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3. CP-15-09

Form CP 15 09: Business Income From Dependent Properties - Limited Form

1. What the form is

The CP 15 09 - 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, but the damage causing the suspension must occur at the premises of a dependent property, not the insured's own premises. A "dependent property" is a business not owned, operated, or controlled by the insured, but on which the insured relies to continue their normal business operations. This form is considered "limited" because, unlike its "broad form" counterpart (CP 15 08), it requires the insured to select specific limits of insurance for each scheduled dependent property. This endorsement modifies the standard Business Income (and Extra Expense) Coverage Form (CP 00 30) or the Business Income (without Extra Expense) Coverage Form (CP 00 32). Coverage under this endorsement 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 rely heavily on other specific entities for their income stream. Such reliance can fall into several categories of dependent properties that can be scheduled on the form:

• Contributing Locations: Businesses that supply the insured with materials, parts, or services necessary to conduct their business. For example, a restaurant that depends on a specific local farm for unique organic produce would list the farm as a contributing location. If a fire at the farm prevents it from supplying the produce, the restaurant could suffer a business income loss.
• Recipient Locations: Businesses that purchase the majority of the insured's products or services. For instance, a specialty component manufacturer that sells 80% of its output to a single large assembly plant would consider that plant a recipient location. If the assembly plant is damaged and stops buying components, the manufacturer's income is impacted.
• Manufacturing Locations: Businesses that manufacture products for delivery to the insured's customers under a contract of sale. An example could be a clothing designer who outsources all production to a specific factory. If that factory is damaged, the designer cannot fulfill customer orders.
• Leader Locations (or "Driver" Locations): Businesses that attract customers to the insured's vicinity. A small gift shop in a mall might depend on a large anchor department store to draw shoppers to the mall. If the anchor store closes due to a covered peril, the gift shop could experience a significant drop in customer traffic and sales.

The CP 15 09 is particularly useful when an insured either doesn't have or doesn't want business income coverage at their own premises, or when they desire different, often lower, limits of insurance for their dependent property exposures compared to their own direct business income coverage.

3. Special considerations

• Specific Limits Required: Unlike the Broad Form (CP 15 08), which typically extends the insured's existing business income limits to dependent properties, the CP 15 09 requires the insured to schedule each dependent property and assign a specific limit of insurance to it. This allows for customized coverage based on the perceived risk and potential loss associated with each dependent property.
• No Coverage for Insured's Own Premises Damage: This endorsement only responds to income losses caused by damage to the scheduled dependent properties. Damage to the insured's own property is covered under their direct business income coverage (e.g., CP 00 30 or CP 00 32), if purchased.
• 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 at the insured's premises.
• Resumption of Operations: 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.
• Electronic Data Limitation: Coverage does not apply if the only damage to the dependent property is loss or damage to electronic data. If there's damage to other property besides electronic data, coverage will not continue once that other property is repaired or replaced.
• Miscellaneous Locations: The endorsement often includes a small amount of coverage (e.g., .03% of the sum of all scheduled limits per day) for business income loss stemming from damage to unscheduled, or "miscellaneous," dependent locations. However, this typically excludes infrastructure like roads, bridges, and pipelines.
• Alternative to Agreed Value: This endorsement cannot typically be used with the Agreed Value option of the CP 00 30 or CP 00 32.

A real-world example: A small brewery heavily relies on a single, specialized hop supplier located in another state. The brewery doesn't have significant direct business income exposure at its own small taproom but would face a severe production halt if the hop supplier's facility was destroyed by a tornado. The brewery could use CP 15 09 to schedule the hop supplier with a specific limit reflecting the potential income loss from being unable to produce their flagship beers.

4. Key information for agents and underwriters

• Risk Assessment: Underwriting dependent property exposures can be challenging because the insured does not control the dependent property. Insurers may have difficulty conducting loss control inspections or enforcing risk improvement recommendations at the dependent location. Detailed information about the dependent property's construction, occupancy, protection, and exposure (COPE) is crucial for accurate risk assessment and pricing.
• Setting Limits: Agents should work closely with insureds to accurately determine the potential income loss associated with the disruption of each key dependent property. This involves understanding the insured's supply chain, customer base, and the time it would take to find alternatives if a key dependent property is shut down. The limits selected should be adequate but not excessive, as this form allows for specific, potentially lower, limits than the insured's direct coverage.
• Coverage Gaps: It's important to ensure that the causes of loss applying to the dependent property coverage align with the insured's expectations and the perils likely to affect the dependent properties. Agents should also discuss potential gaps, such as the electronic data limitation or the exclusion of utility service providers (which may require a separate Utility Services – Time Element endorsement like CP 15 45).
• Interrelation with CP 00 30 / CP 00 32: The CP 15 09 is an endorsement to a primary business income form. The definitions and many provisions of the underlying CP 00 30 or CP 00 32 will still apply, unless specifically modified by the CP 15 09.
• Pricing Considerations: Pricing will depend on the specific limits chosen for each dependent property, the nature and location of those dependent properties, and their susceptibility to loss. Underwriters will need to assess the stability and risk profile of each scheduled dependent entity.
• Use Cases: This form is appropriate when the insured has identifiable key dependencies, and desires specific, often more limited, coverage for these exposures, or when direct business income coverage on the insured's own premises is not needed or wanted. It offers flexibility in tailoring coverage to specific contingent risks.