Business Interruption Insurance and Ensuring your Business is Properly Insured (Summer 2011)

Business Interruption Insurance

Business interruption insurance makes it possible for you to quickly resume business activities in the event of a disaster.  There are typically three types of business interruption insurance. 

• Business Income Coverage. This coverage will compensate you for lost income if your business suffers a property loss or damage from a covered peril such as windstorm or fire.  Your business will be covered, after a brief time deductible, until restoration of the lost or damaged property is complete.  In addition, the policy will cover operating expenses, such as utilities, that continue even when your business has temporarily halted activity. 

• Extra Expense Coverage.  During the restoration period following a loss, you may incur extra expenses to keep your business operating.  Extra expense coverage reimburses your company for a reasonable sum of money that it spends over and above the normal operating expenses to avoid having to shut down during the restoration period.  Extra expense coverage may also cover payroll to key employees so that you may retain them as employees. 

• Contingent Business Interruption Insurance. This policy will reimburse your company for its expenses and lost profits when it can’t operate because a disaster has struck a supplier or manufacturer.  For example, the massive earthquake and tsunami that hit Japan in March 2011 led to supply chain disruptions around the world.  Companies who were affected and who had contingent business interruption insurance were able to use this coverage to reimburse expenses and lost profits during the shipment delays.

Note:  Damage due to flood is excluded from most property policies.
 

Is Your Business Properly Insured?
Four Questions to Determine How Well You Are Covered

Part of risk management involves not only having an insurance policy in place but making sure you have the right elements included in your policy.  In addition, a regular review of your policy with your insurance agent will help ensure your policy is kept up-to-date with the changes in your business and industry.  The following is an outline of four elements of your insurance policy that we recommend you review regularly with your agent.

A building and personal property (BPP) policy covers the building, your business personal property, and the personal property of others. Categories covered include furniture, fixtures, merchandise, personal property owned by you and used in your business, tenant improvements (if leasing/renting), etc. To ensure you have adequate coverage for all of these assets, the value of your property needs to be accurately reported and updated annually to reflect inflation and other changes in costs. 

To protect the property of your employees, you will need personal effects and property of others coverage added to your policy.  This coverage extends up to $2,500 worth of business personal property coverage to your personal effects as well as that which belongs to your officers, partners, and employees.  This coverage also protects the personal property of others in your care, custody, or control.  Limits higher than $2,500 can be purchased if needed for this policy.

Business interruption insurance is essential to ensuring a quick resumption of your business after a disaster.  Without this coverage, your business may have to close down completely while the premises are being repaired, which may leave you susceptible to losing out to the competition.  The policy limits you choose for this coverage should be sufficient to cover your company for more than a few days.  There are three types of business interruption insurance:  business income coverage, extra expense coverage, contingent business interruption insurance.

A commercial general liability (CGL) policy protects your business assets against many common liability claims, including bodily injury, property damage, personal injury (including slander or libel), and advertising injury (damage from slander or false advertising).  A CGL policy will cover the cost of defending or settling claims.  The two major forms of liability insurance policies are occurrence and claims made.  An occurrence policy covers you for the policy amount you had in place when the actual injury occurred, not when the claim was made.  A claims-made policy covers you for the policy amount you have in place when the claim is made.
 

The coverages discussed herein are for illustrative purposes only.  The terms and conditions of your specific policy may differ from those described.  Please consult the provisions of your policy for the terms, conditions, and exclusions that apply to your coverage.