When Natural Disasters Impact Your Staffing Clients
Importance of Property and Contingent Business Income Insurance
Talk about unfortunate circumstances. The recent spate of natural disasters including hurricanes and earthquakes should serve as a reminder to all staffing firms to take a closer look at their property insurance coverage. This coverage may not normally be top of mind given many firms don’t own the buildings they occupy, and beyond office supplies and electronics, generally don’t have much personal property. The relatively low dollar amounts of property in comparison to other types of businesses combined with the fact that a staffing firm’s temporary workforce largely operates away from their premises can result in a false sense of security regarding exposure to property loss.
Property insurance coverage is driven primarily by two factors – the type of covered property and the covered cause of loss.
The main types of covered property are Building coverage, Business Personal Property coverage and resultant loss of Business Income plus Extra Expenses. Building and Business Personal Property coverages are relatively straightforward – Building coverage is for buildings and structures (including permanent fixtures) and Business Personal Property coverage applies to the property located within the building or structure. Business Income & Extra Expense coverage is a bit more complex; it covers the resultant loss of net income and continued normal operating expenses, plus the necessary expenses incurred to continue operations while your normal premises is damaged, provided the loss results from a covered direct physical loss to your premises.
Cause of Loss
Most property policies are written on special form, meaning all causes of direct physical loss are covered unless explicitly excluded or limited. Some standard property exclusions are:
- Ordinance or law – the cost of compliance with any ordinance or law regulating the construction, use or repair of any property, or requiring the tear down of any property
- Earth movement – earthquake, landslide, mine subsidence, earth sinking (other than sinkhole collapse) or volcanic eruption
- Utility services – failure of power, communication, water or other utility services
- Water – flood, surface water, waves, tides, tidal water, overflow of any body of water (whether or not driven by wind, including storm surge), mudslide or mudflow, backup of sewer or drain, underground water or waterborne material carried or otherwise moved by water
- Fungus, wet rot, dry rot and bacteria
A quick glance through the above list exposes that much of the damage caused by the recent natural disasters would be excluded under a typical property policy. Depending on the carrier, baseline limits may be included in coverage as part of a package of coverage enhancements, which may not be sufficient in the event of a loss. To obtain adequate coverage, increased limits would need to be specifically scheduled and purchased, and in some cases, may only be obtained through a separate policy, depending on the location of the premises and the coverage desired.
Contingent Business Income Loss
For staffing firms, natural disasters can compound the damage incurred if client locations are affected. While a staffing firm may be able to sustain operations if their corporate location is damaged or inaccessible, revenue can be significantly reduced by an interruption in operations at one or more client locations; however, Business Income & Extra Expense coverage only applies when the staffing firm’s own premises are damaged by a covered cause of loss. To cover a loss of net income from damage to a client location, Contingent or Dependent Business Income & Extra Expense coverage is needed.
Further, while a staffing firm’s property policy may include a coverage extension for utility services interruption or water damage, that coverage is most likely restricted to damages that take place at their location only, or locations specifically scheduled on the policy, even if they do have contingent Business Income & Extra Expense coverage. To truly be prepared for a nature disaster, staffing firms may need to purchase extensions of these coverages to contingent or dependent properties, or consider specifically scheduling larger client locations under their policies to ensure a large loss in income would be covered.
For more information on these extensions, contact a member of the ‘A’ Team today.
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