It seems that in every season of every year, somewhere in the country there is a devastating weather event or natural disaster. Floods, fires, earthquakes, blizzards, and other catastrophic events can wreak havoc on an area causing loss of life as well as property. According to the Insurance Institute for Business & Home Safety, “Statistics show that of the businesses that close because of a disaster, at least 1 in 4 never reopens.” While it’s impossible to prepare fully for these often spontaneous events, understanding the insurance coverages that can help your business during these times can make recovery from such losses that much easier.
Business interruption is typically included in the property insurance policy or as part of the package policy most business owners purchase. This coverage can replace income lost due to a temporary business shutdown due to a covered peril as well as extra costs incurred by the business to pick up operations elsewhere. These can include additional rent and utilities, overtime pay and/or temporary workers, and fees associated with moving equipment and supplies. There may also be coverage for additional advertising expenses or the fees of outside professional retained to help determine the scope of the loss.
Contingent Business Interruption
Businesses that rely on specific suppliers are in a unique position. If the company that manufactures a vital component of another business’ operations suffers a loss and is unable to provide necessary materials, the business relying on those parts also suffers a loss. It is critical for companies that depend on other businesses to have contingent business interruption coverage. Until the original company is able to get back on its feet and supply the part in question, the business down the line will suffer.
Similarly, suppose Business A relies on Customer B for a significant portion of its revenue. What if Customer B suffers a loss due to a covered peril and can’t make its regular purchase? In that case, Business A might be able to claim a loss under its contingent business interruption insurance. Insurers can often tailor policies to cover the unique needs of their clients. An insurance advisor can help determine the risks located throughout the supply chain.
There are some other instances when a business may be forced to shut down that could trigger an insurance claim. Here are a few noteworthy situations:
- Service Interruption and Impounded Water: This would apply when utility services to a business are interrupted due to damage to the property of the supplier, power lines are downed or a transformer malfunctions. The coverage is typically subject to a waiting period and/or a deductible, and is also usually limited to a specific dollar amount.
- Access Restriction by Civil Authority: This coverage can be triggered when a governmental agency (including federal, state, and local government) restricts access to a property or orders an evacuation. Access could be restricted prior to an event or as the result of one. Often coverage is available regardless of damage sustained by the insured property.
- Ingress/Egress: If access to a property is limited due to a disaster, even if civil authority has not issued an order, there may still be coverage for business interruption losses suffered by a company.
Quicker Recovery Through Preparation
By understanding what coverages are available under a policy, business owners are better able to respond to a disaster. In times of loss, the ability to document events and damages as they occur can help manage the loss. Notifying insurers in a timely manner, consulting the appropriate professionals for assessment and remediation, and recording expenditures necessary to deal with the effects of the loss can all happen much more quickly when a business is prepared to identify and implement such measures.
Your trusted insurance advisor can help guide you through the provisions of your business insurance policy to insure you’re ready in the event of an emergency.
All insurance policies are different. Be sure to review your insurance policy for specific information about coverages available to you. Nothing in this post is meant to suggest a guarantee of coverage.