“Extra” is the E that largely stands for the concept of expediting costs which are incurred to reduce the ultimate loss. “These are out-of-the-ordinary expenses.”1 They are differentiated from the normal expenses to repair and replace damaged property covered under the property insurance policy. These expediting costs usually fall into three categories:
- Those that speed up the return to normal operations;
- Those that continue operations during the period of interruption but at a higher than normal cost;
- Those incurred, after operations are resumed, to refill inventory.
It should be noted that Extra Expense Coverage and its benefits are similar, but not the same, as this concept of an E within business interruption. The treatise, Business Interruption Insurance: Its Theory and Practice, notes that savings to the amount of the loss during the period of interruption does not have to be made under the traditional form of extra expense coverage.
Extra expenses, business interruption coverage and extra expense coverage are often overlooked and misunderstood by insurance agents and adjusters. I noted this over a decade ago in a post, Business Interruption and Extra Expense Insurance are the Most Important Commercial Coverages–and Often the Most Overlooked at Point of Sale and Adjustment, where I stated:
Insurance agents need to do a better job convincing commercial policyholders to purchase business interruption and extra expense coverage. Insurance claims executives need to do a far better job paying those benefits much quicker than they typically do. These two activities would help many more commercial establishments remain in business following a catastrophe.
Christopher Boggs has written a down to earth book regarding business income insurance, Business Income Insurance Demystified: The Simplified Guide to Time Element Coverages. Buy it if you adjust property insurance claims and want to do a better job adjusting business income claims. If you are an insurance company defense attorney, don’t buy it—I will use what he has written against your client and I do not need you more educated than you are. Risk managers need to buy it to explain to your CFO’s and CEO’s why this coverage is so important. Agents should buy the work to sell more business income coverage.
Do any insurance companies have their own adjusters determine the amount of business income or extra expense coverage is owed? Virtually all hire outside consultants and accountants to make the determination. Most adjusters wait weeks or months following a disaster to have these consultants and accountants do the work of evaluating the income and expenses of a business following a disaster. As a result, most business income and extra expense benefits are delayed at the most crucial time following a disaster. Months, rather than days, are the normal sequence for evaluation and payment of time element losses.
As to the “Extras” in business interruption coverage, it is important to remember that, from the insurer’s standpoint, the insured should exert all efforts to reduce the time required to resume operations. This provision encourages the policyholder to take such action by the insurer agreeing to reimburse the insured for certain expediting expenses. It is more than just due diligence and would be limited to the extent those expenses reduce or make a savings to the insurer.
So, exactly what they are should not make a difference so long as there is a savings to the insurer. This concept is often forgotten by insurance adjusters who simply are not trained on the subject of what they are required to adjust. Indeed, we often find independent or field adjusters without authority to approve these costs or denying them after the fact despite the savings that would have been received by the insurer.
As a tip for those policyholders fighting with the insurance company, its adjusters or accountants about these expediting costs, you should carefully read pages 102 through 104 of Business Interruption Insurance: Its Theory and Practice. I will warn about it again, most insurance company claims adjusters simply do not have the commercial training of the GAB adjuster when I started in this business about 39 years ago. You have to be your own expert.
Thought For The Day
A captain of the Navy ought to be a man of strong and well connected sense, with a tolerable good education, a gentleman, as well as a seaman both in theory and practice.
—John Paul Jones
1 Business Interruption Insurance: Its Theory and Practice, page 59, Nat’l Underwriter Co., 1986.