Study 2 – Business Income: The Standard Forms C40 – Business Interruption Insurance

Study 2 - The Standard Forms » Describe the features of the Declarations Page. » Define the terms shown in the Definitions sections. » State which clauses of the standard Business Income forms were derived from corresponding direct-damage forms. » Discuss each of the clauses in the 2 forms. » Comment briefly on the rating of the standard Business Income forms.

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The Business Income Form (Named Perils) (IBC Form 4106A) » Named perils coverage. A property insurance term referring to policies that provide coverage only for loss caused by the perils specifically listed as covered.

Definitions » The business of the insured. » Specified in the Declarations page.

Definitions » The sum of the revenue and the amounts of closing stock and work in progress. shall exceed » The sum of the amounts of opening stock and work in progress & variable operating expenses.

Definitions » Direct physical loss of or damage to property. » At the insured premises. » From a Peril insured.

Definitions » Applicable to this form.

Definitions » The period beginning with the occurrence of the damage and ending not later than such length of time, not exceeding 12 consecutive months or to repair, rebuild or replace.

Definitions » The condition which would have existed had no loss occurred.

Definitions » The entire payroll expense for all employees other than salaries to permanent staff, foremen, and important employees.

Definitions » The entire area within the property lines and areas under adjoining sidewalks and driveways at the locations described in the “Declarations Page”. » In or on vehicles within 100 m of such location.

Definitions » Revenue – the money paid or payable to the insured for goods or services. » Revenue shortfall – the amount by which the revenue falls short of the expected income.

Definitions » The business of the insured. » Specified in the Declarations page.

Definitions » The percentage obtained by dividing the “Business Income” by the “Revenue” during the financial year immediately before the date of the “Damage”.

Definitions » The Revenue during the twelve months immediately before the date of the damage.

Definitions » The Revenue during the period corresponding with the indemnity period in the 12 months immediately before the damage.

Indemnity Agreement » The insurer shall pay to the Insured the loss of “Business Income” suffered during the “Indemnity Period” in consequence therefore, in accordance with the terms and conditions of this form.

Limits of Insurance » The insurer, regardless of the number of persons and interests insured under this form shall not be liable for more than the applicable amount of insurance specified on the “Declarations Page”

Co-insurance 1)Determine the Business income during the financial year immediately before the loss. 2)Determine the Revenue during the financial year immediately before the loss. 3)Determine the Business Income percentage. 4)Determine the Annual Revenue. 5)Multiply the Business Income Percentage by the annual Revenue. 6)Multiply the result by 80%

Perils Insured

Exclusions – Part I

Exclusions – Part II

Determination of Payment » This insurance, subject to the limitation of the amount of insurance stated on the “Declarations Page”, is limited to loss of “Business Income” due to » A)In respect of reduction of “Revenue” and » B)In respect of increase in cost of operations. » Less any sums saved during the indemnity period.

Payroll

Interruption by Civil Authority » The damage to neighboring premises that gives rise to the denial of access » Must have been given by civil authorities » Limited to 2 weeks.

Accountant Fees » Pays reasonable charges to the insured’s accountant for producing documents verifying the claim. » Limited to $2,000.

Clauses » Permission » Breach of Conditions » Reinstatement » Subrogation » Property Protection Systems

Alternate Trading » Duty to minimize loss. » Money payable in respect of sales or services.

Premium Adjustment » The insured must file with the insurer a premium adjustment application form showing that 80% of business income. » Insured can apply for return of premium. » Limit of 50% of premium paid.

The Business Income Form (Broad Form) (IBC Form 4106B) » Broad Form coverage. A property insurance term referring to policies that provide coverage only for loss caused by all perils not specifically listed as excluded.

Exclusions – Part I

Exclusions – Part II

Rating

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