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3. CP-11-13

Form CP 11 13: Business Income From Dependent Properties - Broad Form (or similar, commonly ISO Form CP 15 08)

The endorsement CP 11 13, more commonly recognized in the industry under ISO form number CP 15 08 Business Income From Dependent Properties - Broad Form, is a crucial component of Commercial Property insurance. It extends an insured's Business Income (and Extra Expense, if an applicable Business Income form like CP 00 30 is in place) coverage to protect against income losses stemming from direct physical loss or damage by a covered cause of loss to the property of specified dependent properties. This is vital for businesses whose revenue is contingent on the uninterrupted operation of other entities. The form requires the insured to schedule these key dependent properties.

Classes of Business It Applies To

This endorsement is particularly relevant for businesses with significant reliance on external entities for their operational continuity and revenue generation. Examples include:

• Manufacturers that depend on a single or limited number of suppliers for critical raw materials or components (Contributing Locations). For instance, an electronics manufacturer heavily reliant on a specific microchip supplier would need this coverage. If the chip supplier's factory suffers a fire, the manufacturer's production could halt, leading to a business income loss.
• Businesses that sell a majority of their products or services to a small number of customers (Recipient Locations). A specialized parts producer whose primary output is purchased by a large automotive assembly plant would be at risk if that plant shuts down due to a covered peril.
• Companies that utilize contract manufacturers to produce their goods (Manufacturing Locations, also sometimes referred to as Secondary Contributing Locations if they are a supplier to a primary supplier). A fashion brand that outsources all its apparel production to a specific overseas factory would suffer an income loss if that factory is damaged.
• Retailers or service providers located near a major attraction or anchor store that draws customers to the area (Leader Locations). A small gift shop in a mall could see a significant drop in customers and income if the mall's main department store (the "leader" or "anchor" tenant) closes due to a fire or other insured peril.

Special Considerations

Several important factors must be considered when utilizing this endorsement:

• Covered Cause of Loss: The damage to the dependent property must be caused by a peril that would have been covered under the insured's own policy had the loss occurred at the insured's premises.
• Scheduling of Dependent Properties: The specific dependent properties must be identified and listed in the schedule of the endorsement. Failure to list a dependent property typically means no coverage for a loss stemming from that property.
• Broad Form vs. Limited Form: The "Broad Form" (CP 15 08) generally extends the Business Income limit of insurance applicable to the insured's own premises to cover losses from scheduled dependent properties. This differs from the "Limited Form" (CP 15 09), where a separate, specific limit of insurance must be scheduled for each dependent property.
• Period of Restoration: The coverage applies to the loss of business income sustained during the "period of restoration." This is the time it should reasonably take to repair or rebuild the damaged dependent property.
• No Coverage for Data: Coverage typically does not apply if the only loss to the dependent property is loss or damage to electronic data. If other property is damaged along with electronic data, coverage will not continue once the other property is repaired.
• Miscellaneous Locations: The CP 15 08 may provide a very limited amount of coverage for unscheduled dependent properties, often a small percentage of the business income limit per day (e.g., 0.03%). However, this usually excludes infrastructure like roads or pipelines.

Key Information for Agents and Underwriters

Agents and underwriters need to delve into the specifics of an insured's supply chain and customer dependencies to properly assess the need for and terms of this coverage:

• Risk Assessment: A thorough understanding of the insured's key dependencies is critical. This includes identifying the primary dependent properties, the nature and financial impact of the dependency, and any available alternatives if a dependent property experiences a disruption. Underwriters will assess the likelihood of a loss at the dependent property, considering its location (e.g., exposure to natural catastrophes), construction, and its own risk management practices.
• Establishing Limits: For the Broad Form, the existing Business Income limit will apply. Agents must ensure the primary Business Income limit is adequate to cover both a loss at the insured's premises and a potential loss from a major dependent property. If the exposure from a dependent property is significantly different, the Limited Form (CP 15 09) with specific limits might be more appropriate.
• Underwriting Information: Underwriters will likely require detailed information about each significant dependent property, including its name, location, occupancy, and the nature of the insured's relationship with it. They may also inquire about the dependent property's own insurance and disaster recovery plans.
• Pricing: The premium for this endorsement will reflect the increased scope of coverage and the specific risks associated with the scheduled dependent properties. The concentration of risk (e.g., reliance on a single supplier in a catastrophe-prone area) will influence pricing.
• Coverage Gaps: Agents should be aware of potential gaps, such as losses due to non-physical damage perils at the dependent property (e.g., strikes, financial failure, cyber-attacks that don't cause direct physical loss), or losses from unnamed dependent properties beyond any minimal miscellaneous location coverage. The exclusion of loss solely due to damage to electronic data is a key point to discuss.