PRINT THIS STORY:

CHANGE TEXT SIZE:

LANDLORDS LEARN IT PAYS TO CHECK INSURANCE POLICY SMALL PRINT

Some retailers weathered the four Florida hurricanes without a scratch last year, yet they still suffered millions of dollars in uncompensated losses and were powerless to do anything about it — literally.

Standard business insurance policies, many discovered, usually don’t cover power outages at local utilities.

And because hurricanes Charley, Ivan, Frances and Jeanne knocked out electricity in big sections of various Florida and Alabama cities for days and even weeks at a time, “some retailers simply couldn’t survive, because they couldn’t claim their losses from all that down time,” said Don Griffin, vice president of commercial insurance for The Property Casualty Insurers Association of America.

The solution: Get “business interruption” coverage, say insurers.

Fearing a repeat hurricane performance this year, retailers are scrambling for more protection and asking more questions about the fine print in their policies. “We’re seeing a dramatic interest in buying some kind of interruption coverage that includes power outages,” Griffin said.

Business-interruption coverage is designed to protect prospective earnings — basically, to compensate the business for what commerce would have been done if an interruption had not occurred. Such coverage is sold as an add-on to property insurance policies or can be included in the business owner’s policy package.

But owners should confer with their insurers to make sure their policies cover power failure, as much from a storm’s broader causes as from a direct hit, says Griffin.

There is still usually a deductible period of 12 to 36 hours under most power-loss contingencies. “And that can be very important, especially if you’re a frozen-food operation,” Griffin said. A lot of companies that sell frozen foods or refrigerated wares are also investing in more back-up systems and temporary generators in preparation for the 2005 storm season, he adds.

Trey Hutt, a property-casualty insurance broker in Panama City, Fla., notes that some individual Florida drugstores had as much as $300,000 worth of perishable inventory which “just had to be thrown away” after the catastrophes.

Mainstream retailers and malls, too, took a licking over power outages and other obstacles, including lost access to thoroughfares. Federated Department Stores says the hurricanes brought minimal facade damage to its retailers but cost them in excess of $20 million in sales, partly as a result of lost power at those shopping centers.

Not all business-interruption policies are created equal. Some still require a “trigger” that directly affects the property. If a retailer sustains no physical damage, some policies won’t cover extraneous power outages without additional riders, or endorsements, which can be called “power interruption,” “utility interruption,” “mechanical” or “spoilage” insurance.

Some insurers that specialize in higher-risk operations issue their own nonstandard policies with unique language and underwriting requirements to address more-sophisticated risks, including losses from military-authority shutdowns, civil disturbances or acts of terror.

In general, retail business owners “just need to be more astute with disaster planning,” Hutt said. “The procedure used to be to wait for the disaster, then look at the insurance policy to see what’s covered. 2004 obviously changed that in a lot of people’s minds.”

By the same token, he says, some insurers deserve a slap on the wrist for not keeping their clients better informed of products available to them, or of the finer points of their business-interruption coverage. Retailers should ask very specific questions about power loss or other covered events, Hutt says.

“Florida had a number of years where it didn’t have too much of this kind of activity, and it was less prepared than it will be next year,” said Griffin. “The farther you are away from a major event, interest wanes. But interest is way up now.”

— SM