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Hurricanes May Not Trigger Business Interruption Coverage Unless..

By: Thomas M Kallman

Business and property owners who dispute the need for business income coverage also known as business interruption or loss of rents can learn a valuable lesson from Hurricanes Charley, Frances, & Ivan although this valuable endorsement will only apply to losses that first can jump two major hurdles.

Many business owners may have been impacted by one of these storms, and insurance generally will not cover power outages caused by failure of a utility, so companies that have been forced to close due to power outages cannot claim losses because they could not open for business.

Business interruption insurance typically applies only to businesses that have suffered physical damage from the storm, and been forced to close due to the damage. Also, a great majority of policies in Florida include substantial deductibles in the event of wind or hail damage, which can range from 2 to 10 percent of insured values, not a percentage of the damage. Do the math and you can see that the amount of damage that must first be sustained is very significant. In some cases the deductible can also be a waiting period of up to 72 hours.

Companies can buy coverage that covers losses due to power outages after the business has suffered physical damage and they can also buy coverage for interruption due to action by a civil authority that forces them to shut down. But, in reality, few companies choose to purchase such additional insurance, as the cost of insuring for them would be a major additional expense for business owners.

Small business owners, usually with 20 employees or less, may qualify for a “business owners policy” that does include some business interruption coverage in addition to the regular business coverage for fire and liability. While it still may not cover power outages, if the business suffers physical damage it will provide salaries for key employees and coverage for actual lost net income for up to a year. Deductibles do apply as stated above.

The best advice I can pass on is to discuss your specific coverage with you own agent now. The time to review your insurance plan is far in advance of any potential loss.

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