5.6 Additional Coverages, Exclusions & Extensions: Time Element, Ordinance or Law, Valuable Papers
Key Takeaways
- Time element coverage responds to loss measured over a period of time rather than to the direct physical damage itself, and business income, extra expense, rental value, leasehold interest, and contingent business income are all members of that family.
- Standard property forms exclude the increased cost of construction caused by enforcement of an ordinance or law, and Ordinance or Law coverage restores it in three parts: Coverage A for the undamaged portion of the building, usually included within the building limit, plus Coverage B for demolition cost and Coverage C for increased cost of construction, which carry their own separate limits.
- The commercial property form values valuable papers and records other than electronic data at the cost of blank materials plus the labor to transcribe or copy, while a valuable papers and records inland marine floater insures the research and reconstruction value.
- Garagekeepers coverage may be written as legal liability, which pays only when the insured is legally responsible for damage to a customer's auto, or as direct primary, which pays regardless of fault.
- Civil authority and ingress and egress coverages pay time element loss when access to the premises is impaired by damage to other property, and both are limited in duration and in distance.
5.6 Additional Coverages, Exclusions & Extensions: Time Element, Ordinance or Law, Valuable Papers
Quick Reference: Time element coverage pays for loss measured over time rather than for the damaged property itself — lost earnings, continuing expenses, extra expense, rent. Ordinance or law is an exclusion in every standard property form that must be bought back in three separate coverages. Valuable papers and records are valued very differently under a property form than under an inland marine floater. Garagekeepers comes in two flavors that produce opposite outcomes on identical facts.
1. The Time Element Family
Direct damage coverage rebuilds the building. Time element coverage keeps the business alive while it is being rebuilt. The name is literal: the amount of loss is a function of how long the interruption lasts.
| Time Element Coverage | What It Pays |
|---|---|
| Business Income (Business Interruption) | Net income the business would have earned plus continuing normal operating expenses, including payroll, during the period of restoration |
| Extra Expense | Necessary expenses above normal incurred to continue operations — temporary space, expedited shipping, equipment rental |
| Extended Business Income | Continues after operations resume, until earnings return to normal or the stated number of days expires |
| Rental Value | Rental income the landlord loses, plus continuing charges and expenses |
| Leasehold Interest | The tenant's loss when a favorable below-market lease is cancelled because of a covered loss |
| Contingent (Dependent Property) Business Income | Loss caused by damage at a supplier, customer, manufacturer, or leader property the insured depends on |
| Civil Authority | Loss when a civil authority prohibits access to the premises because of damage to other property, typically after a short waiting period and for a limited number of days within a stated distance |
| Ingress/Egress | Loss when access to the premises is physically impaired by damage to other property, even absent an official order |
| Utility/Service Interruption | Loss caused by interruption of water, communication, or power supply services from off-premises damage |
Period of Restoration
Business income is payable during the period of restoration, which begins 72 hours after the time of direct physical loss for business income (immediately for extra expense) and ends on the earlier of the date the property should be repaired, rebuilt, or replaced with reasonable speed and similar quality, or the date the business resumes operations at a new permanent location.
Two words decide most disputes: "should be." The period of restoration is measured by how long a reasonably diligent rebuild should take, not by how long the insured actually took. A Texas insured who waits nine months to hire a contractor after a hailstorm does not automatically get nine months of business income.
Coinsurance and Business Income. Business income forms are commonly written with a coinsurance percentage applied to the annual net income plus continuing expenses, or on a monthly limitation basis (1/3, 1/4, 1/6 of the limit per month), or with the maximum period of indemnity or agreed value options. Determine which option is on the declarations before calculating the settlement — the same loss produces very different numbers across the four.
2. Ordinance or Law: The Exclusion and Its Three Buy-Backs
Every standard property form excludes loss caused by the enforcement of any ordinance or law regulating the construction, use, or repair of property, or requiring the tearing down of property, including the cost of removing its debris. This matters enormously after a Texas hail or hurricane loss, because a partially damaged older building may be legally required to be brought fully up to current code — or demolished outright under a local 50 percent rule.
The Ordinance or Law Coverage endorsement restores the exposure in three distinct coverages:
| Coverage | What It Pays | Limit Structure |
|---|---|---|
| Coverage A — Loss to the Undamaged Portion of the Building | The value of the undamaged part of the building that a law requires to be torn down | Usually included within the building limit, not a separate limit |
| Coverage B — Demolition Cost | The cost to demolish and clear the site of the undamaged portion | Separate limit |
| Coverage C — Increased Cost of Construction | The extra cost to repair or rebuild to current code — wind-rated windows, updated electrical, fire sprinklers, ADA access | Separate limit |
ORDINANCE OR LAW WORKED EXAMPLE
A 1968 Corpus Christi retail building, insured for $1,000,000 on a
replacement cost basis, sustains $600,000 of hurricane damage. The city
enforces a 50% rule: because damage exceeds half the structure's value,
the ENTIRE building must be demolished and rebuilt to current wind code.
