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If you know Arizona, you know that Hickman’s Family Farms in Arlington isn’t just a favorite for farm-fresh eggs. Family-owned and operated, it’s one of the largest egg companies in the U.S.
Fire struck the Hickman’s operation on March 6, leveling two barns and killing 165,000 hens. Thankfully, no one died, although one employee was hospitalized.
The losses suffered in the fire will no doubt be covered by the company’s Property insurance policy, which will help pay to rebuild the buildings and equipment lost in the blaze.
But as insurance people, we hope Hickman’s Family Farms also had Business Interruption insurance in place – coverage that many businesses skip.
Business Interruption is designed to help business owners replace lost or reduced income after a covered loss, helping you get your company – whether it’s a construction company, a winery or an egg business – back on its feet.
Business Interruption also helps pay rent and utility expenses as well as the costs of a temporary relocation after disaster strikes, whether man-made or natural.
And Business Interruption insurance can provide continued paychecks so that you can retain certain employees while the business is shut down.
Contingent Business Interruption
A related line of coverage, known as Contingent Business Interruption, also is important to consider.
Contingent Business Interruption kicks in when any company you rely on to carry out your business is forced to temporarily scale back or close its doors due to a fire or some other disaster.
Contingent Business Interruption also can help if, after a wildfire or flooding, the authorities in your area close roads or when utility services are interrupted during a critical period of time for your business.
Moreover, if the disaster and its aftermath cause you to incur extra expenses or to lose profits, you may be entitled to coverage even if your own property wasn’t damaged.
In buying either Business Interruption or Contingent Business Interruption, be sure your policy limits are adequate to help you endure the weeks, if not months, of interruption a fire or any disaster can cause.
Speaking of adequate limits, don’t set your policy renewals on auto-pilot. Make sure the limits of coverage will allow you to replace damaged property in full. Reconstruction costs always rise as property values climb.
A good rule of thumb is to use a business’s gross earnings and projections to estimate future profits and determine the right amount of coverage. Remember, if business income (interruption) costs exceed the coverage limit you choose, you will have to pay out of pocket for any extra expenses.
Here are a few other things you may want to consider in deciding how much Business Interruption coverage you’ll want:
- If you rent your office space, how well protected is the building? Are the fire alarms and sprinkler systems in the building up-to-date and functional?
- Is comparable commercial space readily available in your area, or would it take weeks to find a suitable temporary location?
- New building code and environmental regulations may increase demolition and reconstruction costs. Unless yours is a new building, Building Code Upgrade coverage should be a component of your policy.
We all suffer from “it-won’t-happen-to-me” syndrome. But two in five businesses suffer some kind of interruption loss at some point in their lives.
The owners of Hickman’s Family Farms will rebuild, of that there’s no doubt. But if there’s a lesson to be learned, it’s that one of the best tools to address the sort of crisis the Hickman family faced is a Business Interruption policy.
The Mahoney Group, based in Mesa, Ariz., is one of the largest independent insurance and employee benefits brokerages in the nation. As an employee-owned organization, we’ve been protecting what’s yours since 1915. Contact us at email@example.com or 480-730-4920.
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.