6. War Clauses
Many insurance policies have a war clause, under which losses caused as a result of acts of war are excluded from coverage. The term "war" is defined in different ways, depending on the policy. Barron Wall explains that The Businessowners Special Property Coverage Form (BP 00 02 01 97) and the Causes of Loss (Special) Form (CP 10 30 06 95), which are both published by the Insurance Services Office, Inc., (ISO) are adopted by many insurance carriers, and have similarly worded definitions of "war." "War," according to the language used by ISO in these policy forms, would include "undeclared or civil war" and "warlike action by a military force," says Wall.
A war exclusion is a staple in most property insurance policies, Wall says. But some policyholders get their insurers to include a "terrorism" exception to the "war" exclusion. This kind of exclusion might be worded something like this: ' This insurance shall insure loss or damage caused by acts of an agent of any government, party, or faction engaged in war, hostilities, or warlike operations, provided such agent or faction or government is acting secretly and not in connection with any overt operation of armed forces (whether military, naval, or air forces) in the country where the property is situated.' Make sure you take a close look at your own policy to see if this kind of language is included.
7. Business Interruption Insurance
Business interruption insurance (BII) is very common--and very commonly misunderstood. In short, standard BII is designed to cover the loss of income incurred if normal business operations are disrupted or halted by damage to property. Rodman explains it this way: "Business interruption insurance is designed to cover actual loss of income due to loss of physical property. It is designed for those situations where the loss at the site directly triggers a loss of income to the business." In other words, if your business' location is critical to your ability to produce revenue, then business interruption insurance is key. Businesses most affected by this kind of loss include manufacturing, wholesale, and retail businesses. Business less affected would include many service businesses--those companies that would experience little loss of income due to facility damage.
There are many types of contingencies and clauses that can be included in BII. Many businesses affected by the WTC attacks, for example, suffered so-called "business income" losses. This could include losses from interruption of utility services, from the inability of customers or vendors to reach you, or because a critical supplier or customer has suffered significant damage. Are these losses covered? It depends. "Many business owners may not realize that a policy covering property damage loss ("direct loss") will not cover a business income loss ("indirect or consequential loss") unless the policy is specifically endorsed to provide this coverage," explains Wall. "Similarly, coverage for the other types of losses... is also generally not automatic but has to be negotiated and bought, sometimes at an additional premium cost."
Walls says that a few of these other types of losses include:
- "Contingent Business Interruption" coverage -- losses suffered from loss/damage to property that prevents a supplier from supplying goods and/or services to you, or that prevents customers from accepting goods and/or services from you. "For example, businesses that sold mementos to WTC visitors, barber shops and delis that served the 50,000 people who worked at the WTC, all would lose a significant portion of their revenues and profits from the wiping out of the WTC," says Wall.
- "Services Interruption/Off Premises Power" coverage -- losses suffered from loss/damage to the property of any service provider including electrical equipment & systems, fuel, water, gas, feedstock, pulp, liquid gases, sewage, steam, telephone, fiber optic cable, telecommunications, heating, refrigeration and/or air conditioning systems, or utility plants. For example, "this could include spoiled food at restaurants and supermarkets from interruption of power, telemarketers unable to communicate because of the disruption of the phone lines," says Wall.
- "Interruption by Civil or Military Authority" coverage: losses suffered when, as a result of loss, damage, or other event, access to your property is restricted by order or action of civil or military authority. "This would include loss suffered by residents and businesses abutting the WTC area where access was prevented for a week or more by the FBI and New York City Police."
- "Ingress/Egress" coverage -- losses suffered when, as a result of loss, damage or other event, entry to or exit from your property is impaired. This can include hotel and motel room cancellations, or the cancellation of Broadway shows due to of the closure of the bridges, tunnels and airports that people need to reach New York City.
8. Extra Expense Insurance
Another thing that basic business interruption insurance does not cover are the additional expenses--those beyond actual loss of income--that you may incur if you have to move your business as a result of property damage. For example, if your office burns down, you may need to rent substitute space (perhaps at a greater cost), buy or rent computer & other business equipment, install phone lines, set up security measures, etc. These kinds of expenses generally fall under "extra expense insurance." Frequently, business interruption insurance and extra expense insurance are rolled into one, and called something like, "business income extra expense." Be sure to ask your agent or broker if both are specifically included in your policy, and how much coverage of each your business needs.
