Business Interruption Insurance Basics and 5 Tips Regarding Your Insurance Resourcing Your Recovery

Nashville Flood May 2010. Melissa DuPuy

Midstate businesses impacted by the flood are moving from “response” mode to “recovery” mode as we are in the fourth day after the historic flooding.  At the heart of the recovery phase is the ability of an organization to obtain the necessary resources to get back up and running.  The key word in disaster planning and recovery is "resources." Most business owners have understood their insurance policy as the vehicle that would help them get the financial resources that would, in turn, help them to secure the other critical resources to get their business up and running.

With countless decisions to make this week, business owners are dusting off (or literally drying out) their insurance policy to find out what is covered and, sadly, what is not.  And for those who had a standard policy they will become aware that the policy they have will help them get their doors open but will fall short in helping get the business going.  I am a business continuity and disaster recovery specialist and not an insurance guy, but with this blog, I will try to provide an overview on the basics of what is called “business interruption insurance” in the hope that your policy includes it and then I will end with a couple of tips.

Types of Business Interruption Coverage include:

• Extra Expense Insurance
  Extra Expense insurance reimburses your company for a reasonable sum of money that it spends, over and above normal operating expenses, to avoid having to shut down during the restoration period. Usually, extra expenses will be paid if they help to decrease business interruption costs.
• Business Income Insurance
  Business Interruption insurance compensates your company for lost income if your company has to vacate the premises due to disaster-related damage that is covered under your property insurance policy, such as a fire.  Business interruption insurance covers the profits you would have earned, based on your financial records, had the disaster not occurred.  The policy also covers operating expenses, like electricity, that continue even though business activities have come to a temporary halt.  This type of coverage traditionally affords protection in the event of damage to the insured’s premises. 
• Contingent Business Interruption Insurance
  Contingent Business Interruption reimburses your company when you have to suspend your business operations as a result of a covered l physical loss or damage to property of your suppliers and/or customers. 
• Service Interruption Insurance
  Service Interruption Insurance provides coverage for an insured for disruptions caused by interruptions in the supply of water, communications or power.  Overhead Transmission facilities are usually excluded, but can be added back in by endorsement (recommended) 

All of the above insurance products are generally provided by a rider or endorsement to a commercial property insurance policy. These Business interruption products usually will not cover losses from weather-related evacuations, or loss of electricity or utilities not directly resulting from damage to your property.  These are written on separate policies.  Most commercial property policies exclude flood coverage and we can hear the collective groans across the Midstate.  These can be written by endorsement or on separate policies.

 Five Tips:

1. Make sure you understand what your policy does and does not cover. Also make sure you understand the exact dollar amount of the coverage and the length of time it will pay.
2. Do not rely on your insurance adjuster to interpret your policy or your business loss and needs. 
3. Time is of the essence following a disaster in terms of loss of income and capacity is diminished to get back up and running. If you have an “extra expense” policy, this policy can pay for additional human labor such as a disaster recovery specialist and materials (i.e. technology workarounds) that can help you manage the loss and get back on your feet quickly and resume income generation..
4. Prepare a disaster fund budget that takes into account all your anticipated expenses across the timeline of a post-disaster cycle: response, recovery, and resumption.
5. For those reading this blog who were unaffected by the flood, count your blessings and now is the time to review your current policy and consider adding one of these business interruption riders. 

I hope this information is helpful and if we can be of help, please do not hesitate to contact us.