In early August, on one particular Wednesday, thunderstorms raged through southeast Michigan for hours – I remember well because our 1.5-year-old was awoken by every loud rumble of thunder – leaving more than 900,000 DTE Energy customers without power, according to the Detroit Free Press. Many of those customers went days without electricity in their homes.
While homeowners suffered through restless nights with high humidity, business owners, already reeling from the COVID-19 pandemic, had to shutter their doors. Restaurants threw out food in storage, turned down carryout orders, and closed their dining rooms. Retail businesses couldn’t sell merchandise. Salons and therapy locations couldn’t service clients, and on and on.
A restaurant client of mine estimated they lost around $12,000 of in-person dining and drinks, plus another $2,000 in carryout orders over the four days they were without power. Their big question was the same many businesses were asking: “Are we covered?”
In many cases, no, but we will get to that soon. First, let’s run through a quick overview of business income interruption insurance.
Imagine a fire tears through a building, a thunderstorm sends a tree falling onto the roof, or a driver plows through your front window. A business could have to close its doors for weeks at a time, potentially months as it is rebuilt. Property coverage, which we discussed in a previous article, would make the business whole, but in the time of rebuilding, a business loses incoming revenue. With business income interruption insurance, your lost revenue is covered.
Additional coverages could include:
- Mortgage, rent and lease payments to a landlord
- Loan payments to a bank or financial institution
- Payroll for your employees
- Relocation costs if you must move to a temporary location
There is generally a 48- to 72-hour waiting period before your policy kicks in, but for prolonged closures, you can rest easier knowing you can pay employees, rent, and even temporarily set up a new shop elsewhere.
Premiums vary based on several factors, including your gross revenue – for instance if your business makes $1,000,000 per year, you could be compensated $80,000 per month that your location is closed for repairs; the coverage does not include voluntary closure (for remodeling, new equipment installation, training days, etc.)
Like most insurance policies, there are exclusions. Viruses, such as COVID-19, are typically one. Most relevant to this article, another common exclusion is listed as “Utility Services.” When I was called recently by that restaurant client, the general manager asked, “Are we covered for a power outage?” The answer was yes as we had the foresight to add an endorsement to their policy for a mere few hundred dollars extra.
That endorsement allowed them to restock their freezer, covered wages for 14 employees, and offered a lump deposit for lost revenue during the few days they couldn’t operate. In today’s pandemic-impacted world, to recoup the money they lost – especially since it dragged into the weekend during the summer peak season for a Michigan-based restaurant – this client was able to sleep at night (though still not comfortably, they didn’t have AC after all!)
“Utility Service Interruption” coverage is a subset of business income interruption and takes care of your business in situations such as the power lines supplying your electricity are downed by a storm. It could also cover your business’ water supply if the regional water station is not operating, or it can provide coverage for cable utility lines and telecommunications; in a policy you must specify what utilities you rely on.
While your goal as an owner is often to reduce expenses, Michigan weather patterns this summer have demonstrated “utility service interruption” insurance is not a luxury endorsement, nor is broader business income interruption insurance. In previous insurance articles, I wrote the key to any successful business – and the importance of truly trusting your agent to look out for your best interests – is to make sure your operation is covered comprehensively.
Thunderstorms, tornadoes, excessive heat, ice storms, heavy snowfalls … extreme weather is not going away. When one of these disasters strikes and you ask your agent “Are we covered for that?” you want the answer to be a resounding “YES!”