General Liability

While spring is on its way, we are not entirely in the clear from the threats of the cold winter weather. As history shows, March is one of those months when the temperatures can fluctuate by an astounding 20-30 degrees from day to night. Today could be a warm, sunny, spring-like day and tomorrow we could face a blizzard – we really just never know what March will surprise us with.

Recent fluctuation of temperatures from subfreezing to above freezing has caused frozen pipes, and even more concerning, subsequent thawing conditions. In 2015, hundreds if not thousands of northeast business owners experienced firsthand the economic toll caused by weather-related water losses. The arctic cold we’ve experienced thus far this year is reminiscent of last year’s extremely challenging climate conditions. There is no doubt that the business owners who sustained property damage and interruption of their operations last year are now aware that they can reduce their risk of a water loss by taking preventative steps to protect their business. For our policyholders who were more fortunate, we hope the following will assist you with a better understanding of how you can prevent large water losses.

Frozen & Thawing Pipes

Pipes that are exposed to severe cold or run along exterior walls that have little to no insulation have a greater tendency to freeze. As pipes freeze, the water inside expands. This can cause the pipe itself to expand as well. Once frozen, the water that had been continuously flowing through the pipe thaws and will escape when the pipe ultimately breaks under pressure of expansion.

Ice Dams

Another type of winter hazard that business owners face are ice dams. Ice dams occur when a ridge of ice forms at the lower edge of a roof and prevents melting snow from draining adequately. Water accumulates behind the dam and can eventually leak, most often causing damage to the interior of the building.

Take Preventative Action

It is important to take preventative action and not allow a bad situation to become worse causing thousands of dollars worth of damage to your property. The following are a few steps that can be considered so that you have a profitable end to this winter season.

1. Monitor your thermostat and maintain it at a consistent temperature 24 hours each day. This is especially important for seasonal operations that are not open during the winter months.
2. Consider draining water from pipes that you have determined may be exposed to severe cold or are located in unheated or uninsulated areas.
3. Inquire with a licensed plumber about allowing a minimal amount of water to flow through a pipe in order to prevent it from freezing.

The best approach for a commercial property policyholder would be to consult with a licensed plumber prior to the arrival of severe weather conditions so that you know the risks and what actions will safely reduce or even eliminate the chance of a water damage loss.

As eager as we are for spring to arrive, it is important to remember that we are not in the clear until temperatures stay well above freezing. The first day of spring is on March 20th this year and hopefully that means warmer weather as well. Until then, Hospitality Insurance Group wishes you a pleasant and uneventful end to this winter season.

Please be advised that the opinions expressed are the views of the author alone and should not be attributed to any other individual or entity and shall not constitute a legal opinion.

General liability claims can come at any time, in any form. Purchasing insurance for this type of exposure is the first line of defense against many common claims.

General liability insurance covers claims of bodily injury or other physical injury, property damage, personal injury (including slander or libel) and advertising injury. The purpose of GL coverage is to protect your business against incidents that may occur on your premises or at other covered locations where you normally conduct business. It can protect your business against significant financial loss resulting from claims of injury or damage caused to others by you or your employees.

Just because you have purchased a commercial general liability insurance policy doesn’t mean you won’t have to pay some of the cost out of pocket, even if the claim is covered! Aside from the potential unexpected expense, dealing with claims can be mentally draining and can even harm the reputation of your business. Although you may have purchased coverage for this type of exposure, it is important that as a business you also do your part in preventing these claims.

Here are 10 ways your business can assist in general liability claim prevention:

