Question if an endorsement for backup of sewer and drain provides loss of income coverage.
We have an AAIS BOP-100, Ed 1.0 policy with a BP-330 Ed 1.0 Water Damage Coverage, Back Up Of Sewer And Drains endorsement. Our insured suffered water damage due to a backup of a drain. The endorsement says "We" pay no more than the "Limit" shown on the schedule above. The limit is $5,000, and the company is agreeing to pay this amount. The insured building is a rental property and due to the water backup, 2 ground floor apartments were flooded and ultimately were condemned for being unsanitary due to damage to the floor and drywall. The insured questioned if the loss of income coverage provided by the policy is available for the loss of income on the two apartments. Whereas the endorsement specifically provides $5,000 for the damage to building and contents it's silent on any other coverage. The policy has named peril coverage on Coverages Building, Contents and Loss of Income and contains an exclusion for water that backs up through sewer or drains. My question is, by paying for coverage on the backup of drains endorsement, is the loss of income coverage triggered because of a covered endorsement loss even though the policy coverage section doesn't show back up as a covered peril of the policy?
Pennsylvania Subscriber
It is our opinion that the loss of income coverage is available for this claim. In explanation, the endorsement adds the water backup as a covered peril, and limits the water coverage to the limit but it does not change the loss of income coverage. The loss of income coverage requires a direct physical loss from a covered peril.
COVERAGE C – LOSS OF INCOME "We" provide the coverages shown below during the "restoration period" when "your" normal business activities are necessarily interrupted by direct physical loss to real or personal property as a result of a covered peril during the policy period. This coverage applies only when the loss to real or personal property is at the described premises or in the open (or in vehicles) within 100 feet thereof.
PERILS COVERED
The following is added: Back Up of Sewers and Drains — This means direct physical loss to covered property shown on the schedule above caused by water which backs up through sewers or drains or water which enters into and overflows from within a sump pump, sump pump well, or other type of system designed to remove subsurface water which is drained from the foundation area. "We" pay no more than the "limit" shown on the schedule above.
Christine G. Barlow, CPCU
Christine G. Barlow, CPCU, is Executive Editor of FC&S Expert Coverage Interpretation, a division of National Underwriter Company and ALM. Christine has over thirty years’ experience in the insurance industry, beginning as a claims adjuster then working as an underwriter and underwriting supervisor handling personal lines. Christine regularly presents and moderates webinars on a variety of topics and is an experienced presenter.