In order to trigger business income coverage, there must be direct, physical loss or damage to the property caused by a covered cause of loss, such as windstorm or hail. This gas station in Panama City, Fla., took just such a beating during Hurricane Michael. (Bloomberg) In order to trigger business income coverage, there must be direct, physical loss or damage to the property caused by a covered cause of loss, such as windstorm or hail. This gas station in Panama City, Fla., took just such a beating during Hurricane Michael. (Bloomberg)

Analysis brought to you by the experts at FC&S Online, the recognized authority on insurance coverage interpretation and analysis for the P&C industry. To find out more — or to have YOUR coverage question answered — visit the National Underwriter website, or contact the editors via Twitter: @FCSbulletins.

Question: Our client is a tenant insured with a business-owner’s policy.

There was a problem with broken sewage pipes under the foundation of the building that resulted in contamination of the duct works. The contamination resulted in a temporary shutdown due to odor, the necessary repairs to the pipe and cleaning of the ducts. The physical damage was covered by the landlord’s insurance. The tenant made a claim for lost income to its carrier. The carrier denied coverage and stated that since the tenant’s property did not sustain any physical damage, there was no trigger of coverage for the loss of income. Do you agree?

— Kentucky Subscriber

Answer: The BOP states that there must be direct physical loss or damage to property at the described premises; it does not say insured property at the described premises, just property.

So, if the building is the described premises in the tenant’s policy and no exclusions preclude coverage, the tenant’s policy should provide business income coverage.

How is rental income loss covered?

Question: One of our clients owns land that he leases under a ground lease to a tenant that constructed its own commercial building. Our client requested to insure its loss of rental income in the event the building is destroyed by a covered cause of loss. However, the underwriter rejected the request stating that the loss of rental income could not be insured since our client did not lease the building to the tenant but rather just the land.

My thought was that if the tenant’s building was a total loss, the tenant would be unable to continue to pay the ground lease. Wouldn’t this be insurable interest in order to cover the loss of ground lease income? Also, the business income form does not require the damaged property to be owned property.

— Hawaii Subscriber

Answer: It really depends on what the lease says. If after the lease ends the owner of the ground lease obtains ownership of the building, loss of rents coverage is permitted. However, if the building ownership remains with the lessee, loss of rents is not permitted.

On a practical note, even if loss of rents for the landowner is permitted, probably not many underwriters would write the coverage because the land owner has no control over the building. It seems that an underwriter would consider this lack of risk control a serious impediment to writing loss of rents coverage for the landowner — even if it is permitted.

This policy has multiple insured tenants

Question: We have multiple named insureds on a property policy with business income and extra expense coverage, including loss of rents. One named insured (ABC) rents all of the locations to another insured. If a business income loss occurs, can both ABC collect for its loss of rents; and the other named insureds collect for their actual income loss and extra expenses?

— Iowa Subscriber

Answer: Yes, the policy would allow ABC to recover for the loss of rents and the other named insureds to collect for their business income losses and extra expenses. Of course, if the other named insureds claim rent payments as part as their continuing expenses, then ABC cannot also collect for loss of rents. But if there is no overlap in what they each claim, they should all be able to recover their losses.

Can a generator be covered as an ‘extra expense’?

Question: Our insured had to purchase a generator due to a severe storm in the area knocking out the transformer. Would the generator be a covered “extra expense” based on the following policy language of CP 00 30, Business Income and Extra Expense Coverage Form?


  1. We will pay the actual and necessary “extra expense” you incur to avoid or minimize the suspension of business and to continue your business activities. Coverage applies when you sustain a direct physical loss or damage to property at the premises described on the Declarations, caused by or resulting from any Covered Cause Of Loss.
  2. We will also pay the actual and necessary “extra expense” caused by the interruption of service to the described premises. The interruption must result from direct physical loss or damage by a Covered Cause Of Loss to: “dependent business premises,” “communication supply service,” “water supply service,” “power supply service” or “sewage treatment service” which provide service for a fee or charge to the premises described on the Declarations. Only the “extra expense” you incur after the service has been interrupted for 12 hours will be covered.

— Wisconsin Subscriber

Answer: It is our opinion that if the business interruption was caused by a covered cause of loss and the generator was necessary to continue business activities and minimize the suspension of business, then yes, it would be covered if it was purchased after the electric service had been interrupted for 12 hours.

Insured relocated the business to his home

Question: We are hoping you can help us in interpreting some policy language. Our insured is a small manufacturer who leased premises that were destroyed in a fire. He is insured on a CP 00 10 04 02 with broad form coverage, with the CP 00 30 04 02 business income and extra expense coverage form attached.

He established a temporary office in his own home until he was able to find a suitable space elsewhere, which took about two months. Unfortunately, he did not have adequate business personal property coverage.

Our questions are these: Is the expense incurred to move to and set up the temporary office covered? Also, can extra expense coverage be used to replace any of the business personal property; and, if so, is the coinsurance penalty applied to this?

— Michigan Subscriber

Answer: Any extra expense incurred “to avoid or minimize the suspension of business and to continue ‘operations’ at a temporary location, including “costs to equip and operate the … temporary location” is covered.

The additional coverage for extra expense can indeed be used to replace business personal property, but only to the extent the amount spent reduces the amount that would otherwise be payable as business income. For example, if the insured spends $50,000 extra expense dollars to purchase office furniture because of a property insurance shortage, and is able to resume operations quickly, thereby reducing his business income loss by $25,000, he is entitled to $25,000, the amount of the reduced loss. (He cannot claim the entire $50,000. To receive full payment would encourage under-insurance.)

Coinsurance does not apply to additional coverages, which are extra expense, civil authority, alterations and new buildings, and extended business income.

See also:

Will business income insurance cover these 7 losses?

Most small business owners lack a disaster recovery plan