Colorado Insurance Law Center Reminds Colorado Companies to Consider Purchasing Business Income Insurance to Survive Catastrophe

by Alexa Drago on September 12, 2017

By Damian J. Arguello

Colorado is home to some of the most cutting edge and fastest-growing businesses in the nation. To keep their competitive edge, local business owners have made significant investments in real estate, people, processes, and equipment. The recent hailstorm in the Denver area, particularly the damage it caused to the Colorado Mills Mall and the resulting shutdown of businesses there, provides a good reminder of the importance of having business income coverage to protect your Colorado business against a catastrophic loss.

Losses due to natural disasters and storms in Colorado touch a variety of industries, including real estate management, construction, hospitality, food, retail, manufacturing, travel, energy, and technology. Commercial property insurance policies can, but do not automatically, include business income coverage and extra expense coverage (“BI/EE”), also known as “business interruption” or “time element” coverage.

BI/EE coverage is designed to continue your business’ income and cover extra expenses incurred after a disruptive event. Business income coverage typically includes both the net income lost from the suspension of operations (due to property damage from a covered event) plus continuing normal operating expenses, such as rent and payroll. Extra expense coverage reimburses the additional expenses your business must incur to resume normal operations and ultimately get back to its pre-loss income levels.

BI/EE coverage often specifies the time periods for which you can expect reimbursement. Alternatively, it may allow the insurer to reimburse you based on its determination of how long it should take your business to resume normal operations.

While BI/EE coverage typically is triggered by damage to your own property, it can be tailored to cover you if you need to suspend operations because of damage to another business’ property. This is especially important if you are a key supplier, a customer, or a destination retail store located within a larger mall or shopping area. This could also be an issue if a governmental order or directive deprives your business of access to your premises in the event of an emergency such as a shooting or bomb threat.

If your operations depend heavily on an uninterrupted supply of electricity, gas, phone, or internet service, BI/EE coverage can be designed to cover utility services interruptions, which are a common event during a storm or other severe event. For Colorado businesses that serve refrigerated foods and beverages, such as a restaurants and breweries, food spoilage will be a concern. The issue of interrupted utilities can also impact online clothing stores and parts businesses.

It is crucial to work with your broker and insurance coverage legal counsel to ensure that your BI/EE coverage is tailored your unique operations. In assessing the best type and duration of BI/EE coverage for your business, consider the following:

1.    Make sure your business is actually covered under the insurance policy you anticipate would be triggered in a loss and/or suspension of operations.

2.    Be prepared to promptly notify your carrier that, in addition to property damage, your operations are suspended or diminished following a loss.

3.    To avoid a costly and lengthy dispute with your insurer later, create and keep meticulous and contemporaneous records concerning your property and, when a covered event occurs, of the property damage suffered, the repair work needed, and the extra expenses incurred to keep your operations running.

4.    Be aware of how certain exclusions and/or anti-concurrent causation clauses may affect your power outage or other add-on coverage, and of any applicable sublimit.

5.    Be vigilant in monitoring your insurer’s BI/EE payments; confer with your broker or insurance coverage counsel if you notice or suspect any reduced, delayed, or withheld payments.

6.    In a dispute over the value of your property and/or BI/EE claim(s), consult with coverage counsel before agreeing to the appraisal process under your policy; if you proceed, watch for conflicts of interest that might arise.

Damian J. Arguello is the founding partner of  the Colorado Insurance Law Center (CILC).

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