Costly Storm Damage: Legally Bracing Your Business for Natural Disasters

by Savannah on June 22, 2013

Summer is the traditional season for severe weather in some areas, and severe weather is synonymous with natural disasters. However, that has not necessarily been the case in recent history. Hurricane Sandy was clearly a weather anomaly that caught many business owners by surprise, as hurricane insurance coverage is not something often considered necessary on the northeast coast of the United States. Most businesses carry traditional business insurance for property damage and liability, but many business operators do not consider the necessity of business interruption insurance. This protection may be even more important than insurance protection covering property and inventory. There are a few simple considerations to reassessment of insurance needs.

Standard Commercial Insurance

Many businesses carry a minimal amount of commercial insurance because of cost effectiveness when it is not needed. In the event of a crisis, extra coverage can be invaluable. The level of insurance coverage should be commensurate with the size of the business. This can also include the sales volume as well as physical property. Most businesses will customize their insurance protection with respect to property coverage, liability, and workers compensation. However, this will not adequately cover all situations.

Flood Insurance 

Flood insurance is not normally provided in a standard commercial insurance policy. Quotes for standard commercial insurance are primarily property and liability. Any business that may experience a flooding problem will need a policy rider, which will initiate a flood rating based on location and weather possibilities. Some business locations have a much larger probability of natural disaster than others and create more flooding situations. Always make sure flood coverage is at least considered and evaluated with commercial insurance.

Business Interruption Insurance

The primary reason businesses operate is income generation through cash flow volume. Generally, with stabilized variables, businesses with growing volumes have growing income margins. When a business experiences natural disaster damage, protecting against the interruption of that cash flow is crucial to business recovery. Many entrepreneurs are not aware that this coverage can be purchased, but it is a very important component to any successful long-term business plan with considerable cash flows to protect. This can be problematic for newer businesses with no experience in business losses. Always remember that most successful businesses actually take about five years for full profitability, and that’s a good gauge for an initial business plan. Being able to file business interruption insurance claims to recover lost time and revenue can be crucial.

Evaluating Necessary Business Interruption Protection

There are various levels of coverage in this custom area of business insurance. Basic coverage provides recovery for lost sales volume and profit margins. Additional coverage can also be included that allows for maintaining payrolls and operating expenses while the business is being rebuilt. Also, extended coverage can be included and is especially important for protecting against major damage which takes a long-term repair solution. It is very important to accurately assess annual company growth when deciding on business interruption insurance coverage because business growth is lost income just as well.

Business interruption insurance is an excellent commercial example of protection that is better to have and not need than to need and not have. It is not lost volume. It is added protection in the event of a natural disaster, and with contemporary weather patterns, this is a serious and valid concern for any business operator who plans to stay in business for the long haul. And, all successful businesses stem from successful long-term business plans.

Savannah Bobo is a blog contributor and freelance writer from northwest GA who has experience in both working for a small business and weathering Georgia floods and tornadoes. Attorneys at Doyle Raizner have experience helping establishments with business interruption insurance claims after they have experienced revenue loss from disasters such as fires, storms, and oil spills.

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