Are you covered?

In the current economic climate, no-one can afford an extended and unplanned period of downtime. Are you sure that your insurance covers everything it should?

Business Interruption insurance protects a business when damage from an insured event causes downtime. This usually isn’t a problem, because business interruption losses are covered in terms of the assets policy if there is damage to the insured property.

However, a business interruption loss can also arise from damage or destruction to property at locations that do not belong to the insured. These may even be located far away from the insured’s premises.

“An example is where a fire occurs at the premises of a major customer or supplier which could have a devastating impact on your business,” says Garth Rowe, principal claims officer at Aon South Africa. “Damage occurring at premises in the vicinity of your business also has the potential to prevent or hinder access to your premises – and that could negatively impact your business operations.”

It is for this reason that Business Interruption insurance can extend to include cover for business interruption losses following loss or damage that has occurred at other specified locations.

“This extended cover is applicable,” he notes, “when the damage that occurred at an external location is of such a nature that it would have been covered under the assets policy of your business as if such damage had occurred at your own premises. Not only is it necessary to consider what risks need to be insured in the event of damage occurring elsewhere, but it’s also important to consider what the appropriate limits of indemnity should be, depending on the availability and extent of cover required.”

An example of a claim is a business interruption loss suffered by an insured whose premises needed to be evacuated after a fire that occurred at the adjacent premises belonging to a hazardous-waste disposal company. The toxic smoke and emissions from the neighbouring premises made employees ill, necessitating a complete evacuation of the insured’s manufacturing plant until it was safe to resume operations.

“This example highlights the challenges that could arise from an insurance claim point of view,” Rowe says. “In the absence of any evidence to prove that there was physical damage to the insured’s own property, the insured would need to rely upon the prevention of access extension, which usually provides cover for business interruption in consequence of damage to property located within, for example, a 10 km radius of the insured’s premises.”

In this instance, the fire that occurred at the adjacent premises would trigger the extended premises extension under the business interruption cover.

“Business Interruption cover and all its intricate options,” he notes, “make for a discussion that should be undertaken with a broker who is able to provide qualified advice.”