Will insurance cover these unusual extra expenses?

With respect to the training expenses as extra expense for these new employees, the coverage form provides for extra expenses that are necessary to avoid or minimize the suspension of business and to continue operations. These extra expenses would have to be expenses that the insured incurs during the "period of restoration," and which they would not have incurred if there had been no fire. If the training was a necessary expense that meets these qualifications, then there should be coverage. However, if they are simply training expenses for new employees that are not a necessary component to continue operations during the period of restoration, then there would not be coverage.

Related: Conflicting policy provisions lead to coverage for fire at insured's home

Tenant relocation costs

Question: A fire in an 18-unit apartment building shut down the entire building. (There was no negligence on the part of the landlord.) The city put up the tenants for a period of time until they were able to find permanent housing, and subsequently billed the landlord for the temporary housing expense and put a lien on the property in the amount of $20,801.16. 

The policy pays for tenant moving of contents with a $10,000.00 limit, which was exceeded. The insurance company denied coverage for the housing cost under the building section of the policy, as well as under extra expense.

It is my argument that the cost of the tenants temporary housing should be covered under the business income portion of the claim, as an expense directly related to the fire that reduces the insured's profit for the year. The insurance company has rejected that claim and will not pay the expense. Is there coverage for this expense?

— Kentucky Subscriber

Answer: Business income coverage is for direct loss of income; if the tenants no longer paid rent while the building was being repaired, that would be business income. It is the direct loss of income related to the loss. The city putting the tenants up is not a loss of income to the business nor does it affect the business directly. Likewise extra expense is for extra expenses in order to minimize the suspension of the business and continue operations; the city putting up the tenants did neither for the insured, so again extra expense does not apply. The tenants that had a tenant's policy would have had additional living expense coverage for their displacement. The carrier is correct, there is no coverage for this loss.

Related: Understanding how property is valued after a fire

Business income coverage is for direct loss of income after a covered event. (Photo: iStock)

Bulking up on security after a fire

Question: A hotel client suffered a fire. The hotel is large and is located in a rough neighborhood. The policy appears to have ISO language for extra expense and business interruption. The extra expense language allows coverage for expenses incurred to avoid or minimize the suspension of operations. The policy further stipulates that the insured must take steps to preserve and protect the property from further damage. 

As a result of the fire, and in order to minimize the suspension of operations as well as to preserve and protect the property, the insured retained a security service to protect the site. The insured is concerned that without security the building may be vandalized and suffer further damage, thereby increasing the suspension period. The insurer has refused to pay for the security costs. The insured believes that the carrier should pay for security at least until the claim is settled.

— California Subscriber

Answer: The cost for security could be considered an extra expense. If it meets the criteria — it must minimize the suspension or if the business cannot operate minimize the business income loss — and if it is an expense that would not have been incurred except for the loss, then it should be considered an extra expense. But if, for example, the insured already employed security (as the hotel is in a bad neighborhood), then it may not be considered an extra expense but a continuing operating expense.

Related: Here's why some fire damage claims go up in smoke

Severe storm spurs generator purchase

Question: Our insured had to purchase a generator due to a severe storm in the area knocking out the transformer. Would the generator be covered as an extra expense due to the following policy language?

COVERAGE

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 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 twelve hours.

Will insurance cover a product price increase?

Question: We are going through a severe drought in Puerto Rico, and the insured is purchasing water at higher rates than he would have if he were to purchase it from the Puerto Rico Water and Sewer Authority. 

The insured has a Commercial Package Policy, which includes ISO form CP 00 30 10 90, Business Income Coverage and Extra Expense, and CP 04 17 07 88, Off- Premises Power Failure Direct Damage. We find no drought exclusion under the causes of loss form, CP 10 30 10 90.

Is the extra expense incurred by the insured a covered extra expense loss?

— Puerto Rico Subscriber

Answer: Extra expense coverage applies under CP 00 30 during the period of restoration when a suspension of business occurs. Extra expense is a necessary expense the insured would not have incurred but for the direct physical loss or damage to property caused by a covered cause of loss. Extra expense is paid to avoid or minimize the suspension of business and to continue operations, to minimize the suspension if the insured cannot continue operations, or to repair or replace property to the extent it reduces the amount of loss that otherwise would have been payable.

From what you describe, there has been no loss or damage to covered property, but an increase in the price of water due to the drought. This is not a situation that would trigger extra expense coverage. If the business did not experience direct physical loss or damage or a period of restoration, the extra expense coverage would not apply.

The CP 04 17 endorsement applies when covered property has been lost or damaged by the interruption of water supply services to the premises. The pumping station or water mains must experience direct physical loss or damage that caused the interruption. From what you describe, the service was not interrupted, the cost just increased.

The scenario is more the cost of doing business as opposed to an insurable situation.

See also:

Doing the math for business income claims

5 reasons why renters need insurance