Indemnity periods shrink for policyholders to restore shuttered business operations

Underwriters continue to pay close attention to the indemnity periods of business interruption coverage and are attempting to limit the amount of time that policyholders can seek recovery, brokers say.

Underwriters also are tightening the language in other business interruption provisions that include civil authority and ingress/egress coverage, they note.

Under traditional business interruption coverage, the period of restoration covers the policyholder's loss of income or revenue from the date of the loss until the date the policyholder should have repaired, replaced or rebuilt its damaged property.

The period of extended indemnity coverage begins when the damaged or destroyed property has been restored, and either ends at a specified date or when a policyholder's income or revenue stream has returned to its normal level, whichever is earlier.

Due to claims associated with the Sept. 11, 2001, terrorist attacks as well as Hurricane Katrina in 2005, however, underwriters have been seeking to limit how long policyholders can recover.

Whereas broader policies would offer business interruption coverage that will last until a property is replaced or rebuilt, some business interruption forms now only offer coverage that lasts for a specified amount of time, said Jill Dalton, managing director for Marsh Inc.'s property practice in New York.

"We're also seeing a reduction in the extended period of indemnity," she said. "We used to be able to get two to three years sometimes that would allow for a business to get back up and running to where it was before the loss. While a year (had been) pretty standard, that is often limited to 90 days maybe 180 days" now.

"There's just more pressure on indemnity periods for (business interruption coverage) because of 9/11 and also because of Katrina, because New Orleans is not what New Orleans once was," said Al Tobin, managing director and head of the national property practice of Aon Corp. in New York. Underwriters "are just not going to insure your (business interruption) as a blank check for the future."

Underwriters are "obviously looking very closely at business interruption and the extended period of indemnity that they've normally allowed since that could significantly increase their liability in the event of a loss," said Suzanne Douglass, New York-based managing director for property for Willis North America. 

Over the past several years, there also as been more underwriting discipline on civil authority and ingress/egress interruption provisions as well as service interruption provisions, she said

"Underwriters have gotten hurt by these...and they've taken the position of putting in a time limitation or perhaps a distance limitation, and they are going to require that there be an actual physical loss or damage now," she said. "Before, it could have been the occurrence of a peril, and now some kind of physical damage that forces civil authorities to close down the facilities or to constrain access to the premises" is required, she said.