1. Forms
2. CP
3. CP-04-17

Form CP 04 17: Utility Services – Time Element

1. What the form is

The CP 04 17 Utility Services – Time Element endorsement is designed to protect businesses against financial losses, specifically Business Income and Extra Expense, that occur when their operations are necessarily suspended due to an interruption of essential utility services. This interruption must be a direct result of physical loss or damage by a covered cause of loss to the utility provider's property. The endorsement requires the insured to specifically schedule the utility services they wish to cover (such as water, communication, or power) and the types of utility property (like generating plants, substations, pumping stations, or overhead/underground lines) whose damage could trigger the coverage. Essentially, it extends the Business Income and/or Extra Expense coverage found in forms like the CP 00 30 (Business Income (and Extra Expense) Coverage Form) or CP 00 32 (Business Income (without Extra Expense) Coverage Form) to perils originating off-premises at the utility provider's location.

2. Classes of business it applies to

This endorsement is crucial for businesses whose operations are heavily dependent on the continuous supply of one or more utility services. Examples include:

• Manufacturing plants: Require consistent power for machinery and production lines. A power outage can halt production entirely, leading to significant income loss.
• Refrigerated warehouses and food processing facilities: Depend on uninterrupted electricity to maintain critical temperatures. A power loss can lead to spoilage of perishable goods.
• Healthcare facilities (hospitals, clinics): Need reliable power for life support systems, lighting, and sensitive equipment. Water is also critical for sanitation.
• Data centers and technology companies: Require constant power for servers and cooling systems, and communication services for connectivity. An outage can disrupt services for numerous clients.
• Hotels and hospitality businesses: Rely on electricity, water, and often communication services for guest comfort and operations.
• Retail stores, especially those with significant online operations: Need power for point-of-sale systems, lighting, and communication services for internet sales and payment processing.
• Restaurants: Depend on power for cooking and refrigeration, and water for sanitation and cooking.

3. Special considerations

Several important factors must be considered when utilizing the CP 04 17 endorsement:

• Covered Cause of Loss: The physical damage to the utility's property must be caused by a peril that is covered under the insured's policy. For instance, if the insured's policy excludes flood damage, and a flood damages the power station, the resulting business income loss would not be covered by this endorsement.
• Scheduled Utilities and Property: Coverage only applies to the interruption of utility services specifically listed in the endorsement's schedule, and the damage must occur to the type of utility property also scheduled. Careful attention must be paid to accurately completing this schedule.
• Overhead Transmission Lines: Coverage for damage to overhead transmission lines (for power or communication) must often be specifically selected and indicated in the schedule. It's important to clarify that "transmission lines" generally includes distribution lines as well.
• Waiting Period: Business Income coverage often includes a waiting period (e.g., 72 hours) before the loss is covered. This means the policy might not cover losses incurred during the initial hours of the utility interruption, although options may exist to modify this waiting period.
• Limit of Insurance: The limit of insurance for Utility Services – Time Element coverage is often part of, and not in addition to, the overall Business Income limit stated in the Declarations. It can act as a sub-limit if a specific, lower limit is scheduled for this endorsement.
• Electronic Data: The endorsement typically excludes coverage for Business Income loss or Extra Expense related to the interruption in utility service which causes loss or damage to electronic data, including its destruction or corruption.
• Distinction from Direct Damage: This Time Element endorsement (CP 04 17, as described by the user's summary) covers lost income and extra expenses. There is a separate endorsement, often Utility Services – Direct Damage (which some sources list as CP 04 17), that covers physical damage to the insured's own property resulting from a utility service interruption. It's vital to ensure both exposures are adequately addressed if needed.

4. Key information for agents and underwriters

• Pricing: Premiums will vary based on the types of utilities selected, the chosen limits of insurance, the business's industry and its specific dependency on those utilities. The geographic location of the insured and the utility providers is a significant factor, especially concerning exposure to natural catastrophes like hurricanes or earthquakes that could damage utility infrastructure.
• Risk Assessment: Underwriters should thoroughly evaluate the insured's vulnerability to utility interruptions. This includes understanding the reliability of local utility providers, any backup systems the insured may have (though this endorsement typically covers failure of the utility, not the insured's backup), and the potential financial impact and duration of an outage. The age, condition, and resilience of the utility's infrastructure (e.g., overhead vs. underground lines in storm-prone areas) are key risk factors.
• Coverage Gaps: Standard commercial property policies typically exclude losses from off-premises utility service interruptions. This endorsement fills a critical gap. Agents should ensure clients understand that the cause of loss at the utility's property must be a peril covered by their policy. For example, if an earthquake damages the utility and the insured doesn't have earthquake coverage, there would be no coverage under this endorsement.
• Underwriting Guidelines:
  • Verify that the schedule of utilities, utility property, and premises is accurately and completely filled out.
  • Confirm whether coverage for overhead transmission lines is desired and appropriately indicated.
  • Determine if the limit for this coverage is adequate for the potential loss and clarify if it's a separate limit or part of the aggregate Business Income limit.
  • Inquire about the insured’s business continuity and disaster recovery plans, as these can indicate the potential magnitude and duration of a claim.
  • Be aware that this endorsement typically covers the interruption of service from the utility provider to the described premises. It may not cover issues within the described premises if they don't stem from damage to the utility's property as defined.