As businesses in England begin to seek insurance coverage for revenue lost as a result of recent rioting, business owners and executives elsewhere might wonder how their business interruption coverage would respond to a sudden outbreak of a riot.
Most admitted insurance companies do offer business interruption coverage built into their commercial property policies that would respond to riot-related losses. Beyond income lost as a result of direct property damage, commercial property insurance also covers income lost due to restricted access to the property. In some cases, the coverage will pay employee wages in the event of a business interruption.
Separate insurance also is available for lost income due to utility service disruptions—primarily heating, cooling and electricity—and for losses by businesses that depend on the public’s access to a nearby attraction, such as a stadium. But the parameters of coverage can vary depending on geography, industry and other factors.
Claims for lost income due to restricted access tend to be the most problematic because policies contain specific, often confusing criteria for qualified claims, including provisions regarding the duration of loss, proximity to the affected area and nature of restricted access, experts say.
For example, losses are typically not covered if the company was barred from its premises for less than 24 hours. Insurers also usually impose a limit on how far a claimant’s property can be from the restricted zone for there to be coverage. The policyholder also needs to show that the government’s closure of an area precluded access to their property.
Since most policies cover only complete inaccessibility, firms with facilities indirectly affected or companies with the ability to conduct business remotely, may not be able to claim business interruption losses.
The nature of a government-ordered blockade or evacuation also can be significant in determining the validity of the claim. Insurance companies often limit coverage to cases in which access is prohibited due to an immediate threat to people or property, but restrictions designed to protect a certain area from possible harm would likely be excluded, even if they occur within a policy’s proximity allowance.
Businesses with multiple locations in affected areas could be subject to separate deductibles if the insurer deems the losses separate occurrence. Additionally, many mid-market companies tend to lump multiple locations together on a policy, not specifically naming them, which could become problematic if such unnamed locations are hit.
In addition to having a detailed knowledge of their local risks you, as a business owner should stay on the top of the risks posed to the entities on which your company depends for both supplies and patronage.
Contingent business interruption coverage is available for companies worried that a disaster, whether natural or man-made, could render a key supplier or receiver incapable of conducting business. However, those policies carry many of the same restrictions as basic business interruption coverage, along with several limitations specific to the entities to be insured. Most insurers require companies to name the entities targeted in the coverage in advance and generally cover only “first-tier” suppliers and receivers.