Image by JohnTracy via FlickrThe man made calamity that is the BP oil spill will cause extensive property damage and business interruption losses to businesses all along the Gulf Coast vacation homes and condominiums in Florida, and many types of businesses around the Gulf.
There are also businesses away from the coastline,that might suffer business income losses. Where we go (Seagrove Beach), there is a direct financial hit being felt in towns like Defuniak Springs, Florida, as well as towns filled with hardworking folks -Florala, Flomaton, Chipley. Gas stations like the Tom Thumb on 30-A in Seagrove seems bustling - are other service stations doing the same?
I spoke with an inn owner east of Destin who had massive losses for June, and July looked even worse.
While home and condo owners and other businesses are looking first at responsible parties to cover their losses, lawsuits against BP, Transocean and others could stretch out over a decade - or more.
So, now what? Folks should start thinking now about their own insurance coverage.
Affected business owners may want to look at their insurance policies, checking to see if business interruption coverage is included. In our experience most business property policies have "BI".
BI coverage is designed to protect businesses from losses stemming from unavoidable interruptions in their daily operations. BI coverage may apply in a variety of circumstances, such as a forced shutdown, a downturn in business due to the damage from the oil spill, or a substantial impairment in access to products, services, or a premise.
The Business Owner's Policy (BOP) is an "off the shelf," cookie cutter policy written by the Insurance Services Office (ISO) with standard language. Most small businesses purchase BOPs.
The most important section of an insurance policy is the "Declarations" page, which defines, very specifically: Who is insured? What property is covered? In what amount is the coverage? What are the deductibles and co-pays? Are there any special exclusions or endorsements to the policy? This helps an owner figure out if he or she has the basis for a claim and provides a road map to the policy coverages.
The "off the shelf" language usually looks like this: "We will pay for the actual loss of ‘Business Income’ you sustain due to the necessary suspension of ‘operations’ during the ‘period of restoration’… The suspension must be caused by direct physical loss or damage to property at the ‘described premises’…." In order to understand the coverage that a policy offers, you have to understand the terms used in defining the coverage.Business Income: Business income is specifically defined in the policy as net income that would have been earned AND continuing normal operating expenses that would have been incurred. Payroll may be treated separately depending upon the policy coverage.
There may be other coverage, such as Civil Authority coverage:
- Interruption by Civil Authority. Losses caused by orders of city or governmental authority which prohibits access to your premises due to direct physical loss to the property are covered under some policies. There may be a time limitation of the period of indemnity of one, two or three weeks.
- Extra Expenses. Extra expenses are those cost that a business operator incurs as a result of a covered period to avoid or minimize his or her business income loss. These extra expenses are covered to the extent that they reduce the amount of the loss of the insured.
- Extended Period: Some policies provide for an extended coverage period to allow a business to return to normal operations. This period is usually limited, and is in addition to the period of restoration.
What makes sense to do right now: The list may be long, but looking at it makes sense.
- Locate all of your insurance policies
- Read each one -- Liability, D&O or first-party property insurance. Then, read them again
- As you read keep in mind that that property damage, business income, contingent business income and extra expense coverage may be available under your policy - but you need to read it for yourself.
- In some jurisdiction, an argument may be made that coverage may be available even without direct physical loss or damage
- If you think there is coverage, it's time to consider if the next step is giving notice to all levels of coverage
- Consider whether insurance coverage may be available under other insurance policies.
Now's the time to looks over what you have - what you paid for - to see if your risk is covered. If you need help, call us.