Form CP 15 01: Business Income From Dependent Properties - Limited International Coverage
The CP 15 01 endorsement is designed to extend an insured's Business Income coverage to include losses stemming from direct physical loss or damage to the property of dependent properties located outside the standard coverage territory (which typically includes the US, its territories and possessions, and Canada). This is crucial for businesses that rely on international suppliers or manufacturers. The endorsement specifically applies to "contributing locations" (suppliers of materials or services to the insured) and "manufacturing locations" (entities that manufacture products for delivery to the insured's customers under a contract of sale). It requires the insured to declare these international dependent properties on the schedule and select a specific limit of insurance for the Business Income loss attributable to each. This limit is separate from the Business Income limit applicable to the insured's own premises. This endorsement modifies either the CP 00 30 (Business Income and Extra Expense) or CP 00 32 (Business Income without Extra Expense) coverage forms.
Classes of Business It Applies To
This endorsement is vital for businesses with international supply chains or manufacturing dependencies. Examples include:
- Manufacturers: A U.S.-based electronics company that sources critical components from a specialized supplier in Asia. If that supplier's facility is damaged by a typhoon, the U.S. company could face a production shutdown and resulting loss of income. The CP 15 01 could cover this lost income, up to the scheduled limit for that specific international supplier.
- Retailers/Wholesalers: A clothing retailer in the U.S. that has its apparel manufactured by a specific factory in another country. If that factory experiences a fire, the retailer may be unable to stock its shelves, leading to lost sales.
- Technology Companies: A software company that relies on a data processing center located internationally. If that center is damaged, the company's ability to deliver its services could be impaired.
- Businesses with Contract Manufacturing: An engineering firm that designs specialized equipment and contracts its production to an overseas manufacturer. If the overseas manufacturer suffers a covered loss and cannot produce the equipment, the engineering firm's income from sales of that equipment would be impacted.
Essentially, any business that would suffer a demonstrable loss of income or incur extra expenses due to a disruption at a named international supplier or provider's premises due to a covered cause of loss should consider this endorsement.
Special Considerations
Several important factors come into play when utilizing the CP 15 01:
- Scheduled Locations Only: Coverage only applies to dependent properties specifically named and described in the endorsement's schedule, along with their corresponding limit of insurance. Unscheduled international dependent properties are not covered by this specific endorsement.
- Covered Causes of Loss: The loss or damage at the dependent property must be caused by a peril that would be covered under the insured's own policy (i.e., the applicable Causes of Loss form selected and shown in the schedule – Basic, Broad, or Special).
- Coverage Territory Modification: This endorsement specifically overrides the standard Coverage Territory condition found in the Commercial Property Conditions, but only for the coverage provided under this endorsement.
- Electronic Data Limitation: Coverage under this endorsement generally does not apply if the only loss to the dependent property is loss or damage to electronic data. If there's damage to both electronic data and other property, coverage for the business income loss will not continue once the "other property" is repaired or replaced.
- Limit Adequacy: The insured must carefully evaluate and select an adequate limit of insurance for each scheduled international dependent property. This limit is separate from and does not increase the Business Income limits for the insured's own premises.
- Secondary Contributing Locations: The endorsement allows for coverage for "Secondary Contributing Locations" if scheduled. This refers to a location that supplies materials or services to a primary contributing location (which is also scheduled), which in turn supplies the insured. A disruption at this secondary level can also trigger coverage if it impacts the primary supplier and then the insured. Roads, bridges, tunnels, waterways, airfields, pipelines, and similar infrastructure are not considered secondary contributing locations.
- Resumption of Operations: The amount of Business Income loss payable will be reduced to the extent the insured can resume operations by using any other available source of materials.
A real-world example: A U.S. auto parts manufacturer relies on a single international supplier for a specific engine component. The supplier's factory is heavily damaged by an earthquake. The U.S. manufacturer, having scheduled this supplier on the CP 15 01 with a $1 million limit, can claim for its lost profits and continuing normal operating expenses resulting from the inability to get these components, up to that $1 million limit, provided the earthquake is a covered cause of loss under their policy. If they can source the component from an alternative, albeit more expensive, international supplier in the interim, those extra costs might also be considered, or the business income loss would be reduced by the extent they can maintain production.
Key Information for Agents and Underwriters
Agents and underwriters should focus on the following when dealing with CP 15 01:
- Thorough Exposure Analysis: Identifying and quantifying the business income exposure from international dependent properties is critical. This involves understanding the insured's supply chain, identifying key international suppliers/providers, and assessing the potential financial impact if one of these dependencies is disrupted. The Business Income Report/Worksheet (CP 15 15) can be a helpful tool in this process, although this endorsement deals with an external exposure.
- Accurate Scheduling and Limits: Ensure all critical international dependent properties are accurately named, their locations described, and appropriate limits of insurance are selected for each. Underwriters will need to assess the risk associated with each scheduled location, considering factors like geographic location (natural catastrophe exposure), political stability, and the nature of the dependent property's operations.
- Causes of Loss Selection: The applicable Causes of Loss form (Basic, Broad, or Special) must be selected and indicated in the schedule. This choice significantly impacts the breadth of coverage.
- Pricing and Underwriting Challenges: Underwriting international dependent properties can be more challenging due to difficulties in obtaining detailed information about the dependent property's construction, occupancy, protection, and exposure (COPE details). Insurers may have limited ability to conduct loss control inspections or enforce risk improvement recommendations at these foreign locations. Pricing will reflect the increased uncertainty and potentially higher risk profiles of international locations. Rates may be company-specific for this coverage.
- Potential for Accumulation of Risk: Underwriters need to be mindful of potential risk accumulation, especially if multiple insureds rely on the same international dependent property or if a single event (e.g., a major port disruption) could affect numerous insureds with this coverage.
- Clarity on "Suppliers" and "Providers": This endorsement is specifically for "contributing locations" (suppliers) and "manufacturing locations" (providers). It does not typically extend to "recipient locations" (buyers) or "leader locations" (drivers of customers) in the same way some domestic dependent property endorsements might.
- Relationship to Base Business Income Form: The CP 15 01 modifies the underlying Business Income coverage form (CP 00 30 or CP 00 32). The definitions and general conditions of the base form will apply unless specifically modified by the endorsement. For instance, the "period of restoration" definition from the base form would apply to the international dependent property.
- No Coinsurance: Unlike some other Business Income options, endorsements like CP 15 01 that require a specific limit for the dependent property exposure typically do not have a coinsurance clause applied to that specific scheduled limit. However, the underlying Business Income coverage on the insured's own premises (if any) might still be subject to coinsurance.
For agents, it's crucial to explain the limitations, such as the electronic data exclusion and the need to specifically schedule locations and limits. For underwriters, a detailed assessment of each scheduled international location's risk profile and the potential for catastrophic loss affecting that region is paramount.