Extra Expense Coverage

If a limit is indicated on the schedule of coverages, the policy covers extra expense necessary during the restoration period that the insured would not have incurred had no covered direct physical loss or damage occurred. “Restoration period” is defined as in many other business interruption forms; that is, beginning with the date the loss occurred, and ending on the date the property should be rebuilt or replaced, or the business resumes at a new location. Not included within the restoration period is any increased time because of enforcement of any ordinance or law requiring monitoring or clean-up of pollutants.

Extra expense coverage is triggered when there is direct physical loss of or damage to covered property at a scheduled premises, or when there is damage to a premises described on the schedule of coverages that prevents the insured from using covered property. Coverage is also triggered if there is direct physical loss or damage to air conditioning or electrical systems necessary for the operation of covered property.

Extra expense coverage also responds to expenses to repair, replace, or restore property, and research, replace or restore information of documents that are written or exist on electronic or magnetic media. These expenses are only payable to the extent they reduce a loss otherwise payable under this coverage.

Certain exclusions apply to this coverage. There is no coverage for loss caused by or resulting from: errors or omissions in programming; suspension or cancellation of any leases, licenses, contracts, or orders beyond the restoration period; interference of strikers; or utility failure if the failure takes place off premises. Coverage for this latter excluded cause of loss can be purchased; see Endorsements.

Coverage for loss of income from loss or damage to covered business computer equipment can be purchased. See Endorsements, later in this article.

Coverage Extensions

The policy form contains four coverage extensions. The limits indicated in the coverage form can be increased; if this is done the increased limit must be indicated on the schedule of coverages. These limits are part of, and not in addition to, the limit applying to the covered property. The coverage extensions are not subject to, and should not be considered, when applying any coinsurance penalty

The first is coverage for debris removal of covered property caused by a covered peril. This does not include coverage to remove pollutants from land or water. (Coverage for this is a supplemental coverage.) The limit is 25 percent of the amount paid for direct physical loss, which is included in the limit applying to the damaged property. However, if the debris removal expense exceeds 25 percent, or if the expense plus the amount paid for damage to covered property plus debris removal exceeds the limit for the damaged property, an additional $5,000 is available. As noted, the coverage for debris removal can be increased by indicating an amount in the schedule.

Expenses for debris removal must be reported to the insurer in writing within 180 days from the date of covered loss.

The second coverage extension is for loss caused by electrical disturbance—electrical or magnetic damage, disturbance of electronic recordings, or erasure of electronic recordings—or loss caused by power supply disturbance—interruption of power supply, power surge, blackout, or brownout. Loss is covered only if the electrical or power supply disturbance took place within 500 feet of the premises where the loss occurred, unless the insured elects to have this limitation removed.

The third coverage extension is for emergency removal. As is common in many property coverage forms, any direct physical loss to covered property is covered while it is being moved or stored to prevent a loss caused by a covered peril. But while many forms provide only 30 days, the business computer form coverage applies up to 365 days after the property is first moved. However, coverage ceases upon the policy's expiration. If the insured attaches the additional coverages endorsement (see Endorsements, later in this article) then the limit for coverage under this peril is in addition to, and not included in, the limit applying to the property.

The final coverage extension is for mechanical breakdown coverage. The insurer promises to pay for loss caused by this peril. See Definitions, earlier in this article.

Supplemental Coverages

The business computer coverage form contains three supplemental coverages. As was the case with coverage extensions, the limit indicated in the coverage form applies unless a different limit is selected, which must then be shown on the schedule of coverages. But unlike the coverage extensions, the limit for a supplemental coverage is in addition to, and not a part of, the applicable limit for the covered property unless otherwise indicated. Additional supplemental coverages can be purchased by attaching the additional coverages endorsement; see Endorsements, later in this article.

The first of the supplemental coverages is for new hardware and acquired locations. The insurer will pay up to $50,000 for direct physical loss by a covered peril to additional hardware, including pre-installed software, that the named insured purchases or leases during the policy period. The hardware must be installed at a location described on the schedule of coverages, or at a location acquired during the policy period. Coverage is for a period of sixty days from the date the additional property or location is acquired, or until the insured reports the hardware or location to the insurer, whichever occurs first. The coverage will not extend beyond the end of the policy period. Any additional premium must be paid.

The second supplemental coverage applies to pollutant clean-up. If reported within 180 days from the date of a covered loss, the insurer pays $5,000 for the insured's expense to extract pollutants from land or water if the pollutant discharge was caused by a covered peril that occurred during the policy period. The $5,000 limit applies to each location and is the most that will be paid for the sum of all such expenses during each 12-month period of the policy.

The third supplemental coverage is $5,000 for direct physical loss to hardware or software while in transit, or in the custody of the named insured, officers, partners, or employees. If the latter, the property must be at the residence of one of these, temporarily at a premises not described on the schedule of coverages (as if, say, an employee took a laptop to make a sales call at a client's office), or in transit between a residence or temporary premises and a premises described on the schedule of coverages.

