Coverage on the Move: Business Interruption for Agricultural Equipment #IRMI2017 Until recently, standard policy forms could cover the actual cash value loss of agricultural and farm equipment. Beyond some capability for rental reimbursement on temporary replacement equipment, a significant exposure to loss of use was left uncovered. This session will examine the new mobile business interruption forms that will inform attendees of their newfound ability to close the gap and address the loss of income and extra expense consequences. Copyright 2017 International Risk Management Institute, Inc. 1 www.irmi.com
Notes This file is set up for duplexed printing. Therefore, there are pages that are intentionally left blank. If you print this file, we suggest that you set your printer to duplex. 2
Coverage on the Move: Business Interruption for Agricultural Equipment #IRMI2017 What Happens after Something Happens? The mobile equipment is damaged or destroyed. The coverage response by the equipment floater you examined in your AFIS courses responds for repair or replacement. What happens in the interval pending returning the new or restored unit to service? 2 3
Putting the Pieces Together 3 Course Objectives Background on mobile businesses Review of current business income forms and mobile business Review of the new form series and coverages applicable 4 4
Response to New Business Models Exposures can be significant Equipment is customized Equipment can not be easily repaired or replaced On the road constantly, or At a primary location Rents a particular spot May not move May have spot with outside seating, bathrooms Tilling, cultivating, or harvesting 5 Response to New Business Models Forms were designed as a response to address solution for any enterprise, agribusiness especially, relying on vehicles and mobile equipment to support their business operations. The concern is that, when the vehicles or mobile equipment are damaged, there is a potential for business interruption especially if away from the premise. This is a significant exposure for Ag equipment. 6 5
Business Income Forms Business interruption coverage generally provides firstparty coverage when an insured s business operations are interrupted by physical damage to property caused by a covered peril. To take advantage of the new forms for mobile equipment, a CP form must be in effect. For equipment permanently attached to an auto, a BAP is required. 7 New Forms For mobile equipment, the reach of coverage can be extended beyond the designated location on the CP into the realm of operations for our equipment by using form CP 1506. For autos, the collision and OTC coverage on the BAP can be extended to account for loss of earnings and extra expense with CA 99 05. Let s examine how they work in the context of business interruption insurance. 8 6
Business Income Defined CP 00 30 10 12 We will pay for the actual loss of Business Income you sustain due to the necessary suspension of your operations during the period of restoration. The suspension must be caused by direct physical loss of or damage to property at premises that are described in the Declarations and for which a Business Income Limit Of Insurance is shown in the Declarations. Copyright, Insurance Services Office, Inc., 2011 9 Business Income Defined CP 00 30 10 12 NOTE To property Does not say covered property Does not say your property At premises Must be at the described premises 10 7
Business Income Defined CP 00 30 10 12 The loss or damage must be caused by or result from a Covered Cause of Loss. With respect to loss of or damage to personal property in the open or personal property in a vehicle, the described premises include the area within 100 feet of such premises. Copyright, Insurance Services Office, Inc., 2011 11 Business Income CP 00 30 10 12 Requires a premises Loss must be at premises Within 100 feet of premises Definitions Cause of Loss Special Form CP 10 30 10 00 Can ONLY write BI mobile forms with special form Exclusions Electrical/Mechanical B.O. Transit to BPP for sublimit Solutions BP 10 80 02 14 CA 99 05 02 14 CP 15 06 02 14 12 8
ISO NEW Forms ISO has filed new coverage options to address the business interruption exposures of vehicles and mobile equipment. The effective date of the forms is 02/2014. NOTE: the forms are titled business interruption rather than loss of business income. 13 New Forms Affect Multiple Form Series ISO introduced new coverage options as a series of similar endorsements under Commercial property Businessowners program Commercial auto Commercial inland marine (?) 14 9
New Forms Affect Multiple Form Series In addition, mobile business interruption coverage will be filed under ISO s capital assets (output policy) and agricultural capital assets (Agri-CAP) programs and will be available through ISO s Inland Marine Handbook. 15 10
New Forms Affect Multiple Form Series The ISO options are designed so that the mobile business interruption coverage for a particular individual risk would only need to be written under one line of business. Allows the underwriters flexibility in the approach 17 Off Premises Interruption of Business Vehicles and Mobile Equipment CP 15 06 Modifies BUSINESS INCOME (AND EXTRA EXPENSE) COVERAGE FORM BUSINESS INCOME (WITHOUT EXTRA EXPENSE) COVERAGE FORM EXTRA EXPENSE COVERAGE FORM Must have a premises business interruption form to extend mobile equipment business interruption 18 11