Without Ordinance or Law coverage:
Covered direct damage ............................ $600,000
Undamaged portion required to be razed ........... NOT COVERED
Demolition of the undamaged portion .............. NOT COVERED
Code upgrades on the rebuild ..................... NOT COVERED
With Ordinance or Law Coverages A, B and C:
Coverage A - value of the undamaged portion ...... paid (within building limit)
Coverage B - demolition/debris of that portion ... paid (separate limit)
Coverage C - increased cost to build to code ..... paid (separate limit)
Adjuster Practice Point: The first call on any total or near-total loss to an older Texas structure is to the local building official, to determine whether a percentage-of-value rule or a current-code requirement applies. That answer, not the estimating software, determines whether Coverages A, B, and C are in play.
3. Valuable Papers and Records
"Valuable papers and records" means inscribed, printed, or written documents, manuscripts, or records, including abstracts, books, deeds, drawings, films, maps, and mortgages. Money and securities are not valuable papers — they belong to the crime form. Electronic data is treated separately in modern forms.
The valuation difference is the exam point:
| Where Covered | How It Is Valued |
|---|---|
| Commercial Property (BPP) — Valuable Papers and Records coverage extension | Cost of blank materials for reproducing the records plus the labor to transcribe or copy them when there is a duplicate. Limited to a modest extension amount (commonly $2,500) for property away from the described premises |
| Valuable Papers and Records inland marine floater | The research, reconstruction, and restoration cost — including the expense of recreating information that has no duplicate — up to the scheduled or blanket limit |
An architectural firm that loses forty years of original drawings will recover blank paper and copying labor under a BPP extension and something approaching the true reconstruction cost under an inland marine floater. When a Texas insured presents a large paper-records loss, find out which form applies before quoting a number.
Two neighbors on the same shelf:
- Accounts Receivable coverage pays sums the insured cannot collect because records were destroyed, plus collection expense in excess of normal and interest on money borrowed to offset the uncollected sums.
- Electronic Data coverage (the BPP additional coverage) pays the cost to replace or restore electronic data destroyed by a covered cause of loss, subject to its own small annual aggregate.
4. Garagekeepers: Two Forms, Opposite Results
Garagekeepers coverage insures damage to customers' autos left in the insured's care, custody, or control — the exposure of every repair shop, body shop, dealership service department, parking garage, and valet operation. Perils are written as comprehensive, specified causes of loss, and collision, mirroring auto physical damage.
| Basis | Trigger | Practical Result |
|---|---|---|
| Legal liability | Pays only when the insured is legally liable for the damage | A hailstorm that dents thirty customer cars in the lot pays nothing if the shop was not negligent |
| Direct primary | Pays for covered damage regardless of the insured's fault, primary over the customer's own policy | The same hailstorm is paid, and the shop keeps its customers |
| Direct excess | Pays regardless of fault, but excess over the customer's own collectible insurance | Pays the customer's deductible and any shortfall |
Garagekeepers is a Business Auto / Auto Dealers coverage, not a general liability coverage. The CGL excludes property damage to personal property in the care, custody, or control of the insured (the "care, custody or control" exclusion) precisely so that this exposure is written where it belongs.
Texas Scenario: A Dallas body shop with legal liability garagekeepers coverage watches a spring hailstorm destroy the finish on twenty-two customer vehicles parked in its lot. No negligence, no coverage, twenty-two furious customers. The same shop with direct primary garagekeepers on a comprehensive basis has every one of those vehicles covered. The coverage-basis question is the first thing the adjuster confirms on the declarations.
5. Putting the Extensions Together
WHERE DOES THE EXPOSURE LIVE?
Lost earnings while rebuilding .............. Business Income (time element)
Cost of a temporary location to keep
operating .................................. Extra Expense (time element)
Authorities close the block after a fire
at the building next door .................. Civil Authority (time element)
Law requires the undamaged half of the
building to be demolished .................. Ordinance or Law Coverage A
Cost of that demolition and debris removal .. Ordinance or Law Coverage B
Cost of wind-rated glazing the old code
never required ............................. Ordinance or Law Coverage C
Forty years of original engineering drawings
destroyed by water ......................... Valuable Papers - value depends
on BPP extension vs. IM floater
Uncollectible receivables after records burn Accounts Receivable coverage
Hail dents on customers' cars at a body shop Garagekeepers - DIRECT basis pays;
LEGAL LIABILITY basis does not
Exam Discipline: Every item in this section is either an exclusion that must be bought back (ordinance or law), a valuation rule that changes with the form (valuable papers), a loss measured over time (the time element family), or a fault-versus-no-fault choice (garagekeepers). Sorting a question into one of those four buckets almost always produces the answer.
A Corpus Christi retail building insured on a replacement cost basis sustains hurricane damage exceeding fifty percent of its value, and the city requires the entire structure to be demolished and rebuilt to current wind code. The policy has no Ordinance or Law endorsement. What does the standard commercial property form pay?
A Dallas body shop carries garagekeepers coverage on a legal liability basis. A hailstorm damages twenty-two customer vehicles parked in the shop's secured lot. The shop was not negligent in any respect. What does the coverage pay?
An architectural firm loses four decades of original, undeliverable hand-drawn plans to water damage. How does the commercial property Valuable Papers and Records coverage extension value that loss, and how does a Valuable Papers and Records inland marine floater differ?
A restaurant is undamaged, but the fire department orders the entire block closed for five days because of a major fire in the building next door. Which time element coverage responds to the restaurant's lost earnings?