Exclusions

The business computer coverage form covers risks of direct physical loss unless an exclusion applies. The following exclusions are prefaced by anti-concurrent causation language, so that the loss or damage is excluded despite any other cause or event that might contribute to or aggravate the loss. However, in the case of earth movement, flood, and sewer backup, coverage may be purchased by endorsement. See Endorsements, later in this discussion.

Civil authority. Loss, seizure, or destruction resulting from any order of civil authority is not covered, unless the action is taken to prevent the spread of a fire caused by a peril that normally would be covered by the policy. For example, a fire caused by lightning would be covered, but not a fire caused by the insured's arson.

Earth movement. Loss caused by earth movement or volcanic eruption is not covered, but if fire, explosion, or volcanic action results, any loss from those perils is covered.

Flood. Loss caused by flood is excluded; if fire, explosion, or sprinkler leakage ensues, that ensuing loss is covered.

Nuclear hazard. Loss caused by or resulting from nuclear reaction, radiation, or radioactive contamination is not covered, but if direct loss by fire results, that loss is covered.

Sewer backup and water below the surface. Loss caused by water backing up through a sewer or drain, or water below the surface of the ground, is excluded, but if one of these results in fire, explosion, or sprinkler leakage, that loss is covered.

War and military action. Any loss caused by war, including civil war or insurrection, is not covered. Any action falling within the terms of this exclusion, but involving nuclear reaction, will be deemed to be excluded under the war and military action exclusion.

The following causes of loss are excluded, but are not prefaced by anti-concurrent causation language.

Computer virus or computer hacking. Direct or indirect loss, loss of access, or loss of use caused by one of these is excluded. Coverage can be purchased by endorsement.

Contamination or deterioration. This exclusion also precludes coverage for loss caused by decay, fungus, mold, rust, or any latent defect. However, if contamination or deterioration results in a covered peril, the loss or damage caused by the covered peril is covered. The exclusion does not apply to loss caused by mechanical breakdown, since that is a covered cause of loss.

Criminal, fraudulent, dishonest, or illegal acts. This peril includes loss fraudulently caused by the named insured, partners, officers, employees, or any others to whom the named insured entrusts the property. Loss from “trick or device,” though, can be purchased. The exclusion does not apply to property in the custody of a carrier for hire.

Electrical disturbance. If an electrical disturbance is caused by an event occurring more than 500 feet from the insured's premises there is no coverage for any resulting loss, unless coverage is purchased by endorsement.

Loss of use. Any loss caused by or resulting from loss of use, delay, or loss of market is not covered.

Temperature/humidity. Loss caused by dryness, dampness, humidity, or changes in or extremes of temperature is not covered, but if the loss is caused by a direct physical loss to the air conditioning system that services the covered hardware, that loss is covered.

Voluntary parting. Similar to the exclusion for fraud or dishonest acts, this exclusion eliminates coverage for voluntary parting because of trick or false pretense. Coverage can be purchased by endorsement.

Duties in Event of Loss; Valuation

The named insured's duties in event of a covered loss are common to most insurance policies. The insured must: give prompt notice to the insurer or its agent; take reasonable steps to protect the property from further loss; provide a proof of loss; submit, if requested, to an examination under oath; produce appropriate records; and hold the damaged property for inspection by the insurer. Any payments, offer of any rewards, or assumption of any obligation is done at the insured's own expense, unless done to protect the property from further damage. The insured is to cooperate with the insurer, and is not to abandon the property to the insurer without the insurer's written consent.

The valuation provisions detail how the insurer will settle a covered loss.

Hardware. Unless an actual cash value settlement is indicated on the schedule of coverages, a loss to hardware is adjusted on a replacement cost basis. If actual cash value is selected, a deduction for depreciation is made. Replacement cost is limited to the cost to repair or replace with similar materials on the same site and used for the same purpose and will not be paid unless the property is actually replaced or repaired. The insured has 180 days from the loss to notify the insurer of the intent to replace.

Software. A loss to programs and applications is settled based upon the cost to reinstall these from the original licensed discs; if the discs have been lost or damaged, the value will be based on the cost of the most current version. A loss to proprietary programs is valued based on the cost of reproduction from duplicate copies; if duplicates do not exist, the value is based on the cost of research or other expenses necessary to reproduce or restore the proprietary programs. The value of data records is based on the cost of reproduction from duplicates; if duplicates do not exist, then the value will be based on the cost of research or other expenses necessary to reproduce or restore the data.

Pair or set. Loss to an article that is part of a pair or set is valued based on a proportion of the value of the entire pair or set. This provision does not apply to software that comes in sets (many programs require installation of several discs). If a part of a software set is damaged and cannot be replaced, it will be as if the entire set was lost.

Loss to parts. The value of a lost or damaged part of an item consisting of several parts is based only on the value of the lost or damaged part or the cost to repair or replace it.

Extra expense. The salvage value of any property bought for temporary use during the restoration period is considered and deducted from the amount of the extra expense loss.

