1. Forms
2. CP
3. CP-15-34

Form CP 15 34: Civil Authority Prohibiting Use Of Dependent Properties

1. What the form is

The CP 15 34, Civil Authority Prohibiting Use Of Dependent Properties endorsement, is a crucial component of Commercial Property insurance. It extends an insured's Business Income or Extra Expense coverage to apply when a civil authority prohibits access to the insured's premises. However, this isn't a standalone trigger. The key is that the civil authority's order must be a direct result of physical damage to a dependent property from a Covered Cause of Loss. A dependent property is one that the insured business relies on, such as a key supplier, primary customer, or a business that attracts customers to the insured's location (a "leader" property). Essentially, if a key supplier's factory burns down and the area is cordoned off by the police, preventing the insured from accessing their own (undamaged) premises to conduct business or forcing them to incur extra expenses, this endorsement could provide coverage. This form is specifically for Extra Expense coverage related to dependent properties and is often attached to the Extra Expense Coverage Form (CP 00 50).

2. Classes of business it applies to

This endorsement is vital for businesses with significant reliance on other specific entities for their operational continuity. Examples include:

• Manufacturers heavily dependent on a single or limited number of suppliers for critical components. If a supplier's facility is damaged by a covered peril and a civil authority restricts access to an area that includes the insured manufacturer's premises, this endorsement would be relevant.
• Retailers or service providers located in close proximity to a major "leader" property, like an anchor store in a mall or a large entertainment venue. If that leader property suffers damage leading to a civil authority prohibiting access to the general area, including the insured's business, this coverage could apply.
• Businesses with exclusive contracts with specific customers (recipient locations). For instance, a machine shop that exclusively provides parts to one manufacturer could suffer a covered loss if that manufacturer is damaged, a civil authority order prevents access to the insured's shop, and the insured incurs extra expenses as a result.
• Wholesalers or distributors who rely on specific manufacturing locations to produce goods sold under the insured's name.

3. Special considerations

There are several important factors to consider when utilizing or recommending the CP 15 34:

• Direct Link Required: Coverage is contingent on the civil authority's prohibition being a direct result of physical damage to the dependent property by a Covered Cause of Loss. If the prohibition is for another reason, or if the damage to the dependent property is not by a covered peril, the endorsement will not respond.
• Definition of Dependent Property: The policy will define what constitutes a dependent property. Typically, this includes contributing locations (suppliers), recipient locations (customers), manufacturing locations (contract manufacturers), and leader locations (businesses that attract customers). Utility services are generally not considered contributing locations for the purpose of this endorsement; separate Utility Services - Time Element endorsements (e.g., CP 15 45) address those exposures.
• Scheduled Locations: Dependent properties usually need to be scheduled on the endorsement, along with a specific limit of insurance for each. This means businesses must identify their critical dependencies.
• Period of Restoration: Coverage for extra expense is typically limited to the period of restoration, which is the time it should reasonably take to repair or replace the damaged dependent property.
• Waiting Period: Standard Business Income and Extra Expense policies often have a waiting period (e.g., 72 hours) before coverage begins. This would likely also apply to losses covered under this endorsement.
• Coverage Territory: Standard commercial property policies define a coverage territory. If the dependent property is outside this territory (e.g., international), other endorsements like CP 15 02 (Extra Expense from Dependent Properties - Limited International Coverage) might be needed.
• Exclusion of Electronic Data: Loss of income or extra expense resulting solely from damage to electronic data at the dependent property is typically excluded.
• Civil Authority Limitations: Standard civil authority coverage often has limitations regarding the distance of the damaged property from the insured's premises (e.g., one mile) and the duration of coverage (e.g., four weeks). While CP 15 34 addresses the *dependent property* trigger for civil authority, the underlying civil authority provisions and how they interact with this endorsement should be reviewed. Endorsement CP 15 32 (Civil Authority Change(s)) can modify these standard limitations.

Real-world example: A hurricane damages a key supplier's warehouse (a covered cause of loss). Due to widespread damage and safety concerns, the local authorities prohibit all access to the industrial park where both the supplier and the insured's manufacturing plant are located. Even though the insured's plant is undamaged, they cannot operate. The CP 15 34 could cover the extra expenses incurred by the insured due to this shutdown, such as costs to temporarily source materials from a more distant, expensive supplier, if access to their facility is prohibited due to the damage at the dependent supplier and the ensuing civil authority order.

4. Key information for agents and underwriters

• Risk Assessment: Underwriters need to carefully assess the insured's dependencies. This includes understanding the nature of the relationship with dependent properties, their geographic location (and susceptibility to perils), and the potential financial impact on the insured if that dependent property suffers a loss leading to a civil authority action. Information on the dependent property's construction, occupancy, protection, and exposure (COPE) is as important as it is for the insured's own property.
• Pricing: Pricing will reflect the perceived risk associated with the scheduled dependent properties. Factors include the type of dependent property, its location, the perils it is exposed to, and the limit of liability requested.
• Coverage Gaps: Agents should be aware of potential gaps. For example, if a civil authority order is issued due to a flood, but the insured's policy excludes flood for the dependent property, there would be no coverage under CP 15 34. The cause of loss at the dependent property must be one that would have been covered had it happened to the insured's property. Also, ensure the definition of "dependent property" aligns with the insured's actual exposures.
• Limit Adequacy: It's crucial to select an adequate limit of insurance for extra expenses arising from a shutdown triggered by civil authority action related to a dependent property. This endorsement allows the insured to customize the extra expense coverage needed and doesn't tie the limit to the named insured's premises extra expense coverage.
• Underwriting Guidelines: Insurers may be hesitant to offer this coverage if they cannot adequately assess the risk at the dependent property, especially if loss control inspections are not feasible. The insurer has the right to deny coverage for a dependent location it cannot inspect or that doesn't comply with recommendations.
• Distinction from other coverages: It's important to distinguish this endorsement from standard Civil Authority coverage (which applies to damage near the insured's premises, not necessarily a *dependent* property) and from Business Income from Dependent Properties endorsements (like CP 15 08 or CP 15 09, which cover loss of income rather than just extra expense). CP 15 34 is specifically for extra expense arising from a civil authority order related to a dependent property.
• Secondary Dependencies: Revisions to forms like CP 15 34 have sometimes included coverage for "secondary contributing locations" or "secondary recipient locations," which are suppliers to the insured's direct suppliers, or customers of the insured's direct customers. The applicability of such extensions should be verified in the specific edition of the form being used.