Are Cooperative Corporations Carrying Enough “Lost Business Income” Insurance?
Imagine that your 30-unit building suffers a catastrophic fire. Maintenance charges (rent) usually abates for the affected tenants after a casualty. How certain are you that your coverage for lost maintenance, known as “Business Income” coverage, will last through the full restoration?
Coverage limits are expressed in terms of maximum coverage, time and allowed expenses. Your insurer may advertise that your coverage for lost rents is a set dollar figure. But deep within the policy, that recovery may be limited to the loss sustained over a particular time period, which time may be less than the time needed to restore the building after a casualty. Furthermore, the insurer may challenge whether the reasonable actual costs of operation during restoration are more or less than the sum of the rents. (Did you need as many employees? Is common area utility consumption the same?)
The real-life limits of Business Income coverage can be difficult to determine in your policy, and carriers don’t make it easier. One widely used insurer for Co-ops states on its Declarations page that its lost business income coverage is a set number (say $500,000). The coverage endorsement is part of a package of endorsements labeled, “Enhanced Property Insurance Coverage for Cooperatives and Condominiums.” When you read the actual “enhanced” endorsement, though, the standard policy places a limit of twelve months on recovery for your losses. In other words, if you haven’t completed your restoration within 12 months after the loss, you don’t get reimbursed for lost maintenance after that. The other shareholders have to pick up the difference until the work is done. Ouch!
Your carrier may provide an option to extend coverage beyond one year, but you have to ask for it and it costs extra. Would your insurance broker know whether to alert you? Co-ops should determine whether your timetable for restoration after a major casualty will exceed the Business Income limits imposed by your insurer, and adjust accordingly.