August 01, 2012 Articles

Contingent Time Element Coverage

The number of contingent time element decisions has increased in recent years and will likely continue to increase. Until the law interpreting contingent time element provisions has been fully developed, there is limited case law to rely on when interpreting these provisions

by Christopher R. Paar and Elizabeth V. Kniffen

In the context of an all-risk first-party property policy, "time element" coverage generally refers to insurance for business interruption and extra expense losses that are measured by "the interval of time during which the insured's business is interrupted."[1] In other words, time element coverage exists for losses that occur during a specific period of time, typically the "period of indemnity" or "period of interruption," as defined in the policy, and typically calculated by the theoretical time necessary to return an insured to normal operations. Deductibles for time element losses may also be calculated using a specific period of time, typically by deducting the time element loss incurred during the first 24 hours after the loss or damage occurred. (This is often referred to as a waiting period deductible.) As with most first-party property coverage, time element coverage can be triggered only upon a showing of a "loss proximately caused by a covered peril such as direct physical damage to, or loss or destruction of, the insured property."[2]

A related form of time element coverage, known as "contingent time element" coverage, insures against business interruption or extra expense losses caused by physical loss or damage to the property of a third party, typically a supplier or a customer of the insured. Courts have acknowledged that "[t]he word 'contingent' is something of a misnomer" in that it simply refers to time element coverage that is dependent on damage to a third-party's property.[3] It is important to note that although the physical damage occurs to the property of a third party, to be compensable, the contingent time element loss still must have been caused by physical damage to or destruction of real and/or personal property by a peril insured against under the policy. Contingent time element losses are also measured during a period of interruption or period of indemnity.

To better understand the difference between time element coverage and contingent time element coverage, it is instructive to consider the following contrasting hypothetical loss scenarios:

Premium Content For:
  • Litigation Section
Join - Now