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By Maureen Werther
The recent damage to the Saratoga Springs City Hall after being struck by lightning may have prompted some business owners to look at their own insurance policies and see if they have business interruption insurance.
What would happen to a business if an unforeseen disaster struck? Are businesses prepared to weather the storm and rebuild without breaking the bank?
Business interruption insurance is the part of a business policy that will help when businesses are recovering from a fire, flood, or natural disaster.
While most business owners don’t think twice about covering their business with fire insurance, some small business owners may not think about the consequences to the bottom line if they are unable to conduct business on the existing premises, or pay everyday business expenses.
According to David Fragomeni, president of Fragomeni Insurance & Financial Services, Inc. in Saratoga Springs, business interruption insurance provides funds to pay for continuing expenses while a company rebuilds following a loss. Fragomeni cautions, however, that there are a lot of misnomers about the definition of “loss of income.”
“Business interruption insurance will pay for the continuing expenses a business incurs. It does not provide for lost profit. A lot of people might say that the ‘expenses’ are defined as what they take in, including the profit. That’s not going to happen,” he said.
It will, however, pay for expenses like taxes, insurance and possibly payroll.
“After a loss, a business owner will want to keep key employees at this time, with the goal being to pay their salaries” he said.
He used a restaurant to illustrate what he means by “key” employees. “A chef would be an integral part of your restaurant and, if you had to close six months because of a fire or other damage, you would want to keep your chef from going elsewhere. So, you’ll want to continue to pay his/her wages.”
It is also important to keep in mind that the concept of a “key” employee does not necessarily mean the person with the most important title.
“What if you had a restaurant that was in business for 30 years, with a loyal following of devoted clients?” he said. Part of the reason for their devotion may be the wait staff who have been serving them. While business interruption may pay for the wait staff’s salary, it will not compensate them for lost tips.
DeWitt Jenks, owner and president of Jenks Family Insurance Agency LLC in Saratoga Springs, said business interruption insurance is not as easy for some types of companies to obtain.
“If my building went on fire, I could open for business the next day in a coffee shop. I’d need a new laptop and I’d be back in business.”
However, for something like an auto repair business, it is likely to be more expensive to obtain business interruption insurance because the owner couldn’t simply do the work elsewhere. The other issue is an industry’s greater risk and potential for liability. Gas stations and auto repair shops have buried tanks and waste oil, with potential for leaks and other issues, all of which factor into the costs of insurance and the insurer’s decision to cover a particular type of business.
Bruce Clements, owner of Clements Insurance Agency in Saratoga Springs, advised business owners to know the length of the recovery/renovation period that is outlined in the plan and be able to accurately and fully document proof of lost income in order to begin receiving payments from the insurance company.
There is usually a 48-hour waiting period before a business will begin to receive payments, he said. For that reason, a business owner should know exactly what type of documentation they will need and have it readily available in the event of a loss. Those documents include recent operating statements, quarterly and monthly statements going back two to three years, and any internal statements and notes related to those financial statement.
Clements said if someone owns more than one business or location that are covered in a policy, make sure all entities are correctly listed and named.
He said a “dependent property” clause an be important.
“What if the anchor store in the strip mall where you do business suffers from a fire or flood and has to close? Your own business is likely to suffer because of the loss of customers coming to that mall.”
In general, he said to make sure the policy limits are sufficient to cover the company for more than a few days. After a major disaster, it can take more time than many people anticipate getting their business back on track. In most instances, standard business interruption insurance will provide coverage for up to 120 days.