Loss Settlement

Provisions applicable to loss settlement are common to many property coverage forms. No more than the named insured's insurable interest in any property will be paid in event of a covered loss. Only the part of the loss in excess of the deductible will be paid. The insurer pays the lesser of: the amount determined in the valuation provisions; the cost to repair, replace, or rebuild with materials of like kind and quality to the extent practical; or the applicable limit of insurance.

If the schedule indicates a coinsurance penalty, then it is determined by first multiplying the indicated percent by the value of the covered property at the time of loss, then dividing the limit for the covered property by the result. The resulting figure is then used to multiply the total amount of loss, after the deductible is taken. That amount or the applicable limit, whichever is less, is then the amount that will be paid. If more than one limit is indicated on the schedule, that process is repeated. If only one coverage limit is indicated in the schedule, the procedure then applies to the total of all covered property.

Although it is possible that more than one coverage of the policy could apply to a loss, in no event will more than the total amount of the loss be paid.

The policy provides that if the insured has other insurance covering the same property on the same terms as this, then the insurer pro-rates settlement with the other insurer. If another policy covers the same property as this policy, but under different terms, then this policy becomes excess to the other policy whether or not the insured can collect on it.

In event of a covered loss, the insurer can elect to: pay the value of the lost or damaged property; pay the cost to repair or replace; rebuild, repair or replace with other property of equivalent kind and quality to the extent practicable; or take all or part of the property at an agreed or appraised value.

The insurer must notify the insured within 30 days after receipt of the proof of loss as to the settlement. Losses are settled with the insured, unless there is a loss payee on the policy, or the property belongs to another party

Other Conditions

The other conditions applicable to the business computer coverage form are common to most insurance forms. If the insured and insurer do not agree as to the amount of loss, either may make a written demand for appraisal.

The insurance does not accrue to the benefit of anyone having custody of the insured's property. Any coverage condition that does not conform to an applicable law is amended to conform. If the named insured is an individual, then upon his or her death the person having temporary custody of the insured property until a legal representative is appointed, or the legal representative, is given “insured” status.

Coverage is void as to the named insured and any other insured if the named insured or any other insured commits fraud or material misrepresentation with regard to the insurance. Any suit against the insurer must be brought within two years of the loss, or the shortest period permitted by law.

Only a covered loss occurring during the policy period and within the coverage territory (the United States, its territories and possessions, Puerto Rico, and Canada ) is covered. If, following a claim's being settled, either the named insured or the insurer recovers lost or damaged property, that party must notify the other. The coverage limits are not reduced because of payment of a claim. The insurer has subrogation rights against others who might be responsible for a loss.

Endorsements

Several endorsements can be attached to the policy to complete the protection afforded by the basic business computer coverage form.

Additional coverages endorsement. This endorsement provides two coverage extensions: emergency removal expenses as an additional amount of coverage for up to 365 days after the property is first moved; and fraud and deceit that covers theft of property taken through “trick or device.” Supplemental coverages are: recharge of fire extinguishing equipment; rewards; software storage (coverage for backup software stored off premises); and direct physical loss caused by virus and hacking.

Supplemental income coverages are: loss of earnings caused by off premises utility service interruption; and loss of earnings and/or extra expense caused by virus or hacking.

Business computer income coverage part. As the name suggests, this endorsement provides loss of business income for business interruption resulting from: direct physical loss or damage to covered property; direct physical loss to a described premises that prevents use of covered property; or direct physical loss or damage to the air conditioning or electrical system necessary for the operation of covered property. Extensions include interruption caused by order of civil authority, and a thirty day extension for normal resumption of business (extended business income). Supplemental coverages include extra expense and loss of income resulting from direct physical loss or damage at acquired locations, and loss resulting from direct physical loss or damage to covered property in transit.

Additional property endorsement. This endorsement adds coverage for telecommunications equipment, such as a PBX system or video conferencing equipment, power protection equipment, reproduction equipment, valuable papers, and accounts receivable.

Web site server coverage and interruption of Web site. The unendorsed business computer coverage form does not cover either on-site or off-site servers; coverage for these must be added by attaching this endorsement. A supplemental coverage applies to cover direct physical loss caused by a computer virus or computer hacking. There is no coverage for any loss of confidential information as a result of a computer hacker—a reminder to the business owner to have effective firewalls in place. This endorsement does extend coverage for loss of earnings when the insured's business is interrupted because of covered direct physical loss to an on- or off-site service, the Web site software, or the location that houses the on- or off-site server. Supplemental coverage is extended for loss of earnings when the insured's business is interrupted as a result of direct physical loss caused by virus or hacking to an on- or off-site server.

Earthquake, flood, and sewer backup endorsement. Coverage for these causes of loss can be added. “Sewer backup” includes coverage for water below the surface of the ground as well as that which backs up through a sewer or drain. The endorsement is subject to three limits. The first is an occurrence limit, which is the amount applicable to loss in any one occurrence at any one location. The next is an aggregate limit, which is the most payable for all loss occurring at any one location during a 12-month period. The third is the catastrophe limit; this is the most paid for losses at all locations during a 12-month period.