Study 3 – Business Income: The Extended Forms C40 – Business Interruption Insurance

Study 3 - The Extended Forms » Define the terms shown in the Definitions sections of the Extended Business Income forms » Distinguish each of the clauses in the two Extended Business Income forms from corresponding clauses in their standard-form counterparts.

The Extended Business Income Form (Named Perils) (IBC Form 4107A) » Named perils coverage. A property insurance term referring to policies that provide coverage only for loss caused by the perils specifically listed as covered.

Definitions » The business of the insured. » Specified in the Declarations page.

Definitions » The sum of the revenue and the amounts of closing stock and work in progress. shall exceed » The sum of the amounts of opening stock and work in progress & variable operating expenses.

Definitions » Direct physical loss of or damage to property. » At the insured premises. » From a Peril insured.

Definitions » Applicable to this form.

Definitions » The period beginning with the occurrence of the damage and ending not later than 12 consecutive months or to repair, rebuild or replace. » Or so specified on the Declarations page.

Definitions » The condition which would have existed had no loss occurred.

Definitions » The entire payroll expense for all employees other than salaries to permanent staff, foremen, and important employees.

Definitions » The entire area within the property lines and areas under adjoining sidewalks and driveways at the locations described in the “Declarations Page”. » In or on vehicles within 100 m of such location.

Definitions » Revenue – the money paid or payable to the insured for goods or services. » Revenue shortfall – the amount by which the revenue falls short of the expected income.

Definitions » The business of the insured. » Specified in the Declarations page.

Definitions » The percentage obtained by dividing the “Business Income” by the “Revenue” during the financial year immediately before the date of the “Damage”.

Definitions » The Revenue during the twelve months immediately before the date of the damage.

Definitions » The Revenue during the period corresponding with the indemnity period in the 12 months immediately before the damage. » Appropriately adjusted if it exceeds the 12 months.

Indemnity Agreement » The insurer shall pay to the Insured the loss of “Business Income” suffered during the “Indemnity Period” in consequence therefore, in accordance with the terms and conditions of this form.

Limits of Insurance » The insurer, regardless of the number of persons and interests insured under this form shall not be liable for more than the applicable amount of insurance specified on the “Declarations Page”

Co-insurance 1)Determine the Business income during the financial year immediately before the loss. 2)Determine the Revenue during the financial year immediately before the loss. 3)Determine the Business Income percentage. 4)Determine the Annual Revenue. 5)Multiply the Business Income Percentage by the annual Revenue. 6)Multiply #3, #4 and #5.

Perils Insured

Exclusions – Part First Group

Exclusions – First Group

Determination of Payment » This insurance, subject to the limitation of the amount of insurance stated on the “Declarations Page”, is limited to loss of “Business Income” due to » A)In respect of reduction of “Revenue” and » B)In respect of increase in cost of operations. » Less any sums saved during the indemnity period.

Payroll

Interruption by Civil Authority » The damage to neighboring premises that gives rise to the denial of access » Must have been given by civil authorities » Limited to 2 weeks.

Accountant Fees » Pays reasonable charges to the insured’s accountant for producing documents verifying the claim. » Limited to $2,000.

Clauses » Permission » Breach of Conditions » Reinstatement » Subrogation » Property Protection Systems

Alternate Trading » Duty to minimize loss. » Money payable in respect of sales or services.

Obligation to Minimize Loss » Duty to minimize loss. » Applies only to the insured.

Premium Adjustment » The insured must file with the insurer a premium adjustment application form showing that 100% of business income. » Insured can apply for return of premium. » Limit of 50% of premium paid.

The Extended Business Income Form (Broad Form) (IBC Form 4107B) » Broad Form coverage. A property insurance term referring to policies that provide coverage only for loss caused by all perils not specifically listed as excluded.

Exclusions – First Group

Exclusions – Second Group

Obligation to Minimize Loss » Duty to minimize loss. » Applies only to the insured.

Premium Adjustment » The insured must file with the insurer a premium adjustment application form showing that 100% of business income. » Insured can apply for return of premium. » Limit of 50% of premium paid.

Rating

Named Peril Differences - Definitions - Standard Form » Indemnity Period – repair, rebuild or replacement / 12 months. » Expected Revenue – 12 month indemnity period. Extended Form » Indemnity Period – the results of the business / 12 months or on the Dec page. » Expected Revenue – allows period other than 12 months.

Named Perils Differences - Co-insurance - Standard Form » Reflects a 12 month indemnity period. » Requires 80%. Extended Form » Requires a function of annual revenue or a multiple of it, if the indemnity period exceeds 12 months. » Requires 100%.

Named Perils Differences - Exclusions - Standard Form » By-laws » Strikers » Suspension or lapse Are all excluded. Extended Form » By-laws » Strikers » Suspension or lapse Are not excluded.

Named Perils Differences - Obligation to Minimize Loss - Standard Form » Common Law Duty. Extended Form » Specified explicitly.

Named Perils Differences - Premium Adjustment - Standard Form » Reflects 12 month Indemnity Period. » Reflects 80% co- insurance clause. Extended Form » Allows for indemnity other than 12 months. » Reflects 100% co- insurance clause.

Broad Form Differences - Definitions - Standard Form » Indemnity Period – repair, rebuild or replacement / 12 months. » Expected Revenue – 12 month indemnity period. Extended Form » Indemnity Period – the results of the business / 12 months or on the Dec page. » Expected Revenue – allows period other than 12 months.

Broad Form Differences - Co-insurance - Standard Form » Reflects a 12 month indemnity period. » Requires 80%. Extended Form » Requires a function of annual revenue or a multiple of it, if the indemnity period exceeds 12 months. » Requires 100%.

Broad Form Differences - Exclusions - Standard Form » By-laws » Strikers » Suspension or lapse Are all excluded. Extended Form » By-laws » Strikers » Suspension or lapse Are not excluded.

Broad Form Differences - Obligation to Minimize Loss - Standard Form » Common Law Duty. Extended Form » Specified explicitly.

Broad Form Differences - Premium Adjustment - Standard Form » Reflects 12 month Indemnity Period. » Reflects 80% co- insurance clause. Extended Form » Allows for indemnity other than 12 months. » Reflects 100% co- insurance clause.

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