In this article, AdvisorSmith examines the implications for business owners who may be facing losses, property damage, or interruption of their businesses. We highlight the types of insurance coverage for these damages and the types of claims which may be covered by business insurance policies. We also answer common questions that business owners may have regarding damage and losses caused by protests and riots.
Does business insurance cover property damage or losses from riots, looting, or vandalism?
Yes. Almost all commercial property insurance policies provide coverage for riots, civil commotion, looting, and vandalism damage to a covered business location.
Damage or destruction of company-owned vehicles in the event of riot or vandalism are covered if a business has comprehensive coverage under a commercial auto insurance policy.
Additionally, if a business carries business income insurance (also known as business interruption insurance), a loss of income as a result of damage to a business property will be covered.
Many small businesses may have a business owner’s policy (BOP) that bundles together liability, property, and business income coverage into a single policy. If the BOP includes property coverage, then the business will also be covered in the event of damage from a riot or civil commotion.
Commercial Property Coverage for Riots, Looting, and Vandalism
Commercial property insurance is an optional form of insurance that businesses can purchase to protect their place of business and the property stored on business premises. Almost all commercial property insurance policies provide protection for riot, civil commotion, looting, and vandalism.
These policies offer coverage under a named perils basis, where specific forms of loss are explicitly covered, or an open perils basis, where all forms of loss other than those explicitly excluded are covered. Under both named perils and open perils policies, losses due to riot, civil commotion, vandalism, and looting are all covered.
Physical damage to buildings, such as spray paint, fire, and water damage, is generally covered. Broken glass windows are also covered by most policies, but some may exclude coverage for plate glass windows without an endorsement or payment of extra premiums.
Example:
- A barbershop is vandalized and set on fire during a riot. Commercial property insurance would pay for the cost to repair or rebuild the barbershop as well as the cost to repurchase the equipment and supplies in the barbershop.
Damage to business property, such as furniture, displays, or equipment, is also covered. In the event of looting, merchandise or equipment stolen from a business will also be covered.
Example:
- An electronics store has its windows broken into and merchandise looted during a civil commotion. The store carries commercial property insurance, so the cost of the windows and stolen property is reimbursed by the insurance company.
All losses under a commercial property policy are subject to the coverage limits under the policy. When a business purchases a commercial property policy, they inform the insurance company about the dollar value of the property that they wish to protect. If the value of the business’s property exceeds the coverage limit, the amount that the business can recover from insurance may be reduced.
Losses for commercial property policies are usually subject to a deductible, which means that the business is responsible for a portion of the loss. Deductibles vary by industry, but common deductibles for small businesses for commercial property insurance may range from $1,000 to $10,000.
Do I need to use force to protect my business for insurance purposes?
No. Commercial property insurance policies do not require business owners to use force to defend or protect their business property. Insurance will cover losses from riots, vandalism, looting, or civil commotion even if a business owner does not use force to physically defend their property.
Business owners who are facing the threat of property damage may take common-sense precautions such as locking doors and boarding up windows to protect property.
Does business insurance cover loss of income due to riots, looting, or vandalism?
Business income insurance, or business interruption insurance, can cover a business for the loss of income when physical damage from riots, looting, or vandalism prevents the business from operating as usual. Businesses that have purchased this insurance will be covered if their physical property has been damaged by a riot, civil commotion, or vandalism to an extent that the business is unable to operate.
This insurance policy will pay a business for the profits (net income) the business would have earned and the continuing operating expenses, such as rent, employee salaries, utilities, and other expenses, that the business needs to pay until the business premises can be restored and the business can reopen.
Example:
- A bakery is completely destroyed by rioters. The bakery is full of specialized equipment, such as industrial baking ovens and mixers, which are all destroyed. In order to reopen, the bakery needs to replace the specialized equipment, which will take at least six weeks. During this downtime, business income insurance will pay the bakery for its lost profits and employee salaries.
Most business income policies also include civil authority coverage, which means that if a business is declared off-limits by civil authorities, such as a city government, due to property destruction nearby from riots, then the business can also be compensated for lost income. This coverage may also be relevant for businesses that are open at night, such as restaurants or bars, and are affected by curfews for curbing rioting which force a business to close. Typically, civil authority coverage is limited to two to four weeks, but this can be extended by paying an additional premium at the time a business purchases coverage.
Business income coverages almost always have a waiting period of 24-72 hours, which serves as a “time deductible.” During the first 24-72 hours after damage from a riot, vandalism, or civil commotion occurs, insurance will not cover any losses in income during this time period. Once the 24-72 hour period has expired, then losses will begin to be covered.
Most business income insurance policies also include coverage for extra expenses. These are expenses that a business pays to reopen the business more quickly and can include expenses such as repairing damages, moving costs, additional rent, or buying equipment for a temporary or alternate location.
How do coronavirus shelter-in-place policies impact business income insurance during the riots?
Normally, to determine the amount of lost income in the event of a claim, an insurance company may use information such as the business’s profits in the previous month or profits in the previous year for seasonal businesses. Many insurers will use a 12-month period to determine the business’s income in order to determine the lost income for a claim.
Since many retail and storefront businesses are currently closed due to orders from local governments regarding coronavirus, it is possible that some insurance companies may take the position that a business’s lost income has been reduced due to the coronavirus pandemic, reducing the amount that they will pay for lost income. For businesses that are preparing to reopen but are forced to close due to the physical damage from a riot or vandalism, lost income may be calculated starting from the planned reopening date. However, we expect that disputes between policyholders and insurance companies about the correct amount of lost income may ultimately end up being litigated in the courts.
Business income insurance also pays for continuing operating expenses, such as rent, utilities, and employee salaries, in the event of riot damage that forces a business to close. We expect that insurance companies would be more likely to pay for these expenses in the event that a business that is closed for coronavirus-related reasons is destroyed by a riot. However, the ultimate outcome of these claims will likely be decided in the courts.
Are commercial vehicles covered from riots, looting, or vandalism?
Commercial auto insurance with comprehensive coverage can protect company-owned vehicles when they are damaged or destroyed during a riot or civil commotion. Some of the types of destruction that are covered under these policies include vehicles being set on fire, glass breakage, body damage, and any other physical damage from riots.
Comprehensive auto insurance coverage takes into account depreciation, so the amount that the business will be reimbursed in the event of a total loss is approximately the market value of the vehicle if it were to be sold as a used vehicle. Comprehensive coverage will not pay for the full cost of a new vehicle.
Do business owner’s policies (BOP) cover riots, looting, or vandalism?
Business owner’s policies, which combine general liability, commercial property, and optional business income insurance into a single policy also provide coverage for losses from riots, civil commotion, and vandalism.
If my business was damaged, destroyed, or looted, what should I do?
Business owners who have damage to their property should take a number of steps in order to facilitate their insurance claims.
- Once it is safe to do so, contact local law enforcement to file a police report.
- Contact your insurance agent, broker, or insurance company to inform them that a loss has occurred. The agent or insurance company will inform you about additional paperwork and forms you’ll need to complete in order to initiate your claim.
- When it is safe to do so, take reasonable steps to prevent further damage to property, such as boarding up broken windows to protect undamaged property from wind or rain.
- Take photographs and written notes on damage that has occurred and merchandise that has been stolen. Provide records to the insurance company about the value of furniture, displays, and building improvements, in addition to sales and payroll records so your insurer can determine the value of the loss.
- Keep detailed records of any temporary or emergency expenses you incur to restart operations, such as renting a temporary space, costs to remove debris, or buying temporary equipment.
