The form begins by making it clear that the coverage applies only to the scheduled buildings, and that all other coverage provisions apply. It then states that the Covered Causes of Loss applicable to those scheduled buildings apply to the coverage provided in the endorsement.

The Additional Expense Coverage provided under the endorsement applies if certain conditions are met, subject to any listed limitations. First, the event that caused the coverage loss must result in a state of disaster that is declared by federal or state authorities, or it must occur in close temporal proximity to a declared disaster by federal or state authorities. Note that coverage applies to damage resulting from the event declared to be a disaster, as well as damage resulting from an event which occurs in close temporal proximity to the disaster, provided all conditions relating to the demand surge and coverage criteria are satisfied.
Therefore, if an insured has a loss a few days after a disaster has been declared but that is not directly related to the disaster, then the provisions would still apply. This is because due to the disaster there is likely to be a demand surge for labor and building materials. The key here would be that any buildings damaged would need to be scheduled to be covered by the endorsement.

Also required is that the costs of labor and building materials for repair or replacement of damaged property increase due to the disaster and the total cost of repair or replacement exceeds the limit of insurance, due to that increase in expenses. So if a building is damaged, the insured must also decide to repair or replace the damaged property, and notify the insurer within 30 days of completion of any improvements, additions or alterations that increased the replacement cost of the building by 5% or more and allow the insurer to adjust the limit of insurance in order to maintain the required insurance-to-value ratio.

D. When the cost of repair or replacement increases in accordance with the terms of this endorsement, we will pay the increased expenses actually incurred, up to the maximum amount of Additional Expense Coverage.
E. The maximum amount of Additional Expense Coverage available for the extra expense of repair or replacement of a building listed in the Schedule is determined in accordance with the following provisions:
1. Apply the applicable percentage indicated in the Schedule for that building to:
a. The Limit Of Insurance shown in the Declarations as applicable to the building (adjusted first for inflation if the Inflation Guard option applies), when such Limit covers only that building (exclusive of contents); or
b. The value of the building (as shown in the most recent statement of values in this policy or on file with us) adjusted by the policy's Coinsurance percentage, when insurance is written on a blanket basis. (For the purpose of this endorsement, blanket insurance covers two or more buildings, or a building(s) and its contents, under a single Limit of Insurance.)
However, if the building is subject to a lower Limit of Insurance (sub-limit) for the Covered Cause of Loss that caused the loss, then the applicable percentage indicated in the Schedule will be applied to that sub-limit.

2. If a Coinsurance penalty or similar penalty for inadequate insurance (or underreporting of values) applies to the covered loss to the building in accordance with the terms of this policy, then the maximum amount of Additional Expense Coverage will be decreased in the same proportion. (In determining compliance with the policy's Coinsurance or similar requirement, the increase in expenses attributable to the disaster will be disregarded.)

F. Annual Aggregate
The following applies when payments are made under this endorsement as a result of one or more covered events in an annual policy term:
1. When payments reach the maximum amount of Additional Expense Coverage, such coverage will not apply to a subsequent event which occurs in the same annual policy term.
2. When payments total less than the maximum amount of Additional Expense Coverage, the balance will be available for additional expenses incurred in a subsequent event which occurs in the same annual policy term.

Analysis

The endorsement then states that if the cost to repair or replace property increases in accordance with the terms in the form, that the insurer will pay the increased expenses actually incurred up to the maximum amount of Additional Expense Coverage. So, the insured must incur the increased expenses.

To determine the maximum amount available for the Additional Expense Coverage, the applicable percentage listed in the schedule is applied to the building when such limit covers only that building and not contents. If inflation guard applies, that adjustment is calculated before this coverage is applied.

Alternatively, maximum amount is determined by the value of the building as shown in the most recent statement of values provided to the insurer, once adjusted by the coinsurance percentage, if the coverage is written on a blanket basis. Blanket coverage applies when this endorsement covers two or more buildings, or a building and its contents, under a single limit of insurance.

If the building is subject to a lower limit of insurance for the covered cause of loss that caused the damage, then the applicable percentage in the schedule will be applied to that sub-limit.

For example, the property in question is insured for $300,000 with an Additional Expense Coverage Percentage of 10%. A wildfire spreads through the area damaging the insured and several other buildings. The wildfire is declared a disaster by the governor and federal authorities, and because the fire is so widespread, building materials are scarce and prices have skyrocketed. The insured repairs the building, but the expenses are above normal. An additional $30,000 would be available to the insured to compensate him for those additional expenses.

If a coinsurance or similar penalty for underinsurance applies to the loss, then the maximum amount of increased expenses is reduced by that same amount. The coinsurance penalty is determined without the increase in expenses being part of that calculation.

When there are one or more payments made under this coverage during a policy term, an annual aggregate applies. When payment reaches the maximum amount of Additional Expense Coverage, the coverage will not apply to a later event during the same annual policy term. When payments are less than the maximum amount, then the remaining amount will be available for a subsequent loss. In our example, if the insured only uses $15,000 of the Additional Expense Coverage and a later disaster loss requires repairs, then the remaining $15,000 would be available to the insured. But, if the insured uses the full $30,000 for the first fire, if there is a subsequent disaster loss, the insured has no Additional Expense Coverage available during that policy term.

G. Debris Removal
Up to 20% of the amount payable for Additional Expense Coverage may be used to cover debris removal expense associated with the covered loss. This does not increase the maximum amount of Additional Expense Coverage.
H. Ordinance Or Law
When a building listed in the Schedule is also covered for Coverage C under the Ordinance Or Law Coverage endorsement (if a part of this policy), up to 20% of the amount payable for Additional Expense Coverage may be used to cover costs payable under Coverage C. This does not increase the maximum amount of Additional Expense Coverage.
I. Newly Acquired Or Constructed Buildings
When a newly acquired or constructed building is covered under the terms of the Newly Acquired Or Constructed Property Coverage Extension, then the highest percentage shown in the Schedule for any building will be applied to the applicable Limit of Insurance for newly acquired or constructed buildings. The result is the amount of Additional Expense Coverage applicable to the newly acquired or constructed building, subject to all other terms of this endorsement.
J. In determining the expenses payable under this endorsement, we will deduct any expenses recovered under a Business Income and/or Extra Expense Coverage Form, if any, in this policy.

Analysis

Up to 20% of the Additional Expense Coverage may be used by the insured for debris removal expenses associated with the loss that triggers the endorsement. This does not change the amount of coverage for Additional Expense Coverage; it just allows the insured to use it for increased building costs or debris removal.

If a scheduled building also has coverage under Coverage C Ordinance or Law Coverage, up to 20% of the amount of Additional Expense Coverage can be used to cover costs under Coverage C. Again, this does not increase the amount available, it just lets the insured distribute it where it is most needed.

For newly acquired or constructed buildings, the highest percentage shown in the schedule for any building will be applied to the limit of the newly constructed or acquired building.

When determining the expenses payable under this form, any expenses that are recovered under a Business Income and/or Extra Expense Coverage Form, if any, will be deducted from that coverage.

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