Business Income (Without Extra Expense) Coverage Form - CP 00 32
The CP 00 32 Business Income (Without Extra Expense) Coverage Form is an Insurance Services Office (ISO) commercial property form that provides coverage for the actual loss of Business Income an insured sustains due to the necessary "suspension" of their "operations" during a "period of restoration". The "suspension" must be caused by direct physical loss of or damage to property at the premises described in the Declarations, and the loss or damage must be caused by or result from a Covered Cause of Loss. Business Income is defined as the sum of: (a) Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred; and (b) Continuing normal operating expenses incurred, including payroll. Crucially, this form, unlike the CP 00 30 Business Income (and Extra Expense) Coverage Form, does not inherently include Extra Expense coverage. However, it does provide coverage for expenses incurred to reduce the business income loss, but this coverage is limited to the amount by which the loss is reduced.
Classes of Business and Applicability
The CP 00 32 is suitable for a variety of businesses, particularly those that might not incur significant extra expenses to continue operations after a loss, or those that can absorb such expenses. It's often considered for businesses where relocating or setting up temporary operations is not feasible or cost-effective. Examples include:
- Rental Properties: Where the primary loss is rental income and continuing expenses like property taxes and insurance. The form can be tailored to cover "Rental Value".
- Manufacturing Operations: Especially those with unique or difficult-to-relocate machinery, where the focus is on lost net income and ongoing expenses during the shutdown. For manufacturing risks, Net Income includes the net sales value of production.
- Service Businesses with Fixed Locations: Such as a standalone restaurant or a retail store that, if damaged, would likely cease operations until repairs are complete rather than operate from a temporary site.
- Businesses with Minimal Need for Immediate Resumption: Entities that can afford a longer period of restoration without needing to spend heavily on temporary measures.
This form is used in conjunction with other forms to create a complete policy, including a declarations page, common policy conditions, commercial property conditions (like those found in CP 00 10), and a causes of loss form (e.g., CP 10 10 Basic, CP 10 20 Broad, or CP 10 30 Special).
Special Considerations
Several important factors should be considered when utilizing the CP 00 32:
- No Automatic Extra Expense Coverage: This is the most significant distinction from the CP 00 30. If an insured anticipates needing funds for costs beyond normal operating expenses to mitigate a shutdown (e.g., renting a temporary location, overtime for quicker repairs), the CP 00 30 or a separate Extra Expense Coverage Form (CP 00 50) would be more appropriate.
- Expenses to Reduce Loss: While the form doesn't cover Extra Expense broadly, it does cover "expenses to reduce loss." This means if an insured spends money to lessen the business income loss, those expenses are covered, but only up to the amount the business income loss was actually reduced. For example, renting a replacement compressor to avoid a complete shutdown might be covered if it reduces the overall business income claim.
- Period of Restoration: Coverage is limited to the loss sustained during the "period of restoration." This period begins typically 72 hours after the direct physical loss for Business Income coverage and ends on the earlier of: (1) the date the property should be repaired, rebuilt, or replaced with reasonable speed and similar quality, or (2) the date when the business is resumed at a new permanent location. Delays within the insured's control may not extend this period.
- Coinsurance: Like other business income forms, the CP 00 32 is subject to a coinsurance condition. Failure to maintain an adequate Limit of Insurance based on the business's income can result in a coinsurance penalty at the time of loss. Accurate completion of a business income worksheet (like the CP 15 15) is critical.
- Civil Authority: The form includes Additional Coverage for loss of Business Income sustained when access to the described premises is prohibited by action of civil authority due to direct physical loss or damage to property other than at the described premises by a Covered Cause of Loss. Standard coverage provides for a waiting period (often 72 hours) and a limited duration (e.g., three or four consecutive weeks). This coverage is also typically subject to a distance limitation from the damaged property (e.g., one mile), which can be modified by endorsement (e.g., CP 15 32).
- Interruption of Computer Operations: Coverage for suspension of operations due to the destruction or corruption of electronic data is typically limited, though some coverage may be provided back through an additional coverage. This limitation does not usually apply if the electronic data is integrated with and operates or controls a building's essential systems like HVAC, lighting, or security.
- Optional Coverages: Various optional coverages can be selected and shown in the Declarations, such as Maximum Period of Indemnity, Monthly Limit of Indemnity, or Business Income Agreed Value, which modify the coinsurance provision or how loss payments are structured. Extended Period of Indemnity can also be added to cover income loss that continues after the "period of restoration" ends and operations have resumed.
Key Information for Agents and Underwriters
- Risk Assessment: Thoroughly evaluate the insured's business model. If the business can ill-afford any downtime or would absolutely need to operate from a temporary location or incur other significant costs to expedite recovery, the CP 00 32 alone is likely insufficient. The CP 00 30 or additional endorsements should be strongly considered.
- Accurate Values and Limits: Emphasize the importance of accurately calculating Business Income values. Underinsurance due to undervaluing income or misunderstanding continuing expenses can lead to significant coinsurance penalties. Agents should guide insureds through the business income worksheet (CP 15 15).
- Understanding "Continuing Normal Operating Expenses": This is a key component of the Business Income definition. Not all expenses cease during a shutdown. Payroll, taxes, debt service, and other contractual obligations might continue. The form covers payroll, but endorsements like CP 15 10 can be used to limit or exclude certain payroll expenses, which can affect the amount of insurance needed.
- Distinction between Insurable and Compensable Loss: Insurable business income is based on projected net income plus all operating expenses, while compensable business income considers only continuing operating expenses during the shutdown. However, the coinsurance calculation is typically based on the insurable amount (before deduction of non-continuing expenses), so reducing limits based on an expectation of lower compensable loss can be risky.
- Related Endorsements: Be aware of endorsements that can modify coverage, such as those for Utility Services (Time Element), Dependent Properties (Business Income from Dependent Properties - CP 15 08 or CP 15 09), or to extend the period of indemnity.
- Interaction with CP 00 10: The CP 00 32 responds to income loss resulting from physical loss or damage to property covered under a form like the CP 00 10 Building and Personal Property Coverage Form. The perils covered are determined by the selected Causes of Loss form.
Disclaimer: This is a general description and not a substitute for reading the policy form itself. Specific coverage terms, conditions, and exclusions will apply.