In our last column we discussed the differences between wind and flood coverage as well as the complexities of business interruption coverage. This week we’ll point out a few additional risk management issues business owners face in the aftermath of a hurricane or tropical storm.
All businesses depend upon utility suppliers for electricity, water, telephone and internet service for basic operations, and most businesses are also dependent upon key suppliers to keep operations running. Key suppliers provide a range of “business-critical” materials and services ranging from gasoline, newsprint, and specialty chemicals to custom milled architectural components to engineering services, dock facilities and tug boats. Even if your own business suffers little to no direct damage from a hurricane strike, your operations may come to a standstill due to the damage experienced by a third-party, such as your utility service provider or a key supplier.
Some businesses depend upon a single or limited number of clients for the majority of their sales. If such clients suffer extensive damage in a hurricane and cease operations for an extended period, many businesses would not survive the corresponding downturn in their own operations. Several forms of insurance are available to protect against these risk exposures.
Contingent Business Interruption
The loss of income due to damage at a third party’s property is considered a “contingent” loss and this risk exposure can be transferred to an insurance company by purchasing contingent business interruption coverage. This particular coverage is often “manuscripted”, or custom written, making each claim situation unique. Discuss your operations with your insurance broker to determine your specific risk exposures and the cost of contingent business interruption insurance.
Utility Service Interruption
Protecting your business’ income against the interruption of incoming electricity or other utilities requires the purchase of “off premises power” or “utility service interruption” coverage. This coverage can vary widely as to what utility services are included, whether both direct damage and time element losses are covered, and whether transmission lines are covered.
Civil Authority and Ingress/Egress Interruption
Two other “business interruption” related risk exposures are those caused by civil authority and the ability of customers and employees to gain access (ingress/egress) to your business.
From the time civil authorities issue an evacuation order until the time they issue the “all clear” signal, normal activities come to a halt and most businesses will suffer a loss of income. In a direct strike situation, local authorities will most likely keep portions of Savannah closed to business owners and residents for days, weeks, possibly even months. After Katrina, New Orleans authorities kept major sections of the city closed to residents and businesses for months. By purchasing civil authority coverage you can protect your business against the loss of income due to such situations.
Even if civil authorities allow residents to return, Mother Nature may not. After a major storm, your customers and employees may not be able to access your location due to road closures, damaged bridges, or damage to adjacent property. An ingress/egress policy endorsement will protect against the loss of income in these situations.
Waiting Periods versus Deductibles
The various forms of business interruption and contingent business interruption coverage are offered with two types of deductibles – - waiting periods and “known dollar” deductibles. Waiting periods are fairly common, and can last from 8 hours to 7 days or more. Any loss of income incurred during the “waiting period” directly following an event will not be covered. The dollar-based deductible allows you to select a deductible based on your own level of risk tolerance. Determining which form of deductible is the best depends on your business. Some businesses can handle one or two days of interruption without experiencing significant income losses whereas other businesses cannot. For example, a trucking service can’t wait: if wholesalers can’t ship their goods, they’ll switch to another firm immediately, and the affected trucking company will lose business.
When a hurricane or major tropical storm strikes our area, be a survivor, not a victim. Talk with your insurance broker today about insurance coverages to protect your business before, during and after a major storm.
This notice is provided as information only and should not be considered a legal opinion. If you have questions about this Client Advisory, please contact Seacrest Partners at 912-544-1900.