Property & Casualty Insurance Exam (National Portion)Property InsuranceHard
A business owner has a commercial property policy that includes a Civil Authority coverage extension. Their building is undamaged, but access is prohibited by police due to a covered peril (riot) at a neighboring property for 5 days. The business loses $10,000 in income per day. The policy has a 72-hour waiting period for Civil Authority coverage and a $50,000 limit. How much will the policy pay for the loss of business income?
- A$20,000
- B$50,000
- C$30,000
- D$0
Show answer & explanationAnswer & explanation
Correct answer: A. $20,000
The waiting period is 72 hours (3 days). The business was prohibited for 5 days. This means 5 days - 3 days = 2 days of covered loss. At $10,000 per day, the loss is 2 days * $10,000/day = $20,000. This amount is within the $50,000 limit, so the policy will pay $20,000.
Why the other options are wrong
- B. This is the policy limit, but the actual covered loss is less due to the waiting period.
- C. This would be if the waiting period was 2 days, or if the loss was calculated incorrectly.
- D. There is a covered loss after the waiting period is applied.
Civil Authority Coverage (Commercial Property)
An extension in commercial property policies that covers loss of business income and extra expenses when a civil authority prohibits access to the insured's premises due to damage from a covered peril to a neighboring property.
- Requires a covered peril to a neighboring property.
- Access to insured's premises must be prohibited by civil authority.
- Typically includes a waiting period before coverage begins.
- Covers business income loss and extra expenses.
Memory trick: WAIT for the Cop to Pay You.