By Ryan Hager, Assistant Vice President – Commercial Lines
The 1,000 Year Storm
October 29th, 2012 is a day that will forever be ingrained into the memories of both residents of New Jersey and business owners alike. Superstorm Sandy was the 1,000 year storm that no one ever thought would hit in their lifetime.
As a result of this thinking, businesses were extremely unprepared for the damage that ensued. High winds and flooding were the driving causes of loss during the storm.
Now, we are talking about Business Income, which was one of the bigger claims that resulted from Superstorm Sandy, much of which was NOT covered. According to IHS Global Insights – losses from wages, electrical power, and production cost business owners $20 billion. Many New Jersey businesses suffered losses stemming from power outages which resulted in business interruptions and loss of business of income.
To understand Business Income coverage under a commercial property policy, we must understand the list of conditions to be present in order for a loss to be covered. In the event of a loss these conditions are:
- a discrete event of direct physical loss or damage;
- to property of the type insured;
- from a risk of loss;
- with no exclusion applying;
- which causes an interruption of business operations;
Then the policy covers:
- the defined loss;
- for the defined period of interruption.
Back to the question: What was the cause of loss? As discussed earlier, flooding and high winds were the proximate causes of loss from the storm. Soon after the storm, it was discovered that many New Jersey businesses lost power due to flooded substations and downed overhead transmission lines. Of course, flooding is an excluded peril on the commercial property form. For those businesses that thought they had a saving grace from coverage from wind, they had more heartache. The only Hail Mary for businesses would have been that flood and Utility Interruption Services (with overhead transmission lines) were endorsed on their policies.
Business income insurance is one of the most vital lines of insurance to a company, and yet it is one of the most overlooked coverage’s. Do you recall how you derived to your business income limit? Most companies I meet with either haven’t adjusted their limit in years, or have no clue how it was originally derived. It is critical that this limit is properly adjusted each year by filling out a business income worksheet. Don’t fall into a trap of having uncovered claims or insufficient limits, resulting in you having to pay out of pocket.