1. Forms
2. CP
3. CP-15-08

Business Income From Dependent Properties - Broad Form (CP 15 08)

The CP 15 08, Business Income From Dependent Properties - Broad Form, is an endorsement to a commercial property policy. Its primary function is to protect the insured business against a loss of business income that results from direct physical loss or damage by a covered cause of loss to the property of a dependent property. Unlike standard business income coverage which applies to the insured's own premises, this form extends coverage to disruptions caused by damage to properties the insured relies on, even if those properties are not owned, operated, or controlled by the insured. The "Broad Form" aspect signifies that the full business income (and extra expense, if CP 00 30 is used) limit of coverage on the policy is available to cover the loss stemming from the dependent property. This is a key distinction from the "Limited Form" (CP 15 09), which requires a specific limit to be scheduled for dependent property coverage.

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 fall into four main categories:

• Contributing Locations (Suppliers): Businesses that supply the insured with necessary parts, materials, or services.
  • Real-world example: A restaurant that sources a unique, critical ingredient from a single farm would suffer a business income loss if that farm was damaged by a fire and could no longer supply the ingredient.
• Recipient Locations (Buyers): Businesses that purchase a significant portion of the insured's products or services.
  • Real-world example: A specialized component manufacturer that sells 80% of its output to a single large assembly plant would lose income if that assembly plant was shut down due to a covered peril.
• Manufacturing Locations (Providers): Businesses that manufacture products for delivery to the insured's customers under a contract of sale. This applies when the insured designs or sells a product but relies on another company for its actual production.
  • Real-world example: An engineering firm that designs specialized equipment and contracts its manufacturing to another facility would face an income loss if that manufacturing facility was damaged and couldn't produce the equipment.
• Leader Locations (Drivers): Businesses that attract customers to the insured's location.
  • Real-world example: A small retail shop in a mall that relies on the foot traffic generated by a large anchor store (like a department store or major supermarket) would experience a decline in customers and income if that anchor store was closed due to damage. Similarly, hotels near a major tourist attraction or sports venue could suffer if the attraction closes.

Special Considerations

Several important factors must be considered when utilizing the CP 15 08:

• Scheduling of Dependent Properties: The specific dependent properties (name, occupancy, and location) must typically be listed (scheduled) in the endorsement for coverage to apply to them. However, the CP 15 08 (along with CP 15 09 and CP 15 34) can provide a minimal amount of coverage for "miscellaneous locations" not scheduled, limited to 0.03% of the sum of all scheduled limits per day of suspension.
• 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 damage occurred to the insured's property.
• Period of Restoration: Similar to standard business income coverage, the "period of restoration" defines the duration of coverage. For dependent properties, this period ends when the dependent property should reasonably be repaired, rebuilt, or replaced. The policy expiration does not shorten this period.
• Mitigation of Loss: The insured is expected to take reasonable steps to reduce their loss. For instance, if an alternative supplier or buyer can be found, the business income loss payable may be reduced.
• Electronic Data Exclusion: Coverage generally does not apply if the loss to the dependent property is solely due to the loss or damage of electronic data. There might be a limited grant-back of coverage for interruption of computer operations, similar to what's found in the base Business Income forms (CP 00 30, CP 00 32).
• Ineligibility with Premium Adjustment: The CP 15 08 cannot be used if the Business Income Premium Adjustment endorsement (CP 15 20) is attached to the policy.
• Utility Services: Damage to utility service providers (water, power, communication) is typically not covered under this endorsement; separate coverage like Utility Services - Time Element (CP 15 45) would be needed.

Key Information for Agents and Underwriters

• Risk Assessment: A thorough understanding of the insured's supply chain and customer base is critical. Identifying key dependencies, potential bottlenecks, and the financial impact of a disruption at each dependent property is essential. A supply chain schematic can be a useful tool. Underwriters will scrutinize the nature of the dependency and the availability of alternatives for the insured.
• Pricing/Underwriting Challenges: Underwriting dependent property exposure can be challenging because the insurer has little to no control over the risk management practices of the dependent property. Obtaining loss control inspections or enforcing recommendations at these third-party locations is often not feasible. This can sometimes make the coverage unavailable or expensive.
• Limit Adequacy: Since the CP 15 08 uses the overall Business Income limit, agents must ensure this limit is sufficient to cover both a loss at the insured’s own premises and a potential loss from a dependent property. The limit applies separately to each scheduled dependent property.
• Distinction from CP 15 09: The CP 15 08 (Broad Form) applies the main policy's Business Income limit to dependent property losses. In contrast, the CP 15 09 (Limited Form) is used when the insured wants a separate, specific limit for dependent property exposures, which might be lower (or higher) than their own Business Income limit, or if they don't have direct Business Income coverage on their own premises.
• Secondary Locations: The 10/12 and later editions of these endorsements may include coverage for secondary contributing or recipient locations (suppliers of your suppliers, or customers of your customers), if selected. This adds another layer of complexity to risk assessment but can provide more comprehensive coverage.
• Documentation: Clear documentation of each dependent property, including its role and importance to the insured's business, is vital for proper underwriting and claims handling.