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3. CP-15-45

Form CP 15 45: Utility Services - Time Element

The CP 15 45, Utility Services - Time Element endorsement, is a crucial part of a commercial property policy. It extends coverage for Business Income and/or Extra Expense losses that occur when a business's operations are suspended due to an interruption of a specified utility service. This interruption must be the result of direct physical loss or damage by a covered cause of loss to the utility's property. The types of utility services that can be covered include water supply, wastewater removal, communication supply, and power supply. Importantly, this endorsement modifies the underlying Business Income (CP 00 30 or CP 00 32) or Extra Expense (CP 00 50) coverage forms.

Classes of Business It Applies To

This endorsement is vital for businesses that heavily rely on uninterrupted utility services for their daily operations. Examples include:

• Manufacturing Plants: Require consistent power for machinery and production lines. A power outage due to a covered loss at the utility's substation could halt production, leading to significant income loss.
• Restaurants and Food Processors: Depend on electricity for refrigeration and cooking, and water for sanitation. A water main break or power failure can lead to spoilage and an inability to operate.
• Data Centers and Tech Companies: Need reliable power and communication services to maintain server operations and connectivity.
• Healthcare Facilities: Hospitals and clinics require continuous power for life-saving equipment and patient care, and water for hygiene.
• Retail Stores: Especially those with significant online operations or perishable goods, rely on power and communication services.
• Hotels and Hospitality: Require all utilities (water, power, communication, wastewater) to provide services to guests.

Special Considerations

There are several important points to consider when utilizing the CP 15 45 endorsement:

• Covered Cause of Loss: The damage to the utility property must be from a cause of loss that is covered under the policy's selected Causes of Loss form (e.g., Basic, Broad, or Special). For example, if the utility interruption is due to a flood, and flood is not a covered peril, this endorsement would not apply.
• Off-Premises Damage: The endorsement specifically addresses damage to utility property that is often located off the insured's premises. Standard business income forms typically exclude losses from off-premises utility failures.
• Overhead Transmission Lines: Coverage for damage to overhead power and communication transmission lines must be specifically selected and indicated on the endorsement schedule. If not selected, a loss caused by downed overhead lines would not be covered, even if other power supply property is covered.
• Waiting Period: A waiting period (e.g., 24, 48, or 72 hours) typically applies before business income coverage begins. This waiting period starts when the interruption occurs at the described premises, not when the damage to the utility property happens. The waiting period can be modified by selecting different options on the endorsement.
• Limit of Insurance: A separate limit of insurance must be shown in the schedule for the Utility Services - Time Element coverage. This limit is part of, and not in addition to, the overall Business Income limit of insurance. Coinsurance does not apply to the coverage provided by this endorsement.
• Wastewater Removal Property: This coverage was added in later editions of the form and covers utility property like sewer mains and pumping stations. However, it does not apply to interruptions caused by heavy rainfall or flooding leading to water or sewage discharge.
• Electronic Data: The endorsement excludes coverage for Business Income loss or Extra Expense related to an interruption in utility service that causes loss or damage to electronic data.

Key Information for Agents and Underwriters

Agents and underwriters should pay close attention to the following when dealing with the CP 15 45:

• Risk Assessment: Thoroughly evaluate the insured's dependency on each type of utility service. Consider the potential for service interruption based on the utility provider's infrastructure, geographic location (e.g., susceptibility to hurricanes, ice storms, wildfires), and the age/condition of local utility equipment.
• Coverage Gaps: Ensure clients understand the limitations, particularly regarding uncovered perils, the specific requirement to add coverage for overhead transmission lines, and the waiting period. The standard Business Income policy excludes loss due to utility interruption originating off-premises, making this endorsement critical for many businesses.
• Limit Selection: Assist the insured in selecting an adequate limit of insurance for utility service interruptions. This should be based on a realistic assessment of the potential duration of an outage and the resulting financial impact (lost income and extra expenses). Remember this limit is a sub-limit of the total Business Income limit.
• Pricing: ISO provides loss costs for various utility services (water, wastewater, power, communication) and for overhead transmission lines, which apply to public utilities. Insurers develop their own rates for private utility services. The final rate is influenced by the selected waiting period; shorter waiting periods have factors greater than 1.00, while longer periods have factors below 1.00 (with a 72-hour waiting period often being the 1.00 factor).
• Related Endorsements:
  • CP 00 30 (Business Income (and Extra Expense) Coverage Form) / CP 00 32 (Business Income (without Extra Expense) Coverage Form): These are the primary forms that CP 15 45 modifies to provide the time element coverage for utility interruptions.
  • CP 04 18 (Condominium Commercial Unit-Owners Optional Coverages): While related to commercial property, its direct interaction with CP 15 45 is less pronounced than the business income forms. The CP 04 18 allows unit-owners to select specific coverages.
  • CP 04 17 (Utility Services - Direct Damage): This endorsement covers direct physical damage to the insured's property resulting from a utility service interruption (e.g., spoilage of perishable goods). CP 15 45 covers the *time element* (income/expense) aspect, while CP 04 17 covers the *direct damage*. Often, if a business needs CP 15 45, they should also consider CP 04 17.
• Underwriting Guidelines: Consider the proximity of the business to critical utility infrastructure. Businesses in areas prone to natural disasters that could affect utilities require careful underwriting. The reliability and redundancy measures of the local utility providers can also be a factor.