Extra expense coverage

By LeRoy H. Utschig, CPCU, ARM

Several main boiler and machinery forms can be used to cover a client's exposure to loss of income and the extra cost of doing business as a result of damage to a covered object. In analyzing the exposures, I will use primarily ISO forms.

Daily indemnity

During the late 1960s, an old hotel in a Midwestern city suffered a loss. The business, which we'll call Old Hotel, Inc., had an ancient boiler. The hotel lost heat during one of the first cold days of the fall. Repairs to its boiler took about seven days. Old Hotel put in a claim to its boiler insurer for $21,000 in revenues lost during the seven days that the boiler was not operating.

The insurer responded that although there was coverage, there was none for the first three days of the loss. Coverage was provided at $1,500 per day, starting with the fourth day. As four days were covered at $1,500 per day, the insurer offered Old Hotel $6,000 for its $21,000 loss. The actual loss exposure was about $3,000 ($21,000/7 days = $3,000) per day. The insured understood the 72-hour deductible but did not understand why it was so far underinsured on the daily limit. "  ...

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