Lesson 5 of 11
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Business Interruption Insurance

Collin Gabriel August 23, 2022

Key Terms

Business interruption insurance – Insurance coverage that can help supplement a business’s income if the business can’t operate due to a covered loss, such as a fire or other covered disaster. This coverage requires a physical loss to the business property.

Difference in conditions policy – A type of insurance policy that provides extended property coverage. It is intended to supplement, not replace standard property insurance. This coverage generally offers protection against major natural disasters such as flooding, mudslides, and earthquakes.


Craig Vattiat (00:00):

So moving on to business interruption insurance, you know, when a disaster strikes, you might lose that property, but you might also lose the ability to just continue doing business. Um, you know, for example, if there was a fire at your business, um, you, your business, uh, facility might not be usable and therefore you’d have to shut down. And so business interruption insurance can help you get going again. After that disaster, it can pay for rent or mortgage of your facility. It can make up for the lost profit that, uh, you are unable to make due to the interruption. It can even cover loan payments, uh, payroll and utilities. Uh, this is not a required insurance, but it can really protect you in the case that you do have, let’s say that fire again, that not only affects the property, right? You’ve lost that. And that’s something that hopefully you’ll be able to recover through your insurance, but this would also help your business to really stay afloat during that period where you, you’re not able to operate now for the policy to be triggered.

Craig Vattiat (01:03):

The operations need to completely cease and not just be partially shut down. And they also have to be due to a physical loss that triggered the event. So that’s where a fire would, would come into play there. Um, just to be clear, business interruption, insurance, doesn’t usually cover communicable disease. So something like coronavirus flood and earthquake damage is also not covered because those are separate, uh, perils excluded again, not included in your standard business owner’s policy or your business interruption insurance. So it’s really important to understand what is covered and what’s not covered by your business interruption insurance. So ask again your, your agent to, um, explain that. Um, just a quick example, if an evacuation let’s say was ordered because of wildfire and your business couldn’t operate, any claim for business interruption would be denied because the business interruption wasn’t caused by a physical loss again, that would be like, you know, fire or even a theft if somebody were to come into your business and steal things. Okay. Um, now one other tidbit about this before we move on, according to FEMA, 25% of small businesses affected by disaster, never reopen and only a third of businesses carry this insurance. So, you know, it’s, that’s kind of an important thing to consider. Um, there’s there’s yeah, go ahead. Jonie or, oh,

Collin Gabriel (02:33):

I, I was just gonna ask a quick question. It, it sounds like there’s, um, I mean, of course, you know, talk to your agent, but it sounds like, uh, this is a pretty prescriptive plan, but the title I think is a, is a little, almost like slightly misleading. I mean, it certainly covers when the, the business, um, you know, has to stop due to certain characteristics. But the first thing on my mind, when you said that was for COVID and I was like, oh wow, this would’ve been perfect for COVID then you’re like, well, it doesn’t cover COVID. So are there, um, are there opportunities through, you know, the, the category of business interruption insurance that are, are starting to like policies that are starting to emerge that could do cover, uh, partial shutdowns and things like that? Um, or at least are you aware of them?

Craig Vattiat (03:22):

You know, to be honest, I’m not, but just to keep in mind, there are, um, what are called, uh, surplus lines. These are outside of the standard market, uh, standard insurance market. And so you might hear of, uh, Lloyds of London being kind of a surplus lines insurance carrier. Well, they might be able to provide you with some of that coverage that otherwise wouldn’t be provided through the standard insurance market, you know? And so if you do think about a risk that you would like to get covered and ask your insurance agent, you know, to see if that’s something they can offer, because a lot of times, you know, if there is a gap there there’s often a product that can help to fill that gap. Right. And so that’s really why that conversation is important because they might say, oh, well, actually we don’t sell that. But you know, you can go to these surplus lines or, yeah, we actually can add this through this, this endorsement, which is like an addition to an existing policy or through a separate policy that might be able to cover that risk.

Collin Gabriel (04:22):

Okay. And, and always, there’s the alternative of, of an insurance broker who can kind of like do all this research for you, if, if this is like a concern. Cause when you mentioned the wildfires, we’ve had several businesses that have had to close down for that. And one of the, you know, graves concerns was, is there anything that can cover these losses that are incurred while the evacuations are in place? Or, you know, if the business has to shut down due to air quality or things like that? Mm-hmm <affirmative>

Craig Vattiat (04:48):

Yeah. Again, um, unfortunately if, um, you did have a situation where there was no physical damage, you, you just wouldn’t, this would not come into play during that time. Okay. So, uh, just one other story before moving on, um, related to business interruption insurance, to, you know, if, if you do have this coverage to help you process that claim, it’s really important that you have accurate records to prove that lost revenue that lost profit. Um, a few years ago, in 2016, there was a tornado that struck man, Anita, Oregon, and a retailer in man, Anita had a really difficult time with their business interruption claim because they hadn’t documented their inventory. They didn’t document their profits and they didn’t have tax records when their insurance company asked for them. So kind of a long these lines of having this insurance in place, you really need to have your documentation in order to help you with any sort of claim that you do need to file.

Joni McSpadden (05:48):

And not only that, but it sounds like you need to have those records in a possibly in the cloud or in another secure location, because in the case, the tornado or fire or windstorm, those document, those paper documents may completely be gone.

Craig Vattiat (06:04):

Yeah, that’s a really good point to bring up Joni and this kind of relates to some of our other messaging around just wildfire preparedness, you know, thinking about that risk. Um, the division kind of has three main talking points for folks. Uh, the first is to, again, review that insurance coverage to make sure you’re adequately cons insured. The second though is to, uh, make sure that you have copies of that, those important financial documents, those I, those maybe personal identifying documents securely stored either in the cloud or somewhere off site away from that location. So that if you do need to file that claim, if you do need to, um, you know, access credit or whatever it is, you have that financial information in place and it is secured. And another important point there is to, uh, do an inventory of, again, your personal belongings, if you’re dealing with your homeowner’s policy, but again, do an inventory of your business property. And that just simply means, you know, could be as simple as taking a phone and recording, uh, your business, the items that are in that space. Uh, that’s gonna help you with any claim that you have to file.