As natural disasters grow in number and intensity, businesses need to understand the scope of the insurance policies they have, identify any coverage deficiencies, and learn how to receive the maximum payout from their insurers.
Affected companies should not only consider filing claims for property damage if there is any, but also business interruption losses due to damaged facilities or equipment, incapacitated suppliers, damaged infrastructure, evacuations, and more.
Most commercial property policies include business interruption coverage, which an affected enterprise should not overlook, but that may not cover all the reasons for a business’s interruption. There may also be additional expenses that you incur as a result of a natural disaster and that your property policy may not cover.
Here’s a look at the various types of insurance that may come into play if your business is affected by a catastrophe:
Your property policy — Look to your property policy for coverage concerning any physical damage to your facilities as well as building contents, machinery and inventory. Policies will usually insure against covered natural disasters, but depending on where you live there may be limitations on coverage, particularly flooding.
Business interruption coverage — This is often included as part of a property policy. It reimburses your firm for income losses stemming from interruptions to daily operations caused by damaged machinery or premises that results in lost production and/or sales.
It will typically cover lost sales from the time the covered event damaged the facility until repairs are made and production recommences.
Extended business interruption coverage — This coverage (available as an endorsement to your business interruption coverage) goes beyond the scope of typical business interruption coverage and increases the amount of time that you are covered for lost income.
It will typically reimburse your firm for lost sales starting from the time your property is repaired until the business reaches full production capacity and has returned to the same revenue levels as before the covered event. Each policy is different and may limit the amount of time it will provide coverage.
Contingent business interruption insurance — You can tap this endorsement coverage if your business loses revenue as a result of damage to a supplier’s, vendor’s or customer’s facilities. It pays for ongoing expenses while you search for a new supplier, partner or major customer to restore lost sales.
Your premises does not have to have been damaged to file a business income loss claim, unlike the above types of business interruption coverage.
Other coverages that may come into play after a natural disaster include:
Civil authority coverage — This is triggered when civil authorities restrict access to your premises due to an event that occurred elsewhere in your area. Damage to your property is not necessary to file a claim.
Ingress/egress coverage — This will reimburse you for lost profits due to damage that restricts access to your premises, such as a key road that is damaged, preventing personnel, suppliers and/or customers from reaching your facilities. Damage to your property is not necessary to file a claim.
Extra expense coverage — This valuable coverage will cover costs you incur (except for repairs and rebuilding) after a catastrophe or other covered event damages your facilities. For example, it would cover the cost of moving to a temporary site and outfitting it for production purposes.
After a covered event, it’s important that you calculate all of your physical and business income losses in order to collect the maximum you can from your policies.
Make sure you have complete and detailed documentation of all of your losses. You’ll need receipts and proof of your monthly revenue stream before and after an event to accurately illustrate your business income losses.
The more thorough your documentation, the more likely you’ll receive full payout. It also bolsters your case and makes it more difficult for the insurance company to reject the claim.
While claims for physical damage are pretty straightforward (as long as you have proof of purchase for all of your damaged inventory, equipment and furnishings), disputes may arise over the amount of lost income for a business interruption claim.
Finally, the COVID-19 pandemic has created severe supply chain disruptions and a general shortage of construction materials and labor, which is increasing rebuilding costs.
VMA has been helping small businesses protect themselves since 1984. Talk to us to make sure that your current policy limits reflect today’s higher construction, repair and replacement costs. They may be significantly higher than when you last renewed your property policy. Contact Shannon@vma.bz or 415-710-0568 today!