Often times when your property is damaged by theft, fire or some other peril, the real harm comes from the loss of business income or from the loss of rent.
The presentation and litigation of Business Interruption and Loss of Income requires not only a detailed understanding of the coverages provided by the commercial insurance policy, but also of the type of business that has been harmed. In a recently settled case, our client, a bakery, was unable to bake its produce for approximately three months because of a fire. The bakery had some stock in its freezer at the time of the fire that it was able to sell during the three months it took to repair the fire damage. In presenting the claim, we had to show how the bakery continued to lose income from the fire, even after the bakery was able to re-open after the fire. This is a common dispute in these types of claims as to when and how a company loses business income following a fire or other type of loss.
Typical commercial property policies can cover:
- “Property Damage,” including the buildings, fixtures, machines, furnishings, raw materials, and inventory.
- “Business Interruption,” which is intended to place an insured business in the position it would have attained, had the loss that caused the interruption not occurred. It should provide funds necessary to sustain the insured business while its operations are suspended as a result of damage caused by a covered peril. It typically pays a business’s profit and continuing operating expenses, including payroll, for a specific time period.
- “Extra Expense,” which covers expenses incurred in mitigating the business loss, or increased costs in continuing a business in the wake of a catastrophe. It can reimburse a policyholder for money spent moving a covered business to a different location while the covered property is restored. It is intended to offset expenses associated with returning to normal operations. Equipment breakdown coverage is often available with this coverage and should be purchased if a customer’s business is dependent upon certain equipment.
- “Contingent Business Interruption” is usually an extension of the business interruption coverage available in most commercial property policies. Contingent Business Interruption provides the insured with benefits to cover lost profits and extra expenses resulting from damage to a third party’s property, typically in four situations: (1) when the insured business relies on a third party to deliver materials or product; (2) when the insured business depends upon a third party to manufacture products; 3) when the insured business depends on a third party to purchase its products; and 4) when the insured business depends on a third party leader location to attract customers.
- “Ordinary Payroll Coverage” provides for salaries as a continued expense, and a policy may provide coverage for a business to pay hourly employees for a specified period of time while the business is closed.
- “Loss of Rents” pays for lost income when a covered rental property is made uninhabitable by a covered event and renters need not make rental payments. A lease or a rental agreement is helpful in estimating the amount of coverage needed.
- “Extended Period of Indemnity” provides business interruption and extra expense benefits beyond the period of restoration defined in the standard business interruption policy.
- “Civil Authority” coverage provides business income benefits when a civil authority prohibits access to the insured property due to direct physical loss or damage to other property. It is most commonly triggered during mandatory evacuations.
- “Utility Services – Time Element” extends business income and extra expense insurance to protect against losses caused by interruption of services from a specified utility that provides a business with water, power, or communications.
- “Loss of Ingress or Egress” provides benefits when, as a direct result of a covered peril, ingress to or egress from real and personal property is prevented.
These benefits can sustain a business through a disaster and recovery. Know which coverages you purchased, and claim the benefits you are owed.