BOP

    Posted by MAIA on May 21, 2020 12:00:00 AM

    This question was answered based upon current rules, regulations & statutes in effect on May 11, 2020
     
    QUESTION

    I hope you are doing well through all this!  We have a question…

    We are quoting a hotel.  They have a management company that pays all the expenses and collects receipts. In the event of a loss we know there would only be 60 days of ordinary payroll coverage.  We are trying to determine if the prop management company would get paid in the event of a loss to the Hotel.

    The W 2’s come from the management company and not the owner of the hotel.  In the event of a loss do you think the business interruption would pay the insured on behalf of the prop management company.  All the profits go to the hotel. 

    ANSWER

    Irene Morrill:  I don’t know what edition of BOP you have …or whether it is ISO …but ISO language (2013) and prior

    1. f. Business Income  

    (1) Business Income 

     (a) 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 the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss. With respect to loss of or damage to personal property in the open or personal property in a vehicle, the described premises include the area within 100 feet of such premises. 

    ……

    (b) We will only pay for loss of Business Income that you sustain during the "period of restoration" and that occurs within 12 consecutive months after the date of direct physical loss or damage. We will only pay for ordinary payroll expenses for 60 days following the date of direct physical loss or damage, unless a greater number of days is shown in the Declarations.

    (c) Business Income means the: 

     (i) Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred if no physical loss or damage had occurred, but not including any Net Income that would likely have been earned as a result of an increase in the volume of business due to favorable business conditions caused by the impact of the Covered Cause of Loss on customers or on other businesses; and  

    (ii) Continuing normal operating expenses incurred, including payroll.  

    ….

    (d) Ordinary payroll expenses: 

    (i) Means payroll expenses for all your employees except:

    1. Officers; 
    2. Executives; 

     iii. Department Managers; 

    1. Employees under contract; and 
    2. Additional Exemptions shown in the Declarations as:  

     Job Classifications; or  

     Employees.  

    (ii) Include:   i. Payroll;   ii. Employee benefits, if directly related to payroll;   iii. FICA payments you pay;   iv. Union dues you pay; and   v. Workers' compensation premiums. 

    I don’t see a property management firm as “payroll”

    We had a 4 family home in another state that we hired a property management firm to run since it was too far away for my husband. The firm collected rents and was responsible for maintain the building (we paid the expenses)  … the fee was 10% of the rental income – so it had nothing to do with payroll. 

    I would expect that if the building was damaged – the property manager would “manage” the repairs …to still get the fee of the lack of rents … that is a “normal operating” expense …that would continue.  With a hotel  - I’m sure the company would look at the last few years of rentals to see what the norm has been

    The problem with the BOP ..is one only gets 12 months of BII …which could be problematic …

    Agent: This is very helpful.  I will pass this along to all.

    Irene Morrill: I talked to an “old” insurance friend of mine … and he also thought that the property management firm would be an “expense”.  Neither of us know the exact particulars of the payment to this firm – but something would get paid.

    I don’t know if you insure them, too, but that firm should have BII …with dependent property coverage


    It is an additional coverage in the newer BOP

    M. Business Income From Dependent Properties  (1) We will pay for the actual loss of Business Income you sustain due to physical loss or damage at the premises of a dependent property or secondary dependent property caused by or resulting from any Covered Cause of Loss. However, this Additional Coverage does not apply when the only loss at the premises of a dependent property or secondary dependent property is loss or damage to "electronic data", including destruction or corruption of "electronic data". If the dependent property or secondary dependent property sustains loss or damage to "electronic data" and other property, coverage under this Additional Coverage will not continue once the other property is repaired, rebuilt or replaced. The most we will pay under this Additional Coverage is $5,000 unless a higher Limit Of Insurance is indicated in the Declarations. 

    Or an endorsement to the CP 00 30 BII and EE form

    Agent:   XYZ Hospitality Company is a property management company for the Hotel.  They take in revenue and pay expenses.  Would it make sense to also add this company as a named insured to the policy ABC as it appears they have an insurable interest on the policy?

    Irene Morrill:  It might for XYZ Hospitality …but not for the Hotel ….

    And … will the company do that. 

    This document is not a legal opinion and should not be relied upon as such. The intent of this document is to provide a general background regarding the topic or topics discussed, not to provide legal advice. Producers and agencies should consult an attorney regarding specific situations and specific questions with respect to the topic or topics covered in this document. Neither the Massachusetts Association of Insurance Agents, Number One Insurance Agency nor any of its employees shall be responsible for any errors or omissions regarding any statements made in this document, nor any errors or omissions regarding any statutes, regulations, court rules, and/or any other government documents cited in this document.

    Topics: Registry, 2020

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