The most common Extra Expense coverage is via the CP 00 30 10 12 form. This states "Extra Expense means necessary expenses you incur during the "period of restoration" that you would not have incurred if there had been no direct physical loss or damage to property caused by or resulting from a Covered Cause of Loss." The BOP policy requires the Extra Expense to be incurred within a year after the loss.
The key word here is "incur" the cost. My question is whether the expense has to occur during the year after the loss and if it is paid for after the first year. I believe that the insurance should pay if the expense is incurred during the first year, but is paid for afterwards or if it occurs after the first year.
Massachusetts Subscriber
Incurring an expense and paying for it are two separate matters. According to Merriam-Webster online, incur means "to become liable or subject to; to bring down upon oneself." In other words, an expense is incurred once a person becomes obligated to pay it, such as a payment plan for a new piece of furniture. The expense is incurred the day you pay the down payment and sign the purchase plan agreement, even if the balance of the purchase is paid for in monthly installments over a three year period.
As to whether Extra Expenses under the policy must be incurred within one year, it depends on the type of Extra Expenses incurred. The requirement to incur Extra Expenses within one year of the loss only applies to "Additional Coverage, Interruption of Computer Operations" under section A.5.d.(4).
However, there is nothing in the policy to indicate that this one year limit also applies to all Extra Expenses incurred. The policy defines an Extra Expense as the "necessary expenses you incur during the "period of restoration" that you would not have incurred if there had been no direct physical loss or damage to property caused by or resulting from a Covered Cause of Loss." (emphasis added). The policy further defines the "period of restoration" as "the period of time that: a. Begins: (1) 72 hours after the time of direct physical loss or damage for Business Income Coverage; or (2) Immediately after the time of direct physical loss or damage for Extra Expense Coverage; caused by or resulting from any Covered Cause of Loss at the described premises; and b. Ends on the earlier of: (1) The date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality; or (2) The date when business is resumed at a new permanent location."
Therefore, the extra expense only has to be incurred within the period of restoration as defined in the policy, regardless of the length of time of that period. If the extra expense does not in some way shorten the period of restoration, enabling the insured to resume operations sooner than normal, or otherwise minimize the financial impact of the covered loss, then it is not a valid extra expense for coverage. As we've seen with multiple wildfires and other disasters, the recovery period often extends beyond a single year or policy period.
When the extra expense is paid for does not affect the coverage applicability, only when the extra expense is incurred.