Rental Income (Named Perils) (IBC Form 4108A)

CHAPTER 6

Introduction:

Clear-language forms with the same format – similar clauses in the same sequence and using common terms where possible

Definitions:
Damage – means the direct physical loss of or damage to property at the premises from a peril insured.
Declarations Page – the Declarations Page applicable to this form
Indemnity period – means the period beginning with the occurrence of the damage and ending not later than such length of time, not exceeding 12 calendar months, as would be required with exercise of due diligence and dispatch to rebuild, repair or replace the lost or damaged property. However, if media for, or programming records pertaining to, electronic data processing or electronically controlled equipment including data thereon be lost or damaged by a peril insured against then the indemnity period in respect thereof shall not extend beyond: (i) 30 consecutive days after the occurrence of such damage or (ii) the date upon which liability ceases under this form for loss arising from other property lost or damaged by the same occurrence, whichever is less.
Premises – means the entire area within the property lines and areas under adjoining sidewalks and driveways at the location(s) described on the Declarations page and in or on vehicles within 100 metres (328 feet) of such location(s).
Rental income – means the sum of the money paid or payable to the insured by tenants in respect of rental of the premises plus a fair rental value of the proportion(s), if any, of the building(s) occupied by the insured.
Annual rental income – means rental income during the 12 months immediately before the date of the damage.
Expected rental income – means the rental income during the period corresponding with the indemnity period in the 12 months immediately before the date of the damage.
Indemnity Agreement – the insurer shall pay to the insured the loss of rental income suffered during the indemnity period as a direct result of damage in accordance with the terms and conditions of this form.
Limits of Insurance – the insurer, regardless of the number of persons and interests insured under this form, shall not be liable for more than the applicable amount of insurance specified on the Declarations page.
Co-insurance clause is near identical to the business income form except that the rental form substitutes annual rental income for the product of annual revenue and the business income percentage to which the 80% minimum is applied in the business income form.
Perils insured are the same as in the standard business income form.
Exclusions are almost identical to the standard business income with one significant difference – is in the second set of exclusions. There are four of them in the business income form – the rental income form features three of these four additional exclusions, but it omits the exclusion of loss due to fines or damages for breach of contract or other penalties for late or non-completion of orders.

Determination of Payment:

The insurance, subject to the limit of the amount of insurance stated on the “Declarations Page” is limited to (a) loss of “rental income” and (b) increase in cost of operations and the amount payable will be

a)In respect of loss of rental income: the amount by which the rental income during the indemnity period shall in consequence of the damage, fall short of the expected rental income;

b)In respect of increase in cost of operations: the additional expenditure necessarily incurred for the sole purpose of avoiding or diminishing the loss of rental income which but for that expenditure would have taken place during the indemnity period in consequence of the damage, but not exceeding the reduction of rental income thereby avoided;

Less any sum saved during the indemnity period in respect of such charges and expenses payable out of rental income as may cease or be reduced in consequence of the damage.
The same clause as in business income forms.
The insurers obligation under part (a) is the difference, arising from the damage, between the rental income during the indemnity period and the expected rental income.
The insurer’s obligation under part (b) is for expenditure incurred to avoid loss or reduction of rental income, to an amount not exceeding the loss avoided.

Interruption by Civil Authority:

Is extended to insure the loss of rental income suffered by the insured during the period of time, not exceeding two weeks, while access to the premises is prohibited by order of civil authority, but only when such order is given as a direct result of damage to neighboring premises by a peril insured against, under this form.

Accountants’ Fees:

The insurer will pay to the insured the reasonable charges payable by the insured to their professional accountants for producing such particulars or details or other proofs, information or evidence as may be required by the insurer for the purpose of investigating or verifying any claim and reporting such particulars or details are in accordance with the insured’s books of accounts or other business books or documents.

Miscellaneous Clauses:

Permission, breach of conditions, reinstatement, subrogation, property protection systems are identical to the clauses in the direct damage form under the business income forms.

Alternate Accommodation:

If during the indemnity period alternate accommodation shall be provided elsewhere than at the premises, either by the insured or by others on the insured’s behalf, the money paid or payable in respect of such accommodation shall be brought into account in arriving at the rental income during the indemnity period.
Corresponds to the alternate trading clause in the business income forms. The clause differs as the operations differ, but both clauses address the principle of indemnity: that the insured not be allowed to profit from a loss.
Any income derived during the indemnity period from tenants the insured can accommodate or have accommodated elsewhere than at the named premises will be considered in determining the amount of loss.
The insured has an obligation by common law to minimize the loss.

Premium Adjustment:

If within 12 months after the expiry or anniversary date of this policy the insured shall file with the insurer a premium adjustment application showing that 80% of rental income as earned during the insured’s financial year most nearly concurrent with the annual term of the policy was less than the total amount of insurance on rental income under the form.
Then the insurer will allow in respect of the difference a return of premium not exceeding 50% of the premium paid by the insured under this form in respect of such rental income.
Addresses the uncertainty in projecting future income as an insured must do to choose an appropriate amount of insurance.
Discourages underinsured by easing the concern an insured might otherwise have about paying premium for more insurance than is necessary.
Identical to the standard business income clause.

