One of our clients was shut down for several hours because of a covered loss; a car took down an electric pole on the insured's premises, causing a power outage. The carrier agrees that the loss triggered our insured's extra expense coverage.

However, there now is a disagreement over whether overtime costs for employees to make up production should be paid by the insurance company. The policy states that the extra expense must be incurred during the period of restoration. But the client cannot incur overtime to make up production while the power is shut off.

I think this overtime should be covered. What do you think?

Pennsylvania Subscriber

While you are correct that additional production costs could not be incurred during a period of downtime, extra expense coverage is designed to either minimize the period of suspension or continue operations during the period of restoration. It includes items such as overtime to clean up the premises so it can be put back into service more quickly, expenses to set up operations at an alternative location, and the extra costs involved in special delivery of equipment.

What you mention is overtime to regain customers and to produce products more quickly once operations are resumed. Extra expense would not be applicable to such a situation because, as the policy states, the extra expense must be incurred during the downtime or period of restoration.

However, if the company carries business income coverage, payroll may be included. There is a thirty-day extension on many business income forms, which provides that the coverage is available for thirty days after the period of restoration. This provision is included to do just what you mention—regain customers and rebuild inventory.