Can an Insured Recover for Business Income Losses for Damages Caused to its Vehicles? – Understanding Business Interruption Claims, Part 86

The standard Commercial Property Form (CP 00 10) typically excludes coverage for damages to business owned vehicles. The form states, in pertinent part:

Vehicles, Aircraft, and Watercraft—We do not cover vehicles or self-propelled machines (including aircraft or watercraft and their motors, equipment, and accessories) that are:

a. required to be licensed for use on public roads; or
b. operated principally away from the described premises.

We do cover vehicles or self-propelled machines you manufacture, process, warehouse, or hold for sale. However, this does not include autos you hold for sale. We also cover rowboats or canoes out of water at the described premises.

Notwithstanding this exclusion, the standard business income loss provision should provide coverage for any interruption of business operations caused by direct physical loss or damage to the business owned vehicles.

The FC&S publication confirms this enigmatic issue.

Q&A

If there is a business interruption due to windstorm damage to vehicles parked on the insured’s premises, does the phrase "to property at premises described" encompass any kind of property, like vehicles? Would such a loss be covered under business income coverage?

Puerto Rico Subscriber

While the commercial property form lists vehicles as property not covered, there is no such limitation on the business income form CP 00 30 04 02. In addition, CP 00 30 is not tied to the commercial property form; it can be written as a stand-alone coverage. Based on this, vehicles may be considered property in context of the business income insuring agreement, which requires that business income losses arise from a "suspension" of business that is caused by direct physical loss of or damage to property at described premises.

However, two other requirements must be considered when determining whether business income coverage is triggered.

1. The damage to or loss of vehicles parked at the premises must cause a "suspension" of business—that is, either a slowdown or cessation of business—that leads to a loss of income.
2. The second factor is that business income payments are available only during the "period of restoration," which is defined as beginning seventy-two hours after the direct physical damage and ending on the date when the property at the described premises "should be repaired, rebuilt or replaced with reasonable speed and similar quality."

The insured would have to prove that the damage to the vehicles led directly to a suspension of business and loss of income.

If requirement number one were met, recovery would be limited to the loss of business income beginning three days (seventy-two hours) after the direct damage and ending when the vehicles can be replaced "with reasonable speed and similar quality." Unless these are customized autos, it seems that it would be possible to replace them fairly quickly. The insured may have to rent autos if permanent replacements cannot be found within three days, which should be recoverable under extra expense if the insured carries that coverage.

There is nothing in the business income form that specifically excludes coverage for the situation you mention. However, the insured would have to prove that requirements one and two were met before coverage is triggered.

Policyholders should always consult with coverage counsel if they are ever in this enigmatic position and need help convincing their insurance company not to exclude an otherwise covered claim.