Can My Business Recover Additional Income Loss If Code Upgrades Are Delaying the Time to Complete Repairs?

Business Interruption coverage protects the potential earnings of the insured business while its operations are suspended as a result of damage caused by a covered peril. The period of restoration has a direct effect on the actual loss suffered. A typical definition in most ISO forms of the “period of restoration” is:

The period of time that begins at the time of loss and ends on the date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality or the date when business is resumed at a new permanent location.

Under this provision, if the business owner repaired, rebuilt, and resumed operations within the policy time limits, the period of restoration is calculated from the date of the loss by a covered peril until the “actual time” it took to rebuild and resume operations, subject to certain offsets.

However, compliance with building codes often extends the time to rebuild or restore suspended operations. Substantial delays may be expected when the building upgrades require the existing structure to be demolished before reconstruction can begin; or when rebuilding on the present site is prohibited and a new permanent location must be found. Depending on the nature and size of the business, this could translate into a significant loss of income. The question is then, does my policy provide coverage for the additional loss of earnings my business suffered as a result of the delay to comply with current building codes requirements?

Many business interruption coverage forms exclude or limit coverage for the delay arising out of the application of any ordinance or law that increases the period of restoration.

The standard ISO CP 00 30 Business Income (and Extra Expense) Coverage Form provides in pertinent part:¹

‘Period of restoration’ does not include any increased period required due to the enforcement of any ordinance or law that:

(1) Regulates the construction, use or repair, or requires the tearing down of any property

The period of restoration definition specifically excludes coverage for any additional time required to rebuild as a result of law and ordinance requirements. ISO endorsement CP 15 31, the Ordinance or Law – Increased Period of Restoration may be utilized to overcome the effect of this exclusion. It states in pertinent part:²

A. If a Covered Cause of Loss occurs to property at the premises described in the Declarations, coverage is extended to include the amount of actual and necessary loss you sustain during the increased period of “suspension” of “operations” caused by or resulting from a requirement to comply with any ordinance or law that:
1. Regulates the construction or repair of any property;
2. Requires the tearing down of parts of any property not damaged by a Covered Cause of Loss; and
3. Is in force at the time of loss.

This endorsement provides coverage for the additional time needed to repair or reconstruct damaged property in accordance with any law or ordinance. As we approach the hurricane season, business owners are encouraged to speak with their insurance agents about their business needs. Among other things, they should discuss not only complete coverage for the increase cost of construction, but also coverage for the period of time required to adhere to the code upgrades.
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¹ ISO CP 00 30 10 12
² ISO CP 15 31 10 12