Rental Income (Broad Form) (IBC Form 4108B)

Definitions:
One difference is that they include a definition of named perils which is not found in the Named Perils form.
The perils insured against are all risk except as otherwise excluded in this form.
There are two sets of exclusions: The first set corresponds to the property excluded section of the direct damage form. The second set comprises the three additional exclusions from the gross earnings form. The standard rental income broad form differs here from the standard business income form in its omission of the fourth additional exclusion (lapse or non-completion). A second difference between the exclusion clauses of the standard rental income and standard business income broad forms is the substitution in the former of the term, “rental income”, for the term “business income”

Extended Rental Income (Named Perils) (IBC Form 4109A)

The standard rental income coverage may be insufficient.
The named peril version of the extended rental income form covers loss arising from direct damage loss caused by a named peril.
Definitions:
Business means the business of the insured as specified on the declarations page
Indemnity period – means the period beginning with the occurrence of the damage and ending not later than 12 consecutive calendar months (or such other period if so specified on the declarations page as maximum indemnity period) thereafter during which the results of the business shall be affected in consequence of the damage. However, if media for, or programming records pertaining to, electronic data processing or electronically controlled equipment including data thereon be lost or damaged by a peril insured against then the indemnity period in respect thereof shall not extend beyond: (i) 30 consecutive days after the occurrence of such damage or (ii) the date upon which liability ceases under this form for loss arising from other property lost or damaged by the same occurrence, whichever shall be the later.
Expected rental income – means the rental income during the period corresponding with the indemnity period in the 12 months immediately before the date of the damage appropriately adjusted where the indemnity period exceeds 12 months.
Indemnity agreement and limits of insurance are the same as their counterparts in the standard form.
Coinsurance – the insurer shall not be liable for a greater proportion of any loss than the amount of insurance specified on the declarations page bears to 100% of the annual rental income of a proportionately increased multiple thereof (where the maximum indemnity period exceeds 12 months.
Perils insured are the same as its counterpart in the standard rental income named perils form.
The extended form omits the second set of exclusions.

Miscellaneous Clauses:

Determination of payment, interruption by civil authority, accountants’ fees, permission, breach of conditions, reinstatement, subrogation, property protection systems are identical to the clauses in the standard rental income forms.

Obligation to Minimize Loss:

In the event of damage in consequence of which a claim is or may be made under this form, the insured shall with due diligence do and concur doing and permit to be done all things which may be reasonably practicable to minimize or check any interruption of or interference with the business or to avoid or diminish the loss.
Identical to extended business income clause and serves the same purpose.

Premium Adjustment:

If within 12 months after the expiry or anniversary date of this policy the insured shall file with the insurer a premium adjustment application showing that 100% of rental income as earned during the insured’s financial year most nearly concurrent with the annual term of the policy (or a proportionately increased multiple thereof where the maximum indemnity period exceeds twelve (12) months) was less than the total amount of insurance on rental income under this form,
Then the insurer will allow in respect of the difference a return of premium not exceeding 50% of the premium paid by the insured under this form in respect of such rental income.
The premium adjustment clause in the extended rental income forms differs from that in the standard forms in the same way that the corresponding clause in the extended business income forms differs from that in the standard business income forms.
It requires the insured to show that the amount of insurance was greater than 100% of the rental income, instead of 80%; and it provides for the possibility of an indemnity period longer than 12 months.

Extended Rental Income (Broad Form) (IBC Form 4109B)

Like the standard rental income broad form, the extended rental income broad forms differs from its named perils counterpart only in that the direct damage loss that gives rise to an insured business interruption loss under this form may be caused by any peril that is not excluded.
The definitions in the extended rental income broad form differ in three respects from those in the standard rental income broad form.
The extended broad form includes a definition of business.
The definition of indemnity period allows for an indemnity period longer than 12 months.
The definition of expected rental income includes a qualifier tha also allows for the possibility of an indemnity period longer than 12 months.
Coinsurance requires an amount of insurance at least 100% of annual rental income.
Again there are two groups of exclusions. The first group omits the second set, and the second group of exclusions called perils excluded are the same in the extended rental income broad form as in the standard rental income broad form.
The obligation to minimize loss is identical to the extended named perils clause.
The difference between the premium adjustment clause of the extended and standard rental income broad forms is the same as that between the corresponding clauses of the extended and standard rental income broad forms is the same as that between the corresponding clauses of the extended and standard rental income named perils form. It requires the insured to show that the amount of insurance exceeded 100% of the rental income, and also allows for the possibility of an indemnity period longer than 12 months.

Rating the Rental Income Forms:

The rent or rental value endorsement form (IBC Form 4025) preceded the four rental incomes forms which are part of the newer business income family of forms.
The rating of the older form depended on the insured’s choice regarding coinsurance. At 50% coinsurance, the rate for rents was typically 125% of the direct damage building rate; at 100% coinsurance, 75% of the appropriate direct-damage building rate.

Choosing an Amount of Insurance:

The insured must anticipate that a loss would occur, and the indemnity period for it to begin may be on the last day of coverage.
The amount also depends on the choice of form.

Loss Settlement:

Settlement of rental income and business income losses are similar in principle.
In general, loss settlements under the rental income forms include the following steps:
The insured will be reminded that lost or damaged property must be rebuilt, repaired, or replaced with due diligence and dispatch.
The annual rental income, expected rental income and the trend of the business will be established.
The actual rental income during the indemnity period will be determined.
The increase in cost of operations necessarily incurred to reduce the loss will be determined.
Expenses, other than those in iv), that cease or diminish during the indemnity period will be determined.
The loss of rental income will be calculated using the results of step ii) – v).
The amount of insurance will be compared to the amount required by the coinsurance clause.
The claim will be paid in full or in part, or denied.