Fire, a Failed Compressor, and a Code Upgrade
The Harborview Grill is a 90-seat restaurant in Portsmouth insured on a commercial property form: $600,000 building, $150,000 contents, business income with a $200,000 limit, a 72-hour waiting period, a 12-month period of restoration, a $5,000 property deductible, a $25,000 equipment breakdown endorsement with a $1,000 deductible, and a $50,000 spoilage limit. On March 3 a grease fire closes the kitchen for seven weeks. Building damage is $210,000; contents $60,000; lost net income plus continuing expenses $340,000. Separately, on March 20 the walk-in compressor fails (unrelated to the fire) and $9,000 of inventory spoils. To reopen, the city requires $30,000 of hood and sprinkler upgrades; the policy has no ordinance or law coverage.
1. Compute the business income payment, test it against the limit, and explain whether the 72-hour waiting period actually matters here.
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Period of restoration: seven weeks = 49 days, ending when the building could be repaired with reasonable speed to its pre-loss condition - not when the owner chooses to reopen.
Daily loss: $340,000 ÷ 49 = $6,938.78 per day
Waiting period: 72 hours = 3 days → $6,938.78 × 3 = $20,816 of loss not covered Computed BI loss: $340,000 − $20,816 = $319,184
Apply the limit: $319,184 exceeds the $200,000 business income limit → pay $200,000.
The limit binds, so the waiting period has no effect on the dollars paid in this occurrence - the loss absorbs it easily. That matters for the file because the adjuster should not spend time litigating the exact hour the fire was extinguished when the limit caps the claim regardless.
But the waiting period is not irrelevant: the $200,000 limit is now exhausted, so any extension of the shutdown - a re-inspection delay, a permit hold - is entirely uninsured. The owner's real exposure is the $119,184 above the limit, and the file should document the date the restoration was completed so a later claim for the same occurrence is not presented.
2. Determine the property and equipment breakdown recoveries, and explain how the three deductibles should be applied.
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Fire occurrence:
- Building $210,000 (inside $600,000) + contents $60,000 (inside $150,000) = $270,000
- One property deductible per occurrence: $270,000 − $5,000 = $265,000
Compressor occurrence (separate and unrelated):
- Spoiled inventory $9,000, inside the $50,000 spoilage limit
- Equipment breakdown deductible $1,000 → $8,000
The endorsement deductible applies to the breakdown occurrence, not the property form's $5,000; the compressor is a mechanical breakdown, not a fire loss, and the property form excludes mechanical breakdown precisely because the endorsement exists.
Deductible discipline: three separate loss events would mean three deductibles - but here there are only two, because the compressor failure is unrelated to the fire. If the fire had knocked out power and the compressor failed as a result, it would be one occurrence, one property deductible, and the spoilage limit would be the operative cap.
Also check: whether the $9,000 of inventory duplicates anything in the $60,000 contents figure. Inventory ruined by the compressor is not fire-damaged contents, so it is paid once, under the breakdown endorsement.
3. The city requires $30,000 of hood and sprinkler upgrades. Explain the coverage gap, its consequences, and how you would advise the insured.
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The gap: the property form responds to direct physical loss, and the undamaged portions of the kitchen are not physically damaged. The $30,000 is an ordinance-or-law exposure - the increased cost of construction required by code enforcement - and without the ordinance or law endorsement it is not covered. Nor is it recoverable as business income; it is a capital improvement, not a continuing expense.
Consequences:
- The owner funds $30,000 out of pocket on top of the $5,000 deductible.
- The shutdown cannot legally end until the upgrades are done, so the period of restoration runs through the upgrade work - which is exactly why the business income limit is now exhausted and the extra weeks are uninsured. The uninsured code work and the uninsured BI above the limit are compounding, not separate, problems.
Advice to the insured:
- Endorse ordinance or law coverage - typically 10% of the building limit for undamaged portions, plus demolition and increased cost of construction for damaged portions. On a $600,000 building that is a meaningful sublimit, not a full solution.
- Raise the business income limit and consider an extended period of indemnity so income continues after the doors reopen.
- Add equipment breakdown with a spoilage limit sized to actual inventory turns, and confirm whether the compressor is scheduled or subject to a sublimit.