The historic protests responding to the death of George Floyd and calling for racial justice have been accompanied, in some cities, by property damage and looting. The motivations behind the damage may make little difference to business owners already dealing with losses due to pandemic-related closures. Fortunately, insurance coverage is usually available for vandalism and theft under standard business property policies, and may pay both to repair the damage and for lost business income. Claims for business income loss may be disputed at the valuation stage due to the pandemic but should be pursued regardless.
Coverage for Property Damage
Property insurance policies cover damage to “insured property,” which usually includes the building itself (or the portion leased by a tenant), fixtures, building glass, attached signs, awnings, and canopies. “Covered property” also usually includes “business personal property” at the location. Business personal property usually includes furniture, machinery and equipment, stock and merchandise, sales samples, and in some cases, the property of others in the business owner’s custody.
Keep in mind that coverage may be available on a policy purchased by someone else, such as a tenant or borrower, if you are an “additional named insured” on that policy.
Causes of loss. Most policies are written to cover the following “causes of loss,” either on an all-risk basis or as specifically listed: “Riot” or “Civil Commotion” including looting; vandalism; broken glass.
What it may pay for. The insurer will usually cover the cost of:
- Clean up, temporary fixes and “preservation” of property, and “extra expense;”
- Repairs to damaged property;
- Replacement of property;
- Fire department service charges; and
- Expenses incurred to assist the insurance company in “adjusting” the loss
Some policies cover inventory separately, and some businesses carry specialty policies (e.g. “jewelers block” or “fine arts” coverage) that have specific requirements and limitations.
Exclusions. There are some rumblings about insurers invoking “vacancy” clauses—a clause that cancels coverage if the business has not been occupied for a certain amount of time—for businesses that were closed down due to the pandemic. On this topic, Washington’s Insurance Commissioner has indicated (correctly) that temporary absence from a business is usually not enough to trigger this exclusion. Similarly, insurers may try to invoke “terrorism” exclusions if the damage appears to have been done by someone with a political agenda. If so, keep in mind that the insurance company will always bear the burden of proving the application of any exclusion, according to its exact wording, and in most cases the vandalism that's been reported on the news won’t meet that standard.
Property coverage is sometimes conditioned upon the insured’s having complied with specific requirements, including having “protective safeguards” like an alarm system or sprinklers. In some instances, coverage has been denied even where the required protective safeguards would not have prevented the loss. Be aware that you may get questions along these lines.
Some businesses reportedly canceled their property insurance policies when they were forced to shut down by the pandemic. Keep in mind that if you stopped paying your premiums, that may not have resulted in the policy being canceled – many state governments ordered insurers to give automatic grace periods for premium payments.
Business Income Loss
Basics of coverage. Vandalism or looting that prevents a business from operating will almost certainly trigger business income coverage. This coverage requires that: (1) there has been physical loss of or damage to property at a covered location by a “covered cause of loss” (discussed above); (2) the damage causes a suspension of operations for a “period of restoration” (the time to repair the damage or replace the inventory).
Additional coverages. In addition, many policies have “additional coverages” that may pay income lost due to things like a governmental order preventing access to a business (such as a curfew) - referred to as “civil authority” coverage; or where access to a business is physically prevented by damage in close proximity to the insured location - referred to as “ingress/egress” coverage. Some policies also provide coverage if another business that you depend on for products (such as a supplier) or to sell your products (e.g. a customer) suffers damage or loss from a covered cause of loss – referred to as “dependent property” coverage.
Calculating loss. Business income coverage generally pays the actual losses sustained by a business for a limited period of time, often twelve months. Additional coverages (civil authority, ingress/egress) may have a shorter time or dollar limit.
Valuation of your business income loss may be more difficult if the business had been closed or operations limited due to the pandemic. For example, many of the restaurants damaged by vandalism were likely closed except for to-go orders. However, insurers should not deny claims for business income loss just because they assume that the business was not actually operational. Disputes about valuation are very common in business income cases. Usually, the insured and the insurer will each hire forensic accountants to study the business’s historic revenues and costs and to examine what plans the insured had for re-opening that may have been hampered by the vandalism. And oftentimes the insurer must pay the cost of the policyholder’s accountant. Bottom line: just because valuation is complicated does not mean that your claim is not a strong one! You can read more about pandemic-related business income claims in our blog posts here and here.
Commercial Automobile Insurance
In addition to a property policy, damage to business vehicles may be covered by automobile policies. Coverage is commonly provided for damage to a vehicle caused by fire, explosion, theft, vandalism, broken glass, and overturn. An automobile policy may provide additional coverage for loss of use expenses and the cost of temporary replacement vehicles.
What to Do Now
Any business that has been damaged, and particularly those that have been looted, should contact their broker or insurer right away to provide notice of a claim, and immediately begin to assemble records supporting the valuation of inventory. Some policies require reporting within a short period of time. Discuss with your broker what other policies may apply to your loss. And be prepared for a barrage of questions during the investigation phase. Be prepared to push back on overly burdensome requests and seek help if you need it. Remember, you paid for your insurance – you are entitled to a fair evaluation of your claim!
