Property Owners

Meteorologists predict a below average hurricane season for this year though business owner policyholders know that forecasts are not an exact science. Unpredictable weather patterns pose an ever present threat of moderate to catastrophic physical damage and interruption to their business operations. Case in point is Revere, MA.

On June 28, 2014 it may have surprised you to learn that a tornado with wind gusts of up to 120 mph touched down north of Boston and in only four minutes left many businesses uninhabitable because of extensive physical damage to buildings, flooding and widespread power outages. What is worse than being a business owner impacted by this tornado is an owner who, as a result of this event, learns that he or she is underinsured and will not be able to restore their employees’ jobs and resume their business operations. Knowing the scope and nature of the commercial property insurance you purchase, when you purchase it, makes an unpredictable weather event more foreseeable in terms of the degree to which it might impact you, your employees and your patrons.

Just as important as understanding the extent of coverage afforded to you by your commercial property policy is a business owner’s responsibility to inspect and diligently maintain the exterior and interior of their business. This can not only mitigate the extent of potential property loss, but it can, in some instances, completely eliminate loss exposures such as flooding and fire.

Unlike storm related events, this type of loss exposure is both predictable and almost entirely preventable, yet we still see catastrophic losses that threaten the lives of employees and patrons and/or result in devastating physical damage and loss of business income. This exposure is created when a business owner fails to routinely inspect, clean and maintenance their commercial cooking operation and fire protection systems. Kitchen exhaust fires are becoming more common, and the burden is ultimately on the business owner to select a contractor that can provide the proper service and help him/her comply with national and industry standards that pertain to fire safety requirements. Simply hiring an unqualified or the cheapest contractor (with no or inadequate insurance) will not prevent the cost of a fire.

Too often we have business owners sustain flooding throughout the interior of their buildings, which leads to temporary closure, clean-up costs and food spoilage losses. As we investigate these types of losses, we occasionally discover that the cause of the flooding is not direct physical damage to the building by a covered cause of loss but rather a poorly maintained or dilapidated roof that allowed water to damage the interior contents and building structure. Consequently, these business owners must then absorb the cost of the repairs on their own if the commercial property insurance policy they purchased does not cover damage caused by wear and tear of the roof. Whether you are the building owner or a tenant, routinely inspect your business, and if you discover something in need of repair, don’t hesitate to fix it. You will likely find that the repair cost is a small fraction of the cost you may incur if a water damage claim is not insurable under your commercial property insurance policy.

Below are a few best practices of commercial property insurance policyholders:

1. Carefully choose commercial property insurance policy that best fits your business operations. Be sure to consider the inherent and not so inherent risks associated with it
2. Adhere to a schedule of routine inspections for cleanliness or possible repairs
3. Upon discovery of any issues, incur the cost and do not delay action
4. Do not let a property loss be the only opportunity you have to learn the nature and scope of your commercial property insurance policy
5. Contact your agent if there is a property insurance coverage you do not currently have but would need to resume operations in the event of a loss

Stephanie Connon is the General Counsel, VP of Claim Operations and Assistant Secretary 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.

Helping you and your customers understand the confusing world of insurance!

Insurance companies seem to have their own language. Knowing what coverage to buy and how much of it you need is a mystery to most business owners. Insurance is not as confusing as most insurance companies make it out to be, and I’m here to help you understand it! Here is the simplified version of what coverages are typically offered and why you might need them.

Business owners need to protect their property. If you own the building that your business occupies, property insurance provides a wide range of coverage for the building, furniture, fixtures, machinery and equipment, stock, and all other business personal property owned by you and used in your business.  Losses from fire, severe weather (including windstorms and lightening), theft and vandalism, water damage, explosion, along with many other perils, are typically covered under a commercial property insurance policy.

If you are a business owner that does not own the building you occupy, a commercial property policy will also provide you coverage for your contents that includes furniture, fixtures, machinery and equipment and stock. You can also purchase insurance for the improvements that you have made inside the building that you won’t be able to take with you when you leave the property but still want to be covered if a loss occurs.

Insurance policies offer you the option of insuring your building and/or contents for one of two options: Actual Cash Value or Replacement Cost.

So which one do you select?  Is there a better option? 

Actual Cash Value is what is used to determine how much the insurance company will pay you for the value of the loss or damaged property. It is the value of your building or contents based on the cost to replace or repair them, minus depreciation.  Actual Cash Value is typically the cost that the property could be sold for, which is always less than what it would cost to replace it.

Replacement Cost is the actual cost to replace an item or structure at its pre-loss condition, without any deduction for depreciation.

You still may be wondering which one is better. Well that depends on your individual business plan and how much you want to spend on insurance. Regardless of the valuation option that you select (Actual Cash Value or Replacement Cost), you will never get paid more than the limit of insurance you purchase on your policy. It will cost more for you to insure your property at Replacement Cost because you will need to purchase insurance for the value that it will cost to actually replace the property. There are cost estimators that are specifically made available to insurance companies/agents that help determine the “right” amount of insurance to buy for Replacement Cost.

If you choose the Actual Cash Value option, you need to purchase enough insurance for the cost to repair or replace the damaged property after the deduction for depreciation. This amount of coverage is less than the Replacement Cost option, so the insurance premium will be less. But remember, if there is a loss, you will have to pay the difference out of pocket for the cost to replace or repair the property at today’s prices (since the insurance company will pay you a reduced amount due to the depreciation deduction).

Are you going to rebuild after a loss? Another important factor to consider in determining how you want to insure your property is if you are going to rebuild or replace the damaged property after a loss. Replacement Cost policies will only pay the Replacement Cost if you indeed replace or rebuild after a loss. If you decide you don’t wish to continue your business operation, then the policy will pay you the Actual Cash Value. It will not pay out Replacement Cost if no replacement is being made!

What about flood? Most commercial property policies exclude coverage for flood. So if you live in an area where flooding is prevalent, you will need to purchase a separate flood policy. You can purchase flood insurance from the National Flood Insurance Program that is managed by the Federal Insurance and Mitigation Administration (FIMA). Some individual insurance companies offer flood insurance as well, but it is best to discuss your options with your insurance agent.

Equipment breakdown is another “typical” insurance coverage that business owners should purchase. Many commercial property policies automatically include this coverage. Every business owner has some sort of equipment they need to run their operation, no matter how small the business is. Equipment breakdown provides coverage for air conditioning units, boilers, communication systems, computers, electrical equipment, freezers, P.O.S. registers, security systems, walk-in refrigerators, and almost anything electrical. This coverage protects the business against any equipment repairs or replacement expenses, labor costs, and other expenses to get back in business as a result of a covered loss. State mandated boiler inspections are also included with the purchase of this coverage… Think of it as an added benefit!

Although there are many more property coverages that business owners can purchase, the ones listed above are the “typical” ones you’ll need if you are a business owner.

If you found this article helpful then be sure to stay tuned for future Insurance Made Simplearticles:

Part II – Business Income Insurance – ah the mystery of it all!

Part III – Comprehensive General Liability Coverage – how to protect the company’s assets

Part IV – Liquor Liability – who needs and why the CGL policy is not providing coverage!

Sandra Haley is the Senior Vice President of Underwriting and 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.