Limits of Insurance When a separate Off-premises Limit of Insurance applies to each item of scheduled property as shown in Option A of the Schedule, that Limit is the most we will pay in any one occurrence for the total of all covered loss and expense attributable to that item of scheduled property, subject to the limitations of Paragraph C.4. Insurance Services Office, Inc., 2013 19 Limits of Insurance When a single Off-premises Limit of Insurance applies to more than one item of scheduled property as shown in Option B of the Schedule, that Limit is the most we will pay in any one occurrence for the total of all covered loss and expense attributable to all items of scheduled property to which that Limit applies, subject to the limitations of Paragraph C.4. Insurance Services Office, Inc., 2013 20 12
Schedule Page 1 Described Premises: Description of Business Activities Dependent on Scheduled Property: Option A Description of Scheduled Property Off-Premises Limit of Insurance #1 $ Notes: Use this section of the Schedule (Option A) if there is only one item of scheduled property or to show a separate Off-premises Limit of insurance for each item of scheduled property. The off-premise Limit of Insurance can be the same amount for each item or a different amount for each item A particular item of scheduled property may be shown under Option A or Option B of this Schedule but not under both Options. Therefore, if Options A and B are used, each Option must pertain to different items of scheduled property. The Off-premises Limit(s) of Insurance is not an additional amount of insurance under this policy; refer to Paragraph C. for full information about the Off-premises Limit(s) of insurance Insurance Services Office, Inc., 2013 21 Option B Description of Scheduled Property 1. Off-premises Limit of Insurance $ Notes: Use this section of the Schedule (Option B) when a single Off-Premises Limit of Insurance applies to the total of all covered loss and expense attributable to all items of scheduled property subject to such limit A particular item of schedule property may be shown under Option A or Option B of this Schedule but not under both Options. Therefore, if Options A and B are used, each Option must pertain to different items of scheduled property The Off-premises Limit of Insurance is not an additional amount of insurance under this policy; refer to Paragraph C. for full information about the Off-premises Limit of Insurance Collision Covered Cause of Loss (refer to Paragraph B.2.) YES NO Extended Business Income (number of consecutive days, if other than 60: Premium: $ Insurance Services Office, Inc., 2013 22 13
Important Sections/Changes 1. Business income To scheduled property While such property is away from the described premises 3. Extended business income 60 days but can be extended 23 Covered Causes of Loss, Exclusions, and Limitations Coverage under this endorsement does not apply when loss or damage to scheduled property is caused by collision or overturn. However, if Collision is indicated as a Covered Cause of Loss in the Schedule, then Collision as a Covered Cause of Loss is limited to the following: Insurance Services Office, Inc., 2013 24 14
Covered Causes of Loss, Exclusions, and Limitations a. Scheduled property s collision with another object; b. Scheduled property s overturn; or c. Collision, overturn, sinking or derailment of a conveyance that is transporting scheduled property. However, any coverage provided under this Paragraph c. is limited to the necessary suspension of operations caused by direct physical loss or damage to such scheduled property as a result of such collision, overturn, sinking or derailment. Insurance Services Office, Inc., 2013 25 Covered Causes of Loss, Exclusions and Limitations 3. The following are Covered Causes of Loss regardless of whether or not Collision is a Covered Cause of Loss: a. Contact of scheduled property with a bird or animal; or b. Contact of scheduled property with falling objects or missiles. 26 15
Covered Causes of Loss, Exclusions and Limitations 5. We do not provide coverage when the suspension of operations is due to any of the following: a. Mechanical or electrical breakdown, malfunction or failure to operate; b. Wear and tear; or c. Tire blowouts, punctures or other road damage to tires. However, when an excluded cause of loss described in this Paragraph 5. results in a Covered Cause of Loss, we will provide coverage. Insurance Services Office, Inc., 2013 27 Definition Operations Operations is defined in the form as your business activities described in the Schedule that are dependent on scheduled property. Insurance Services Office, Inc., 2013 28 16
Definitions Scheduled Property a. Means the vehicle(s) and mobile equipment described in the Schedule, including machinery or equipment that is permanently installed in such property; and b. Includes any vehicle(s) or mobile equipment being used to temporarily substitute for property described in the Schedule, but only while such described property is out of service due to breakdown, repair work, servicing, damage or destruction. Insurance Services Office, Inc., 2013 29 Period of Restoration Period of restoration does not include any increased period required due to the enforcement of or compliance with any ordinance or law that: (1) Regulates the use or repair of any property, or requires updated emissions controls or safety features which were not part of scheduled property prior to the direct physical loss or damage; 30 17
E. Coinsurance The coinsurance additional condition does not apply to the coverage provided under this endorsement. Insurance Services Office, Inc., 2013 31 Off Premises Interruption of Business Vehicles and Mobile Equipment BP 10 80 Modifies businessowners coverage form Essentially, the changes are the same as on the CP form with the exception of 32 18