1. Parking Lots & Sidewalks: Parking lots and sidewalks should be routinely inspected and maintained. During the winter season, be sure to perform timely maintenance of parking lots. Have the parking lot plowed by a professional if snow has fallen. You should also inspect the parking lot for any potholes that may need to be filled. While tending to the parking lot, do not forget the sidewalks! Be sure that they, too, are shoveled and cleared.
2. Slippery Surfaces: During the spring especially, snow can melt from above-freezing temperatures during the day and re-freeze from below-freezing temperatures at night. Use sand and/or salt in outdoor areas that are known to freeze and might be slippery (sidewalks, front entrances – especially brick surfaces, patios, etc.).
3. Interior/Exterior Lighting: Incidents are more likely to occur in dark or poorly lit areas. Check all lighting both inside and outside of the property (especially in the parking lot) for “dark spots” to ensure that all areas are properly illuminated.
4. Flooring: Periodically examine the rugs and flooring for any “lifting” or repairs to avoid trips and falls. If any repairs need to be made, do so immediately. Slip-resistant floor materials and treatments should be applied to necessary areas (including dance floors).
5. Spills & Wet Surfaces: Ensure rapid cleanup of spills and use movable “caution” signage. If the interior floor is wet from rain or melting snow being brought in by patrons, be sure to utilize “caution” signs to notify the public of the wet floor.
6. Furniture & Fixtures: Check chairs and tables for any “rickety” spots that could cause drinks or food to fall, or even worse, an individual! Ensure all tables and chairs are stable. A routine maintenance program should be implemented to inspect and repair furniture and fixtures.
7. Bathroom Safety: Place restroom soap and hand dryers/paper towel dispensers in areas where soap and water drips are minimized. All restrooms should be cleaned on a regular basis to avoid water or soap leakage, especially from customers and employees washing their hands.
8. Stairways: Install handrails on stairways and ramps. Slip-resistant floor materials should be used on all stairways. Elevators and escalators should also be inspected and maintained regularly (if applicable).
9. Fire Safety: Inspect all smoke detectors to ensure that they are completely functional and do not need to be replaced. Also make sure that all exits are clearly marked. Emergency power sources for egress lighting should be tested regularly. Appropriate kitchen fire safety equipment should be installed and routinely cleaned and inspected.
10. Establishment at Large: Review the establishment as a whole to ensure a safe environment for patrons and employees. The layout of the restaurant should be carefully planned to avoid any incidents (i.e. tables are not placed near doorways, stairs, opening doors, etc.). You should also adhere to maximum occupancy regulations, ensure egress areas are maintained free and clear, separate delivery areas from patron parking and entry areas (if applicable), ensure parking lots contain minimal shrubbery and vision obstruction for patron security, and you should also utilize exterior cameras wherever appropriate.

Hospitality Insurance Group strides to do our part in providing coverage for your general liability needs. With just a few steps, our insureds can help in preventing general liability claims!  Together, we can make a great team for years to come!

Michele Wright-Nealand is a Jr. Underwriter at Hospitality Insurance Group.

Please be advised that the opinions expressed are the views of the author alone and should not be attributed to any other individual or entity and shall not constitute a legal opinion.

Most businesses would never think of going without property and liability insurance. Even if they do wish to go without it, often times that’s not even an option. For many, the mortgagee requires the purchase of insurance to protect their financial investment.

The reality for many insureds is that the key to surviving a disaster may very well depend on the firm’s loss of income protection. The fact of the matter is, “When trying to control financial risk, insurance is the cornerstone. And business income insurance can prove to be the foundation for survival of a business whose operations have been interrupted by a devastating loss” (Adjusters International).

So what is Business Income insurance?

Business Income, as it relates to Business Income insurance, is defined as the net income (net profit or loss before income taxes) that would have been earned or incurred, plus continuing normal operating expenses including payroll. Business Income insurance provides a business whose operations have been interrupted by a covered cause of loss, with income equal to what the firm would have enjoyed had no loss occurred. The goal of Business Income insurance is to pay for the sale that would have been, had no loss occurred.

How does it work?

Business Income insurance is not sold as a stand-alone policy but as an endorsement to the property or package policy. The coverage of Business Income insurance is triggered by the total or partial suspension of business operations due to loss, loss of use, or damage to all or part of the building or business personal property as the result of a covered cause of loss. The key point here is that the Business Income loss MUST be covered under the property coverage form for the policy to pay out.

Business Income insurance typically has a 72-hour deductible, meaning no coverage exists until the 72 hours are up. It is important to understand that this means the policy does not go back to day one to determine the amount of loss; it will pay only for loss of income after the deductible period.

