A loud bang and a quick flash across the night sky – a transformer down the street just blew. Lights along walkways, outside storefronts and inside homes go dark. The brutal lightning storm and blown transformer trigger a town-wide power outage. Your local power company is often quick to respond, but not in this torrential weather. Three days later, you’re still in the dark.
Does your business insurance kick in when the power goes out? Here comes your favorite insurance response…Wait for it…It depends.
In our last MIRM newsletter (Find it here), we reviewed Business Income Coverage of a simpler kind. A fire in your shop causes you to close your doors for six months; insurance kicks in to repair the damages and make up for loss of business income. But what about some of the other complications that make temporarily closing your doors the only option?
Today we’ll lay a few more complicated Business Income/Interruption Coverages on the table:
Utility Services Interruption (Off-Premises Power/Utility Coverage): A utility/service company (electric, gas, water, etc.) suffers physical damage ignited by a cause of loss that is covered under your policy (aka a covered peril). The damage triggers an income loss for nearby businesses after they must temporarily close during the outage.
Ex: Lightning strikes a nearby power line causing a power outage in town. The power is out for days. Local businesses, including your music store, keep the doors shut resulting in a loss of income.
Utility Services – Direct Damage – Same as the above, but the business’s property is also physically damaged.
Ex: As the power is restored post-lightning strike, a power surge fries a row of amps that were plugged in for testing at the time of the outage.
Contingent Business Interruption Coverage (Dependent Properties Time Element Coverage): A direct supplier (i.e. the manufacturer making the goods a music store sells to its customers) or a direct receiver (i.e. a music store who buys most of a manufacturer’s products) sustains property damage produced by a peril covered under your own policy. The supplier/receiver is unable to send/receive product, putting some of its dependents’ work at a standstill.
Ex: Your top manufacturer suffers a warehouse fire. Their inventory is damaged and it’ll be a few weeks before they can send you new gear. You’re left without those gotta-have items for a few weeks and may endure an income loss. Do note that if your music store buys XYZ’s products through a wholesaler, XYZ is not considered a direct supplier. A fire at XYZ’s warehouse will not trigger coverage on your policy. The fire would have to occur at the wholesaler’s warehouse.
Civil Authority: An act of civil authority forces a business to remain closed or limits access to the physical location (such as an emergency evacuation), inducing a loss of income.
Ex: An emergency evacuation is filed for the area where your recording studio is located. You cancel all of your appointments and can’t access the studio for weeks. You’re income-deprived.
There is more to these coverages than you probably want to read. Deductibles, limitations and exclusions aren’t exactly sparse. If you’re concerned about your risks and possible coverage gaps, it’s best to consult with your insurance agent or your friendly insurance nerds (Psst – That’s us!).
…Now what? One might argue an income loss could be more detrimental to a business than the property damage itself.