Off Premises Interruption of Business Vehicles and Mobile Equipment BP 10 80 Modifies businessowners coverage form Essentially the changes are the same as on the CP form with the exception of 33 Off Premises Interruption of Business Vehicles and Mobile Equipment BP 10 80 Under Schedule B, there is an option to eliminate the business income NO waiting period option 34 19
Mobile Equipment versus Auto 35 Business Interruption CA 99 05 Modifies Auto dealers coverage form Business auto coverage form Motor carrier coverage form Extends comp and collision to trigger business interruption coverage 36 20
Business Interruption CA 99 05 Because this form modifies an auto policy, the business interruption form has to include typical loss of business income exclusions. On the CP/BOP forms, they are modifying business income forms. Example: suspension or cancellation of licenses 37 Must Be Eligible and Covered on the BAP! Mobile equipment can be deemed auto only if Subject to motor vehicle financial responsibility Most mobile equipment will not meet that definition for physical damage. 38 21
BAP versus IM for Mobile Equipment IM is preferable; however, To get BI on IM, cannot use the BAP form Would have to endorse IM form or add it to the CP with BI/EE and then extend If on BAP, choosing correct symbol is imperative 2 all owned autos 7 scheduled autos 39 22
Can I Put It on the BAP? Remember, not all mobile equipment is eligible for inclusion on the BAP. Even if eligible, may be better served on an IM form. In that case, the premises/operations extension form CA 15 06 is important. 41 Premises Business Interruption To use the new ISO form, you must have a premises covered under CP 00 30. Adding the mobile BII extension CP 15 06 is now possible. Consider the following example. 42 23
Big Investment 43 California Drought Spawns Well Drilling Boom California has realized such a demand for well drilling services that a Central Valley farmer is taking matters into his own hands. He s buying a drilling rig for $1 million to make certain he has enough water this summer for thousands of acres of fruit and vegetable crops. 44 24
Capital versus ROI With California in a third dry year, well drilling is booming across the nation s most productive agricultural region, and some drilling companies are booked for months or a year. When the rig isn t being used on the ag operation s land, he said he will put it to work on neighboring farms to recoup the investment. 45 Backlog The president of a drilling company based in Lancaster said his mid-sized firm of three rigs is backlogged 15 months. What happens to his income if a covered peril puts a rig out of service? See the opportunity? 46 25
Opportunity Knocks How would you insure the capital investment in the drilling rig? Do these new forms give you an opportunity to protect the income and overhead? Note: most downtime coverage to date was limited to rental reimbursement. 47 Applicable Coverage Endorsement CA 15 06 is designed to provide business income coverage (without extra expense coverage) or business income and extra expense coverage, depending on the entry made in the schedule. This is different from the prior approaches. 48 26
Applicable Coverage Regardless of the applicable coverage option or whether physical damage coverage is provided with respect to scheduled property under any policy, coverage is triggered by direct and accidental loss or damage to scheduled property due to a covered cause of loss while such property is located within the coverage territory. 49 New Features/New Market Where BAP coverage is not appropriate (as per this rig), extending the BII on the CP is now possible. This is not filed for adding to the IM yet. It may be possible to convince a marine underwriter to do this. It s not necessary, however, if a premises BII (CP 00 30) is in force. 50 27
Covered Cause of Loss BAP The covered causes of loss applicable to endorsement CA 99 05 must be indicated in the schedule. Covered cause of loss options (select all that apply) Comprehensive OR specified cause of loss Collision 51 Definitions Operations is defined as business activities described in the Schedule that are dependent on scheduled property. NOTE: to be covered under CA 99 05, the triggering loss must be damage to vehicles, not the business. 52 28
Features Scheduled property, including machinery or equipment, that is permanently installed in such property Scheduled property does not include buildings, location, or premises. 72-hour waiting period (can be changed) Extended 60 days or scheduled 53 Features The exclusions under Paragraphs D.1. through 3. are patterned on similar exclusions under ISO CA physical damage coverage, while those under D.4. through 6. are generally similar to exclusions in ISO s CP causes of loss special form CP 10 30. Collision, not contemplated in the CP forms, can (should?) be added as an additional peril on the CP 1506 extension. 54 29
Features The selected covered causes of loss option(s) and exclusions are designed to apply regardless of what physical damage coverage (if any) is provided by the CA policy with respect to scheduled property. 55 Summary Business interruption is a real concern for agribusiness as well as mobile businesses that have both premises operations and truck. Current loss of business income policies are fixed location forms. The perils of current business income forms do not anticipate the transit perils. The new forms offer an opportunity to overcome these barriers. 56 30