It is the policyholder’s obligation to prove a Business Income loss. Proof usually comes in the form of documentation. It is imperative that the insured keeps good records (profit and loss statements, tax forms, payroll records, etc.) to verify the amount that has been lost. The insurance company will compare the records to the previous year’s and previous month’s records to help determine what the loss actually is.

Coverage Options and Limits

Now that we understand how important and critical Business Income coverage is for an insured to prevent financial ruin, the next step is to understand the coverage options available, which one is best for your client and what limit should be selected.

Before we discuss the different coverage options, it is important to note that when determining the limit of liability, the worst-case scenario should be examined by asking: What is the longest period of time the insured may be shut down, and what would be the worst months for the insured to be out of business? Most businesses underestimate the amount of time it takes to return to normal operations. You should not overlook the time it takes for cause and origin investigations and debris removal. Securing permits can take 2-3 months, while reconstruction of the property can take several months.

Below are the most common coverage options available for Business Income insurance:

1. Coinsurance is the most common method used to determine Business Income limits, especially for those with a maximum expected period of recovery of six months or more. It is also favored because the rates are lower than other options and recovery is not limited by monthly maximums or limited payouts. However, there is a downside to the coinsurance method; the insured may become a coinsurer if the limits are not adequate enough to pay the full amount of the Business Income loss. The insurance company would penalize the insured for not buying the correct amount of coverage. The coinsurance calculation is the same as it is for property coverage Did/Should x Loss.

The best method for determining the correct limits for the coinsurance method is to complete a business income worksheet. Having a CPA or accountant assist in completing the worksheet is highly advised.

2. The Monthly Limit of Indemnity method waives the coinsurance, however, it imposes a monthly maximum payout based on a fractional percentage chosen. The standard options are 1/3 (payout 3 consecutive months), 1/4 (payout 4 consecutive months), or 1/6 (payout 6 consecutive months). The most that will be paid in each period of 30 consecutive days is the limit of insurance multiplied by the fractional percentage you choose. This option is intended for businesses that do not expect a period of recovery beyond six months.

Below is an example of how the monthly limit of indemnity method is applied:

Another factor to consider in choosing this option is that in some cases, much of the initial expense may be incurred in a specific 30-day period. Thus, an equal payout per month may not meet the insured’s needs. If an insured does not collect the full amount available in a given month there is NO carry over of monies to the next month.

3. Another method available is the Maximum Period of Indemnity. This option limits actual loss sustained for 120 days, subject to the limit of insurance. No coinsurance applies, but the policy will only pay for 120 days. At the end of that period there is no more coverage, even if the insured still has monies left within their limit of liability. This option is intended for businesses that do not anticipate an expected period of recovery greater than four months.

4. Actual loss sustained is another method where the coinsurance clause does not apply.  The limitation for this option is that the loss must still be proven, and the proof is the amount that will be paid. There is typically a 12-month payout for this option, and many higher hazard clients (i.e. restaurants) are not offered this option.

5. Agreed Amount is the final coverage option that is available for Business Income insurance. This option pays out the limit that is agreed upon by the insured and the insurance company. The coinsurance clause is again waived and a completed and signed Business Income worksheet is made part of the policy. Many insurance companies are not willing to offer this option due to the many variables in a Business Income loss that could impact the payout.

This is certainly not the entire story behind Business Income but an overview of what the coverage is and how it can be written. Working with the insured’s CPA or accountant is always recommended when determining the limit of insurance needed.

Not understanding the coverage and writing it incorrectly to meet your insured’s needs can not only be costly for your insured from a premium standpoint but also may have a disastrous effect on your insured if they suffer a devastating loss.

In-depth courses on Business Income are typically offered from your local agents’ association along with other insurance educational facilities. These courses are usually inexpensive, especially in comparison to the disastrous results that may occur if you are providing this coverage incorrectly to your clients, or worse, not offering the coverage at all.

Business Income coverage can be one of the most misunderstood of all property coverages, which is why it is so important that you take the time to learn and understand it.

Sandra Haley is the Senior Vice President of Underwriting & Marketing at Hospitality Insurance Group.

Please be advised that the opinions expressed are the views of the author alone and should not be attributed to any other individual or entity and shall not constitute a legal opinion.