1. Forms
2. CP
3. CP-15-02

Form CP 15 02: Business Income From Dependent Properties - Limited Form

1. What the form is

The CP 15 02, Business Income From Dependent Properties - Limited Form, is a commercial property insurance endorsement 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." This suspension must be caused by direct physical loss or damage by a covered cause of loss to the premises of a "dependent property." Unlike the unendorsed Business Income (and Extra Expense) Coverage Form (CP 00 30) or the Business Income (Without Extra Expense) Coverage Form (CP 00 32), which cover income loss from damage to the insured's own premises, this endorsement extends coverage to disruptions caused by damage to certain off-premises, non-owned properties that the insured relies on. The "Limited Form" aspect signifies that the insured can select specific limits of insurance for each scheduled dependent property, which may differ from the business income limits for their own premises, or they can use this form even if they don't carry business income coverage for their own operations. It's important to note that this endorsement typically does not apply if the only loss to the dependent property is damage to electronic data.

2. Classes of business it applies to

This endorsement is crucial for businesses that heavily rely on other entities for their operational continuity and revenue generation. Such dependencies can take several forms, making this endorsement relevant across a wide array of industries. Examples include:

• Manufacturers relying on a single or key supplier (Contributing Location): A company that depends on a specific supplier for a critical component in their manufacturing process. If that supplier's facility is damaged (e.g., by fire or natural disaster) and cannot provide the component, the insured manufacturer's production may halt, leading to a business income loss. For instance, an engineering firm that designs equipment but contracts out its manufacturing to another company would be vulnerable if that manufacturer's plant is damaged.
• Businesses selling a significant portion of their output to a specific buyer (Recipient Location): A dairy farm that sells most of its milk to a particular cheese processing plant. If the cheese plant is damaged and cannot accept milk, the dairy farm could suffer a significant loss of income.
• Businesses relying on another entity to manufacture products for delivery to the insured's customers (Manufacturing Location): An insured that designs and sells a product but uses a contract manufacturer to produce and ship it. If the contract manufacturer's facility is damaged, the insured cannot fulfill customer orders, resulting in lost income.
• Retail or hospitality businesses dependent on nearby "anchor" businesses to attract customers (Leader Location): A small gift shop in a mall that relies on the foot traffic generated by a large department store. If the department store is closed due to a covered loss, the gift shop's sales may plummet.

Essentially, any business whose income is vulnerable to disruptions at the premises of a key supplier, buyer, or a business that draws customers to their area should consider this coverage.

3. Special considerations

Several important factors come into play when considering or using the CP 15 02 endorsement:

• Scheduling of Dependent Properties: The specific dependent properties must be listed in the schedule of the endorsement, along with the applicable limit of insurance for each. This requires careful identification and evaluation of key dependencies.
• Covered Cause of Loss: The loss or damage to the dependent property must be caused by a peril that would be covered under the insured's own policy if the damage had occurred at the insured's premises.
• Period of Restoration: Coverage applies to the loss of business income sustained during the "period of restoration," which is the time it should reasonably take to repair or rebuild the damaged dependent property. This period is not cut short by the policy's expiration date but also does not include any increased time due to ordinance or law, unless specifically endorsed.
• Mitigation of Loss: The policy stipulates that the business income loss will be reduced if the insured can resume "dependent property" operations by finding alternative suppliers or buyers.
• Exclusion of Electronic Data: Coverage generally does not apply if the only damage to the dependent property is to electronic data. If other property is also damaged, coverage for the business income loss related to electronic data will not continue once the other property is repaired.
• International Dependencies: While the standard CP 15 02 applies to dependent properties within the policy's coverage territory, there are separate endorsements like CP 15 01 (Business Income from Dependent Properties - Limited International Coverage) and CP 15 02 (Extra Expense from Dependent Properties - Limited International Coverage, though this is a distinct form despite the similar code) for international exposures. The summary provided indicates CP 15 02 is for Business Income, not Extra Expense for international, so careful form review is critical.
• Comparison to Broad Form (CP 15 08): The primary difference between the Limited Form (CP 15 02, or more commonly CP 15 09 for domestic risks) and the Broad Form (CP 15 08) is how the limit of insurance applies. The Broad Form typically extends the full business income limit of the policy to cover losses from dependent properties, whereas the Limited Form allows the insured to select specific, often lower, limits for each dependent property.
• No Coverage for Insured's Own Property: This endorsement only applies to losses stemming from damage to *dependent* properties, not the insured's own scheduled premises.

4. Key information for agents and underwriters

Agents and underwriters need to consider the following when dealing with the CP 15 02:

• Risk Assessment: A thorough understanding of the insured's supply chain and customer base is critical. Underwriters need to identify critical dependencies, the financial impact of a disruption at each dependent property, and the dependent property's own risk profile (e.g., construction, location, exposures). For example, a business relying on a single supplier located in a catastrophe-prone area presents a higher risk.
• Setting Adequate Limits: Agents must work with insureds to determine appropriate limits for each scheduled dependent property. This requires a detailed analysis of the potential income loss attributable to the disruption of that specific dependency. The Limited Form allows for tailored limits, which can be beneficial if the exposure varies significantly between different dependent properties.
• Pricing: Pricing will be influenced by the limits selected, the number and type of dependent properties, their locations, their susceptibility to loss, and the nature of the dependency. The underwriter will assess the likelihood and potential severity of a loss at the dependent property.
• Coverage Gaps: Agents should be aware of potential coverage gaps. For instance, the standard form may not cover disruptions due to damage to utility services (which can be covered by CP 15 45 Utility Services – Time Element) or losses solely due to electronic data breaches at the dependent property. Also, ensure the correct form is used for international versus domestic dependent properties.
• Documentation: Clear and accurate scheduling of dependent properties, including their name, location, and the nature of the dependency, is crucial to avoid disputes at the time of a claim.
• Coinsurance: While the CP 15 02 itself may not have a separate coinsurance clause, it is often attached to a primary Business Income coverage form (like CP 00 30) which does. The limits selected for dependent properties under CP 15 02 are separate from the main BI limits but the overall policy structure regarding coinsurance on the primary BI coverage should be understood.
• Alternative Solutions: If an insured has many unspecified dependent properties, or if the dependencies are less critical, the miscellaneous locations coverage (often a small sub-limit like .03% of the BI limit per day) within some dependent property endorsements might offer minimal protection, but it's not a substitute for scheduling key dependencies.

By carefully evaluating the insured's specific needs and exposures, agents and underwriters can effectively utilize the CP 15 02 endorsement to provide valuable protection against business interruptions originating from disruptions at key dependent properties.