March 10, 2023

Extra Expense Coverage: Part I

We recently handled a claim involving a private country club that had a maintenance building burn completely to the ground. This large structure housed all of the equipment the club’s maintenance team needed to take care of its upscale golf course: mowing machines, tractors, aerators, and various fertilizers and chemicals. This fire caused a total loss. Fortunately, the club had good coverage, including both Business Interruption and Extra Expense coverage as laid out in CP 00 30 10 12 – the Business Income WITH Extra Expense coverage form.

This is an appropriate example of Business Interruption coverage with a ‘pure’ Extra Expense provision. What this type of coverage means is that the insured does not have to show that the extra expenses reduced the business interruption loss.   Keep in mind that having “pure” extra expense coverage does not mean that the Policyholder can freely go out and spend unlimited amounts of money on additional items.  These expenses need to be reasonable and necessary in order to continue normal business activities that otherwise would have occurred but for the loss.

The term “Extra Expense” is commonly mistaken for “expense to reduce the loss” coverage.  Extra expense is a separate coverage available to insureds when purchasing Business Interruption insurance.  Conversely, expense to reduce the loss is not a separate coverage as all basic Business Interruption polices contain language that the insured is under an obligation to mitigate its losses.  It is important to understand which coverage the Policyholder maintains.  As noted above, the country club maintains coverage under form CP 00 30 10 12.  If the country club did not maintain pure extra expense coverage, form CP 00 32 10 12 “Business Income WITHOUT Extra Expense” would be an option.

Based on this, the country club went out and incurred a myriad of expenses to resume operations. They had to rent golf carts to replace the ones damaged in the fire, for example, as well as rent storage trailers to house the new fertilizer and chemicals they had to purchase. They had to rent temporary blocks to cordon off parts of the parking area during renovations. And because of COVID-related supply chain issues, the club was forced to purchase some equipment that wasn’t what they had previously (or was not comparable to the destroyed equipment). These lower quality machines were stop-gap measures that were good enough to get them up and running in the immediate time period.

As the public adjusters for the club, SMW regularly – on an almost weekly basis – submitted interim Extra Expense claims with invoices for these items. These were very straightforward claims submissions. We expected to hear back quickly with payment, but we did not. Instead, we received…radio silence.

Return soon to find out what happened with this claim in Part 2 of this blog.


Michelle Canniff

Michelle is head of Forensic Accounting at SMW, bringing more than 25 years of experience in the field of investigative and forensic accounting. Her expertise includes analyzing and measuring commercial insurance claims consisting of business interruption, extra expense, property damage, inventory, and fidelity losses from small to complex matters.
If you’ve had a fire, flood or other property loss resulting in an insurance claim, and need a public insurance adjuster in Massachusetts, New Hampshire, Rhode Island, New England or anywhere in the U.S. or Caribbean, call Swerling Milton Winnick. We are the oldest and largest public adjusting firm in New England, and our team of experts will give you personalized, 24/7 attention to successfully resolve your residential or business insurance claim.