“No one wants to anticipate that it’s going to happen to you,” says Pat Darfus of a 1994 fire that destroyed the Lancaster office-and-residential building she and her husband owned.
In fact, it does happen—and more often than you may think. Between 1992 and 1996, fire struck an average of 1,400 businesses per year in Ohio, according to the State Fire Marshal’s Office. Those fires caused an average annual dollar loss of $16.5 million.
Almost equally shocking is the lack of adequate insurance coverage many business owners carry.
John W. Koetz, principal of W.E. Davis Insurance Agency on Columbus’ South Side, says communication is the key to getting the right coverage.
“In commercial insurance, it is not uncommon to have annual reviews,” says Koetz, a former president of the Ohio Professional Insurance Agents Association.
“Especially for a business that’s growing or changing, they need to look at it at least every 12 months.”
Koetz, who has been in the insurance business for 22 years, and Ralph Guarasci, president of Insurance Agencies of Ohio, offer this advice:
- Check your replacement coverage. Most replacement policies bring a building back to its condition before the fire. If building codes change, however, those upgrades won’t be covered unless you have additional coverage called ordinance or law coverage or building law safeguards. “We really consider it when buildings are built in the ‘60s, or even ‘70s and prior. But you could have a building that’s 5 years old right now that would not meet code,” Koetz says.
- Review your property coverage. Fire loss, for example, requires removal of debris. Some policies aren’t written in sufficient amounts to cover this cost. In addition, many insurance companies include a coinsurance clause on property policies, which pays a percentage of the total policy for a partial loss. If you are underinsuring your business to get lower rates, you may not be adequately covered for even a small loss.
- Verify if you have business income coverage. For small businesses, an owner’s policy automatically covers this, but larger or more specialized businesses need special commercial packages. Although formulas can be complicated for determining such coverage, Koetz suggests owners estimate what their monthly lost profits and continuing expenses would be in the event of a fire. (Be sure to include payroll if you don’t want to lay off employees.) Then multiply that figure by 12 to determine what coverage you should have.
- Consider extra expense insurance. This pays for items that will keep the business going while a building is reconstructed. This can be used, for example, to pay for an advertisement telling customers your business will remain open in spite of a fire. Rent replacement coverage also is necessary if you lease space to other tenants in a building.
- Know the time limit on your coverage. Typically, an insurance policy stops paying 30 days after a business reopens, Guarasci says. “However, some people find that their loss continues for two, three, or even six or 12 months after they reopen because it just takes them that long to get their business back to where it was,” he cautions. An extended period of indemnity policy can be purchased for a specified number of days.
- Don’t forget to discuss liability issues in case someone is injured during a fire or other disaster.
