement CA 99 05, Business Interruption Coverage (“CA endorsement”).

For a commercial property coverage part, use endorsement CP 15 06, Off-Premises Interruption of Business—Vehicles and Mobile Equipment (“CP endorsement”). This endorsement can be attached to a commercial property coverage part only if it includes business income and/or extra expense coverage for the described premises with the Causes of Loss—Special Form.

For a businessowners policy, use endorsement BP 10 80, Off-Premises Interruption of Business—Vehicles and Mobile Equipment (“BP endorsement”). Scheduled Property Each endorsement limits coverage to "scheduled property," consisting of any vehicles or mobile equipment listed in the endorsement's schedule.

Each item must be listed under either Option A or Option B:

Option A is used if the insured is listing one or more items of scheduled property with a separate limit of insurance for each item (such as three trucks, each with its own limit). Option B is used to list two or more items covered for a single limit of insurance that applies to all loss to any or all of the listed items damaged in a single occurrence.

Option B is often the better choice for a business insuring multiple vehicles. If, for example, only one vehicle is damaged or destroyed, the insured will not need to worry that a per-vehicle limit (as under Option A) is insufficient to cover the vehicle's full value.

Described Premises and Business Activities

CP and BP schedules each contain a space for listing the described premises. This information is needed because several provisions refer to the described premises.

Most notably, the business income insuring agreement in both the CP and BP endorsements requires that the scheduled property be located away from the described premises at the time of loss. Business interruption resulting from damage to vehicles or mobile equipment situated on the insured’s premises is covered under the insured’s regular business income and/or extra expense coverage form.

The schedule in the CA endorsement has no space for listing the described premises. This endorsement covers loss of business income or extra expense resulting from damage to scheduled property anywhere in the coverage territory, regardless of whether it is on or away from the insured’s premises.

Each endorsement also requires a description of the insured’s business activities, or "operations," that are dependent on the scheduled property. Producers should make sure this description is accurate and up to date because the endorsements’ coverages apply only with respect to the listed operations.

Each of the endorsements also provides coverage for these types of property not listed in the schedule:

~ Property used as a temporary substitute for scheduled property while out of service because of breakdown, repair, servicing, destruction, or accidental loss or damage.

~ Newly acquired property that replaces scheduled property and is reported to the insurer within 30 days after the insured acquires it.

Covered Causes of Loss The CA endorsement contains check-off boxes for selecting Collision and either Comprehensive or Specified Causes of Loss, as defined in the endorsement.

The only selection that must be made for the CP and BP endorsements is Yes or No for adding Collision as a covered cause of loss. These endorsements automatically provide the equivalent of Comprehensive by extension of the open perils coverage that applies to business interruption at the described premises.

Options for Waiting Period and EBI Waiting period options vary among the endorsements:

~ CA endorsement: a 72-hour waiting period applies to business income coverage; for an additional premium, the insured can select a 24-hour waiting period or no waiting period.
~ CP endorsement: the waiting period that applies to coverage at the described premises applies also to the endorsement.

~ BP endorsement: a 72-hour waiting period applies to business income coverage; for an additional premium, the insured can select no waiting period.

Each of the endorsements includes an Extended Business Income (EBI) additional coverage, which covers loss of business income occurring after the scheduled property is actually repaired or replaced and operations resume. EBI applies for up to 60 consecutive days unless the endorsement schedule shows another number of days. For an additional premium, the EBI coverage period can be increased up to 730 days in the CA and CP endorsements or 360 days in the BP.

Insurance-to-Exposure Factors

To encourage the purchase of adequate insurance, insurance-to-exposure factors apply when rating an endorsement that includes multiple items insured for a single limit under Option B. As the percentage of insurance to exposure decreases, the premium is increased in accordance with the applicable factors.

The coverage rule requires the underwriter to evaluate the full business interruption exposure for all items being covered under Option B and provides a process for estimating the exposure. After estimating the exposure, the underwriter divides the limit of insurance by the exposure, converts the result to a percentage, and finds the corresponding rating factor in the

Insurance to Exposure Factors table:
Insurance to Exposure Factors
Percentage Of Ins Factor To Exposure
75% or more 1.00 50% to 74.9%
1.75 25% to 49.9%
2.50 Under 25% 3.25

Insurance-to-exposure factors do not apply to items insured under Option A. However, underwriters can obtain adequate premium for property insured under Option A by evaluating the business interruption exposure for each item of scheduled property and making sure that the limit for each item is no less than a set percentage of the exposure, as may be specified in the insurer’s underwriting guidelines. For more training resources and opportunities, please contact Tague Alliance and inquire about being a member agent!

Taken from