Why You Need a Business Interruption Clause in Your Commercial Insurance Plan

May 24th, 2010 by John No comments »

Commercial insurance and the issues that it attempts to cover are absolutely fraught with pitfalls for the unweary.  While most business owners probably think that the events that give rise to insurance claims are the biggest thing to worry about, more often than not the danger is far more mundane.  The real danger comes down to what you didn’t think of when you were signing up for an insurance plan in the first place!  Just like my last post on mechanical breakdown clauses, I would like to go over another one of the most helpful clauses that you should have in mind next time you are looking for a commercial insurance quote, namely the Business Interruption Clause.

The business interruption clause is quite aptly named:  It covers those situations where some covered event causes your business to cease operations for a temporary period of time during which you have a duty to fix the problem and get things working again.  It doesn’t take long to conjure up all sorts of catastrophic events in your imagination, all necessitating that you pause your company’s normal, day-to-day operations while you get things fixed.  By the way, don’t take the previous sentence as unnecessary alarmism; I’m a big believer in the idea that we prepare for negative events so that they don’t happen.  Life has a funny habit of playing tricks on us, throwing some nasty curveballs at us in the form of events we didn’t plan or prepare for.  Even a cheap commercial insurance plan will most likely have you covered should you need to cease operations for a while, but always make sure to ask your insurance agent about the details so you’re not flying blind!

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OK, enough big picture stuff, let’s get down to the nitty gritty.  Here are some things you can expect to have coverage for when you have business interruption coverage:

  1. Net Profits - This is probably the most obvious one you would expect.  Put simply, you should be able to recover the net profits that you would have made had the event not occurred and you were able to continue doing business as usual.
  2. Rents - This one’s a little less obvious.  This simply means that if someone is renting your commercial property, and that property is damaged or otherwise put out of commission for a certain amount of time, the renter is obviously not going to have to pay rent!  With the right commercial insurance coverage, you will be able to recover this amount.
  3. Salaries - Your workers are going to want to be paid, too, and a business interruption clause should take care of this.
  4. Taxes - If there are any tax liabilities during your company’s downtime, they should be taken care of by the insurance company.

The above 4 items are the ones most commonly covered in business interruption clauses.  Of course, there might be even more coverage in your particular plan.  As I always say:  Do your due diligence! Be an informed customer and really grill your agent (be polite, of course) over what is really covered by your plan.  You’re paying these people good money to get your back when things go wrong, so they should be more than happy to accommodate your questions, filling you in on all the necessary details of what you’re paying for.

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The Importance of Breakdown Coverage in a Commercial Insurance Plan

May 24th, 2010 by John No comments »

As a newcomer to the world of commercial insurance coverage, you may be feeling overwhelmed with questions about anything from where to get your insurance to what it should cover.  This is a perfectly understandable reaction, especially considering the overly litigious climate that we currently live in.

With the next few posts on this site, I want to help you cut through some of that confusion by taking a hard look at some of the important bits of coverage that you could potentially get. At the end of the day, remember that the plan you obtain may differ substantially from the business down the road; it all comes down to the particular nature of your work and the potential liabilities that naturally go along with it.

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Without further ado, let’s take a look at the first important bit of coverage that you may potentially need for your business:

Mechanical Breakdown Coverage

This kind of coverage generally applies to the breakdown of various machinery or even boilers on the business premises.  More specifically, this clause in your commercial insurance plan covers damage that directly results from accidental breakdown.  You can quite easily imagine the sort of havoc that a leaking or broken boiler would wreak on the flow of your business, especially during a busy time of year.

You may be asking:  What are some examples of damage that is covered by such a clause?  Perhaps the most popular example given is fire damage, something that unfortunately happens all too often in a business that generates a lot of heat during manufacturing processes, for instance.

Another example of a potential benefit under a Mechanical Breakdown clause is business interruption coverage.  This helpful bit of coverage will essentially reimburse you for the downtime that your business experiences while you get the equipment back up and running.  There are very specific calculations and standards used when the insurance company is making a determination as to how much you should be paid for each day of downtime, so be sure to clarify exactly how much you could expect to recover in the unfortunate event of business interruption.

Additionally, the insurance company will definitely have some strict standards when it comes to not paying more than is absolutely necessary for you to get everything working again, so ask your insurance agent what your particular plan has to say about what your duties are in mitigating the damage.

Water damage might also be covered here, although different commercial liability insurance plans will choose to cover different events.  Sometimes these choices can seem arbitrary to the business owner, so please do your due diligence and ask your potential insurance agent exactly what is covered under the plan you are thinking about purchasing!

Mechanical Breakdown Coverage can give you peace of mind when running a business that is inherently at risk for damage caused by broken machinery.  After all, the last thing you want to worry about when a piece of expensive equipment breaks down is having to pay for all the damage out of pocket.  Most business owners want to be confident that the repairs will be paid for and the machinery put back on line in fairly short order.

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Does Your Commercial Insurance Plan Cover Codes and Ordinances?

May 24th, 2010 by John No comments »

Generally speaking, obtaining any kind of insurance coverage forces us to think about situations and events that we would rather push back into the recesses of our subconscious.  Life insurance is the most common example, dealing with the unpredictable and sometimes scary notion that we are all subject to human mortality.  Commercial insurance is similar, except instead of worrying about our own lives, we are now worried about the lifespan of our commercial property.  For instance, no business owner wants to think much about a potential situation involving his business becoming so damaged that it needs to be completely rebuilt, but these things do unfortunately happen.

Thankfully, there is one particular clause in a commercial insurance plan that covers just this possibility:  Ordinance Coverage.  This type of coverage may go by many other names, but the idea is always the same; generally, if your commercial building is destroyed by more than 50%, most ordinances and other local zoning laws across the country will require that it be rebuilt according to updated building codes.  While this is rarely a problem for a new business that was built during a time when the current codes were already in effect, older businesses will almost always have to bear the brunt of this requirement.  While it’s understandable that a city or town would want older buildings brought back up to code, this process often requires the property owner to incur a pretty significant cost in doing so.

Ordinance Coverage in Commercial Insurance

This is where ordinance coverage comes in!  With this clause in place in your commercial building insurance plan, the insurance company will reimburse you for the costs that result from having to replace the structure.  However, be aware that property insurance will usually only cover the replacement value, and not the upgrade costs.  Another thing to keep in mind is whether you have “builder’s risk insurance.”  This coverage applies to the situation where a structure is damaged during the construction process.  For instance, a storm might come along and tear down all your hard work, and builder’s risk insurance would cover the costs of rebuilding that part of the structure.  You can see how this is intimately related to the situation where you would need to take advantage of ordinance coverage, so the two clauses go hand in hand.  Next time you’re shopping around for a commercial insurance quote, ask your potential agent about these clauses.

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As I said in my last post:  Prepare for catastrophic events so that they don’t happen!  We could all certainly use this peace of mind when running the day to day operations of a business.  The bottom line is that the prepared business owner will always benefit from having peace of mind, comfortable in the knowledge that his business is safe from damage and liability.

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