An apartment building was struck by a vehicle that destroyed the electric meters of six units. A Loss of Rents claim was calculated and agreed to by the carrier for roughly $82,000 after deducting for the 72-hour time element deductible. The owner of the apartment complex also submitted roughly $44,000 in repair invoices for the building damages, although the carrier has only agreed to pay about $13,000 towards the Building claim before application of any deductibles.
The policy deductible for coverage form CP 00 10 04 02 Building and Personal Property is $25,000.00. The Business Income (without Extra Expense) Coverage Form CP 00 32 04 02 governs the Loss of Rents claim and only includes a time element deductible whereby the period of restoration used to calculate the Loss of Rents claim begins 72 hours after direct physical loss at the described premises.
The carrier is choosing to apply both the $25,000 deductible and the 72-hour time element deductible to the Loss of Rents claim and is not applying any deductible to the building claim. The resulting payments would be $13,000 for the Building claim (no deductible applied) and $57,000 for the Loss of Rents claim (both a $25,000 and a 72-hour deductible applied). The combined payment would be $70,000.
Is the carrier correct in applying both the $25,000 deductible and the 72-hour deductible against the Loss of Rents claim and not applying any deductible to the Building claim?
Our expectation is that the $25,000 deductible should be applied to the building claim and the 72-hour deductible should be applied to the Loss of Rents claim. The resulting payments should be $0 for the Building claim (damages didn’t exceed the deductible) and $82,000 for the Loss of Rents claim (this includes application of the 72-hour deductible). The combined payment should be $82,000.
New Jersey Subscriber
This policy is written in essence providing a blanket limit of occurrence encompassing buildings, business income and rental income in that blanket per occurrence limit. Typically, a separate limit of insurance would apply to the buildings and with a separate limit of insurance applicable to business income and rental income. The insurer has attached endorsement FS C 468 03 21 Scheduled Limit of Liability Clause to this policy, and under paragraph (2) of that endorsement it restricts policy liability to the least of either the actual adjusted amount of loss; or the value stated for each scheduled item of property, time element or other coverages at the loss location; or the limit or amount shown on the supplemental declarations - less applicable deductible(s).
The endorsement further defines Occurrence to mean the sum of all loss or series of losses arising out of and directly occasioned by any one insured event. Statement of Values means any document listing values by coverage and/or structure for each scheduled location on file with the company.
This endorsement is attached to the policy prior to the business income (without extra expense) coverage form.
Since the policy does not provide a separate limit of insurance for business income/rental income, it is clearly included within the limit that also applies to building. While this is atypical from a standard policy, this is a non-admitted surplus lines policy. There are items to note in the endorsement however that are inconsistent with the coverages as provided in the policy, as follows:
The declarations state that the perils insured against are Special Form (ISO) and Equipment Breakdown, and these are consistent with the covered causes of loss on the supplemental declarations page.
The coinsurance that applies to buildings is 80% while business income and rental income are subject to 1/4 monthly limitation.
The deductible of $25,000 applies to All Covered Perils.
Buildings are covered by the commercial property building and personal property coverage form, CP 00 10. Instructions for application of the deductible for this building coverage is described within that coverage form.
Business income and rental income are not perils, and that coverage is provided by a separate business income (without extra expense) coverage form CP 00 32. A 72-hour waiting period applies to this coverage, as described in the coverage form.
While there is one limit of insurance that applies to all of the coverages, the application of the deductible applies only to the building coverage, while the 72-hour waiting period applies to the business income/rental income coverage.
It is ambiguous to apply the All Covered Perils deductible to the business income/rental income coverage.