If there’s a silver lining in the deadly wildfires that roared through California’s wine country, it’s that 90 percent of the Sonoma County crop had already been picked before the fires sprang up.
Still, hundreds of vineyards and wineries that dot the rolling hills of the Russian River Valley were forced to close their doors while the fires spread. For those in the path of destruction, that interruption will continue long after the flames are extinguished.
That’s a challenge any owner whose business has been struck by fire – or hurricane, or any kind of natural disaster – can relate to.
These events all illustrate the need for business interruption insurance, which pays for ongoing expenses after a covered property loss.
Also known as business income insurance, BI coverage is typically available as an add-on to property and casualty insurance and is used to replace lost or reduced income or profitability after a covered loss, so your winery – or whatever kind of business you operate – can get back on its feet again.
BI insurance also compensates a business owner for temporary relocation after a natural disaster.
While a company damaged in a fire is likely to temporarily lay-off at least some of its employees, BI insurance also can provide continued paychecks to retain certain employees while the business is shut down.
Having“contingent business interruption” coverage in place also is important, whether you’re making wine or widgets.
Contingent BI kicks in when a disaster hobbles a material or service provider upon whom you rely to carry out your business.
It may also apply if, because of a fire or flooding, roads are closed or utility services interrupted during a critical period of time for your business.
If the disaster and its aftermath cause you to incur extra expenses or to lose profits, you may be entitled to coverage even if your own property wasn’t damaged.
As you might imagine, coverage for business income interruption typically requires some additional accounting. A business owner will need to document carefully higher-than-normal expenses as they continue operations in the wake of the loss, and any loss of profits resulting from the interruption in their business.
But a BI policy with adequate limits will also allow a company to stave off bankruptcy and, when it’s ready, reopen for business.
Speaking of adequate limits, it’s important to avoid simply renewing your policy as a routine matter. Make sure the limits of coverage will allow you to replace damaged property in full. Reconstruction costs always rise with inflation and increasing property values.
New building code and environmental regulations may also increase demolition and reconstruction costs. Unless your property is very new, building code upgrade coverage should be a component of your policy.
Scott Kennedy, president and COO of CCIG, has more than 30 years of insurance and risk management experience.