Florida 2-20 General Lines Agent (Property, Casualty, Commercial Lines and Florida Law)Commercial LinesMedium
A manufacturing company's Commercial Package Policy (CPP) includes Commercial Property coverage with a Business Income and Extra Expense form. A fire damages their production facility, causing a partial shutdown for two months. During this period, they incur expenses to rent a temporary facility and expedite repairs to minimize downtime. How would the 'Extra Expense' portion of their coverage apply in this scenario?
- AIt would cover the cost of replacing damaged inventory, but not the business interruption.
- BIt would only cover the cost to repair the damaged production facility.
- CIt would cover necessary expenses incurred to continue operations and minimize the period of shutdown, such as renting a temporary facility and expediting repairs.
- DIt would cover the lost profits during the shutdown, but not the temporary facility costs.
Show answer & explanationAnswer & explanation
Correct answer: C. It would cover necessary expenses incurred to continue operations and minimize the period of shutdown, such as renting a temporary facility and expediting repairs.
Extra Expense coverage specifically pays for necessary expenses, beyond normal operating costs, that an organization incurs during a period of restoration to continue operations and minimize the business interruption. Renting a temporary facility and expediting repairs are classic examples of such expenses.
Why the other options are wrong
- A. Replacing damaged inventory falls under the Commercial Property coverage for business personal property, not Extra Expense or Business Income.
- B. Repairing the facility is covered by the Commercial Property damage section, not Extra Expense, though expediting those repairs can be an Extra Expense.
- D. Lost profits are covered by the 'Business Income' portion, not 'Extra Expense.'
Business Income & Extra Expense
Business Income coverage replaces lost profits and continuing expenses during a business interruption, while Extra Expense covers costs incurred to minimize the interruption.
- Both are often combined in one coverage form.
- Business Income aims to restore financial position.
- Extra Expense aims to reduce downtime and its impact.
Memory trick: BI&EE: Income for Loss, Expense for Less Loss.