I received this question which I felt was worth sharing.
I have for many years referred to your most excellent publication for guidance relative to BI [Business Interruption] insurance.
The guide makes reference to the Industry Mark IV wording and it is in respect of the Mark IV wording that I have an enquiry, where I could not locate any reference to my particular enquiry within your guide. Many clients have multiple locations, some of which generate revenue others that do not, a loss could occur at a location where revenue is not generated however the insured may need to incur expenditure to resume or maintain normal business operations. From my understanding where a location does not have any BI declared values ( for there is no revenue generated at that location ) the insured would still nonetheless be entitled to make a claim under AICOW [Additional Increase in Cost of Working] subject to the scope of cover and sub-limit. Some insurers draw the assumption that as there are no declared values at the situation then there is no BI cover, there is however no provision under the operative clause to Section 2 that provides indemnity being restricted to those locations with BI declared values.
Would you support my assessment of the application of AICOW ?
Thanking you in anticipation of your prompt attention and reply.
Ric [surname and email provided]
I answered as follows:
Thanks for your note.
Unlike the Material Damage section (Section 1) of the Industrial Special Risks Policy which is tested for average/co-insurance on a location by location basis, business interruption is declared across the entire organisation.
As such the way I would do this to achieve the result you are after is:
- I assume the locations that have no profits but have the potential for an Additional Increase in Cost of Working claim have property that is to be insured under the ISR policy. If this assumption is correct, clearly show them in the asset schedule.
- I would not split up the business interruption figures by location but rather show a total for all locations on a separate line for ease of the co-insurance/average test calculation.
If the insurer(s) requires a split for reinsurance purposes then it is fine as long as the Sub-Limits are set out as follows:
Sub-Limits of Liability
The liability of the Insurer shall be further limited in respect of any one loss or series of losses arising out of any one original source or cause at any one Situation as set out hereunder: [emphasis mine].
The Sub-limits of Liability apply in excess of any applicable Deductible.
Item 2 Claims Preparation $x
Item 4 (Additional) Increase in Cost of Working $x
Etc for any other sub-limits for section 2.
This should make it clear.