Author: Mike Edwards
An insured veterinarian generates 50-60% of her income from two specially-equipped mobile vet labs she uses on visits to area farms or clients who have acreage and horses. She has a need (as do her clients) for business income coverage if these vehicles are damaged away from the premises. Can this be done within the ISO commercial auto or commercial property programs?
"We’re working on a proposal for a veterinarian. In developing the information for the quote and proposal, we hit a snag with the business income coverage. The producer found out in talking with the vet that about 50-60% of her income comes from the two specially-equipped mobile vet labs she uses on visits to area farms or clients who have acreage and horses, etc. Can you think of a way to insure her potential loss of business income if one or both of the mobile vet labs was damaged or destroyed?"
Well, never a dull moment in insurance – very interesting question! This type of business income exposure from specialty vehicles is not all that unusual – it’s just probably overlooked a lot. Your agency did a good job of picking up on this exposure for your prospect (who will hopefully become your insured).
The types of businesses that derive a substantial portion of their income from specialty vehicles are pretty diverse. In addition to the mobile vet lab you’re working on at the moment, vehicles such as mobile shredders, mobile cranes, cement trucks, septic tank pumpers, water well drillers, mobile MRI labs, bloodmobiles, insulation blowers, carpet cleaners, food delivery vehicles, and so forth are critically important to the income stream of these businesses.
There are two different components to the business income exposure for these specialty vehicles: (1) at the insured’s described location, and (2) away from the premises. In addition, there is sometimes a bit of confusion or doubt about whether or not the Business Income Coverage Form (CP 00 32) even applies at all for damage to these vehicles, since “vehicles that are licensed for road use” are listed under Property Not Covered in the Building and Personal Property Coverage Form (CP 00 10).
Let’s look at these issues in the context of the insuring agreement in the Business Income Coverage Form (CP 00 30 and/or CP 00 32). Here is the pertinent excerpt:
We will pay for the actual loss of Business Income you sustain due to the necessary "suspension" of your "operations" during the "period of restoration". The "suspension" must be caused by direct physical loss of or damage to property at premises which are described in the Declarations and for which a Business Income Limit of Insurance is shown in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss.
Here are the key parts of the insuring agreement. The suspension of operations must be caused by:
Damage to property (notice it doesn’t say “damage to covered property…”)
At the described location
By a covered cause of loss.
Therefore, if the specialty vehicle (“property”) is at the described location (i.e., the insured’s premises) and is damaged by a peril covered in the Causes of Loss Form attached (CP 1010 Basic Form, CP 10 20 Broad Form, or CP 10 30 Special Form), the associated loss of income is covered.
The obvious gap is when the specialty vehicle leaves the described location. At present, there is no ISO way to provide coverage. The good news, however, is that some insurers do have ways to provide business income coverage for the vehicles away from the insured’s premises. I ran this question by several experts, including two commercial lines managers. The unanimous response was that some insurers offer a business income endorsement on either the auto policy or the inland marine policy they write on the vehicle.
When insuring specialty vehicles equipped with expensive equipment, some insurers include the value of the vehicle and the equipment in the value of the vehicle in the auto policy. Others write an inland marine policy on the equipment, separate from the auto policy on what is essentially the vehicle’s chassis.
You’ve already made it to first base, since you’ve uncovered the vet’s potential business income exposure related to the mobile vet lab vehicles. The next step will be to talk to your commercial markets, to see which ones will add their version of a business income endorsement to either the auto or inland marine policy.
Thanks for a great question – good luck with getting the account!
UPDATE
Business income coverage is now available from ISO...for more info, click here.
Related Article: "Business Income Coverage for Auto Damage"
Last Updated: May 5, 2014