When you break the science of insurance down to its essence, you’re ultimately looking at a very complex contract between your business and the insurance company.
Within the language that defines your coverage, you will also find exclusions and triggers—and if you aren’t paying close attention, this fine print could be a ticking time bomb.
Insurance companies include coverage triggers in policies they underwrite to specify the type of event that must occur for coverage to apply. This “triggering event” is implemented to help limit the risk exposure that insurance companies face—not what you face.
The following are five common triggering events that our team sees on a regular basis that you should be aware of. In most cases, these triggers result in either extensions or exposures of gaps in coverage that will leave your company vulnerable and unprotected.
Off Premises Power Failure
When power, water or communications are affected by events that happen away from your business location, there can still be consequences that you have to deal with.
For example, overhead power lines are damaged by wildfire. As a consequence, your business loses power and your refrigerated inventory spoils. This causes a business interruption and income loss.
If the actual trigger—off premises power failure—isn’t provided on your policy, the resulting spoilage, business interruption and loss of Income will not be covered.
While most policies offer wind/hail coverage as part of standard language, it is becoming harder to have this coverage included without a separate percentage deductible. In many cases, restaurant owners that operate in multiple states fail to realize damage caused by this peril can be excluded all together.
For example, you have a wind event, however, your policy excludes wind/hail—or has a 5 percent wind/hail deductible. Prior to any consequence to the wind/hail damage, the deductible will apply (which is a percent of either the total property value or the locations property value.) If wind/hail is excluded, then any power loss, interruption, spoilage and income loss will be excluded.
This risk is becoming more and more applicable nationally. While its cost can seem punitive, it can ultimately trigger other damages—that would be excluded absent of this coverage as the trigger.
A good example would be Earthquake Sprinkler Leakage coverage. If your restaurant/hotel is equipped with sprinklers, and an earthquake caused your sprinkler system to engage, any resulting property damage caused by the water—including business income, remediation, repair and replacement of property—would be protected.
If this triggering event is not included in your policy language, the trigger and resulting damages would be excluded. Luckily, this coverage can usually be added at a fairly low cost
Sewer and Drain Back Up
Most restaurants deal with this exposure on a regular basis, however, limits tend to be very low. If your coverage doesn’t address or excludes this peril, then any resulting damage and loss of income would be excluded.
For example, your drains in the kitchen back up and cause damage to the carpet, walk in, tile, and any other flooring, mold, etc. If you don’t have this trigger included, your claim would be denied.
Restaurant and hotel owners sometimes don’t realize that they have this exposure. It’s important to know that cleaning supplies, like grease, chlorine and similar products can be—and in most cases are—considered a pollutant.
If you don’t carry pollution liability, then any claim brought against you from a municipality, neighboring business or third-party would be excluded, which could be financially devastating to your business.
In addition, some policies provide limited pollution cleanup or (first-party) coverage, which covers a portion of your costs to clean up the damage, however, absent of a pollution liability policy, any third- party claim brought against you would be excluded.
Wait, There’s More
These are just five examples of what our team sees when we conduct review and audit for prospective clients in our program. There are a multitude of others that we uncover and by taking a very meticulous look at coverage versus exposure, we can usually eliminate most of the gaps in coverage at a reasonable cost, and in some cases no additional premium.
Risk is something that everyone has a tolerance for, and some clients take on more than others.
If you have questions about your own policy or anything pertaining to this article, please contact me. I’m eager to continue the discussion.