1. Forms
2. CP
3. CP-00-50

Extra Expense Coverage Form (CP 00 50)

The Extra Expense Coverage Form (CP 00 50) is a commercial property insurance form that covers necessary extra expenses an insured incurs during the "period of restoration" that they would not have had to pay if there had been no direct physical loss or damage to their property from a covered cause of loss. The primary goal of this coverage is to allow the insured to continue operations, either at the described premises or a temporary location, to minimize or avoid a business shutdown. This form provides coverage only for extra expenses; it does not cover loss of business income. It is used in conjunction with a causes of loss form (like the CP 10 10, CP 10 20, or CP 10 30) which specifies the perils insured against, and the CP 00 10 Building and Personal Property Coverage Form, which describes the covered property.

Classes of Business It Applies To

Extra Expense coverage is crucial for businesses that cannot afford to suspend operations for any significant length of time, even if they suffer a major property loss. These are often businesses that might not experience a substantial loss of income but would incur significant costs to remain operational. Examples include:

• Service-oriented businesses: Banks, insurance agencies, medical offices, law firms, and other professional services where continuous client service is paramount. For instance, a bank might need to quickly set up a temporary branch with ATMs and teller services after a fire damages its main office.
• Businesses with critical delivery times: Newspapers, printing companies, and certain manufacturing operations that have contractual obligations or customer expectations for uninterrupted service. A newspaper, for example, would incur extra expenses to print at an alternative facility to meet its daily publication deadlines.
• Businesses reliant on specific locations or infrastructure that can be temporarily replicated: Contractors who can operate from a temporary yard or office.
• Organizations providing essential public services: While not always "businesses" in the traditional sense, entities like non-profits or quasi-governmental agencies that provide critical community services may also heavily rely on extra expense coverage.

The CP 00 50 is particularly suited for entities that can continue to operate and generate some level of goods or services from a temporary setup, potentially reducing the overall financial impact of the disruption.

Special Considerations

Several important factors distinguish the CP 00 50 and influence its application:

• Standalone Extra Expense vs. Business Income with Extra Expense: The CP 00 50 provides only extra expense coverage. In contrast, the Business Income (and Extra Expense) Coverage Form (CP 00 30) covers both loss of income and extra expenses. Businesses that would also suffer a significant loss of income should consider the CP 00 30. It's even possible that purchasing extra expense coverage via the CP 00 30 might be more cost-effective in some scenarios.
• Limits of Insurance and "Limits on Loss Payment": The CP 00 50 requires the insured to select a total limit of insurance for extra expenses. Crucially, this form includes a "Limits on Loss Payment" provision that rations how much of that total limit can be paid out during specified consecutive 30-day periods of restoration. This is typically expressed as percentages (e.g., 40% for the first 30 days, 80% for 60 days, and 100% for 90 days or longer). This differs significantly from the CP 00 30, which allows the insured to use the full extra expense limit as needed within the period of restoration without such monthly caps.
• Period of Restoration: Coverage applies to expenses incurred during the "period of restoration." This period begins immediately with the direct physical loss or damage and ends when the property should reasonably be repaired, rebuilt, or replaced with reasonable speed and similar quality, or when the business resumes operations at a new permanent location. Unlike some business income forms, there is generally no waiting period for extra expense coverage to begin under the CP 00 50. However, there is no "extended" extra expense coverage beyond the period of restoration, unlike the extended business income coverage available under some other forms.
• Covered Extra Expenses: Covered expenses are those necessary to avoid or minimize the suspension of business and continue operations. This can include costs to relocate to a temporary site, rent for a temporary location, utility hook-ups, furniture and equipment rental, advertising the new temporary location, and increased operating costs at the temporary site. It can also cover expenses to repair or replace property, but only to the extent that these expenses reduce the amount of loss that would have otherwise been payable under the form.
• Resumption of Operations: The insured is required to resume all or part of their "operations" as quickly as possible.
• Civil Authority: The form includes additional coverage for extra expenses incurred if a civil authority prohibits access to the described premises due to direct physical loss or damage to property other than at the described premises, caused by a covered cause of loss. This coverage is typically limited in duration.
• Interruption of Computer Operations: The form contains an additional limitation regarding the interruption of computer operations. Coverage for extra expense due to the destruction or corruption of electronic data is typically excluded unless specifically provided by an endorsement or an additional coverage with its own specific limit (e.g., a $100,000 limit at each location unless a higher limit is shown).

Key Information for Agents and Underwriters

Agents and underwriters should consider the following when dealing with the CP 00 50:

• Risk Assessment and Suitability: Thoroughly assess whether the CP 00 50 is the most appropriate form. If the insured is likely to suffer a significant income loss in addition to incurring extra expenses, the CP 00 30 (Business Income and Extra Expense) might be a better fit. The key is understanding the insured's business continuity plan and the financial impact of a shutdown versus the cost to remain partially or fully operational.
• Determining Appropriate Limits: Helping the insured select an adequate total limit of insurance is critical. This requires a careful analysis of potential extra expenses:
  • Cost of renting temporary space (consider location, size, and type of space needed).
  • Expenses for equipping the temporary location (furniture, IT, specialized equipment).
  • Relocation costs (moving equipment, personnel).
  • Increased operating costs (utilities, overtime pay, temporary staffing).
  • Advertising and communication costs to inform customers of the temporary arrangements.
• Explaining the "Limits on Loss Payment" Provision: It is vital that the insured understands how the percentage-based monthly limits on loss payment work under the CP 00 50. This provision directly impacts cash flow during a claim. If an insured anticipates needing a large portion of their extra expense funds very quickly, the CP 00 30 might be more suitable as it doesn't have this same rationing mechanism.
• COPE and Intangibles: Standard underwriting considerations like Construction, Occupancy, Protection, and Exposure (COPE) are important. Additionally, moral and morale hazards should be evaluated.
• Vacancy: Be aware of vacancy provisions within the commercial property policy (often found in the CP 00 10 or related conditions forms). If a building becomes vacant for an extended period (typically 60 consecutive days), coverage for certain perils like vandalism, sprinkler leakage, glass breakage, water damage, or theft may be suspended or reduced. An optional Vacancy Permit (CP 04 50) might be available to buy back some coverage.
• Relationship to CP 00 10: The CP 00 50 relies on the CP 00 10 (Building and Personal Property Coverage Form) to define the "described premises" and the property whose damage can trigger extra expense coverage. Ensure these forms are correctly coordinated.
• Endorsements: Various endorsements can modify coverage. For example, endorsements are available to cover extra expenses arising from damage to dependent properties (suppliers, key customers) (e.g., CP 15 34, CP 15 02 for international dependent properties).
• Pricing: Rates for the CP 00 50, particularly with options like the 40%-80%-100% limits on loss payment, can be compared to the cost of obtaining extra expense coverage under the CP 00 30. Sometimes, the CP 00 30 may offer a more economical way to secure this protection, especially if business income coverage is also needed.