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A Word from the CEO
Vantage Points-Spring Edition
Don't be a Fire Victim
Twice
Business Interruption
Insurance:
Protect Your Business
Income From Disasters
Is Your Business Covered
for all Workplace Injuries?
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Lee Murray Hall
lmh@jenkinsfenstermaker.com
Business Interruption Insurance:
Protect Your Business Income From Disaster
We ushered in 2007 with two serious fires in Huntington and an additional explosion near Beckley, W. Va. The tragic fires provided a wake up call to all of us, for our families, homes and businesses. In reviewing property coverages, business owners may want to review their policies to ensure that they contain business interruption insurance (BII). BII is designed to cover the loss of income incurred if normal business operations are disrupted or halted by damage to property. It covers actual loss of income due to loss of physical property. It is designed for those situations where the loss at the site directly triggers a loss of income to the business.
Basic BII generally covers:
- Profits the business would have earned, based on financial records, had the property not been damaged by the covered disaster.
- Ongoing operating expenses that continue even if the main business activities are temporarily stalled. This often includes rent, utilities, payroll, insurance costs, etc.
- Expenses incurred from operating out of a temporary location while the original premises are being repaired.
A valuable feature of BII is the “extra expense” coverage. Extra expenses include those additional expenses--those beyond actual loss of income—incurred to relocate the business as a result of property damage. Expenses often included are substitute space (perhaps at a greater cost), replacement computers, installation of phone lines, temporary security measures, etc. Frequently, business interruption insurance and extra expense insurance are rolled into one, and defined as "business income extra expense." Be sure to ask your agent or broker if both are specifically included in your policy, and how much coverage for each your business needs.
In addition to losses incurred from an actual physical loss, some policy forms expand coverage through endorsements to include:
- "Contingent Business Interruption" coverage -- losses suffered from loss/damage to property that prevents a supplier from supplying goods and/or services to you, or that prevents customers from accepting goods and/or services from you.
- "Services Interruption/Off Premises Power" coverage -- losses suffered from loss/damage to the property of any service provider including electrical equipment and systems, fuel, water, gas, feedstock, pulp, liquid gases, sewage, steam, telephone, fiber optic cable, telecommunications, heating, refrigeration and/or air conditioning systems, or utility plants.
- "Interruption by Civil or Military Authority" coverage: losses suffered when, as a result of loss, damage, or other event, access to your property is restricted by order or action of civil or military authority.
- "Ingress/Egress" coverage -- losses suffered when, as a result of loss, damage or other event, entry to or exit from your property is impaired.
Significant limitations do exist on business interruption coverage. First, the duration is limited. Coverage is only available for as long as it takes to restore the property and resume business operations. Most coverage forms restrict coverage to a specific time period, such as 12 months from the date of loss. Further, most policies have a 48 hour waiting period before the coverage comes into play. Once it’s triggered, coverage is not retroactive back to the date of loss.
Business interruption insurance is not sold as a policy by itself. It may be added onto a property insurance policy or included in a package policy, such as a business owner's policy (BOP). Check with agents for different options.
When talking to your agent about purchasing business interruption insurance, ask your agent or broker the following questions:
1. Is the dollar amount of coverage sufficient?
2. Is the insurer financially strong?
3. Does the policy cover salaries, utilities, rent, and other operational expenses while the business is interrupted?
4. Does the policy cover lost profits?
5. Does the policy cover expenses incurred to hasten the reopening of businesses?
6. Does the policy cover losses due to failure of power, light, heat, gas and other utilities?
7. Does the policy cover interruptions to the business due to fire or other casualty caused to a supplier, vendor or customer?
8. Is there a time limit on payments under the policy?
9. Does the policy provide for payments once the business has resumed operations if it continues to show decreased profits and, if so, for how long?
10. Does the policy cover losses incurred where there is no physical harm but access to the property is limited?
If you have reservations about the scope or amount of the coverage, talk to your agent or broker. In the next edition, we will share tips on documenting a BII claim and routine steps that you can take now to make the documentation of a BII claim less painful in the event disaster strikes.
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