Last week, nearly 200,000 people were evacuated from areas downstream of the Oroville Dam in Northern California. Today, separate recommended and mandatory evacuation orders continue for roughly 50,000 San Jose residents due to rising flood waters along Coyote Creek. Between the Oroville Dam crisis and the torrential storms battering Northern California, California businesses face significant loss arising from the flooding, the threat of flooding, landslides and the like. Fortunately, some of the damage to property and businesses can be mitigated by insurance.
While commercial property insurance policies typically exclude property damage due to flood, some policies may provide coverage by endorsement or by way of manuscript forms, oftentimes limited to a sublimit. Insurance coverage for property damage, however, is only one part of the equation. Businesses, including those outside of flooded areas, may face larger damages as a consequence of the flooding, in the form of lost profits due to the interruption of their business or the business of a key supplier or customer.
Business interruption insurance is designed to step in and cover the income loss suffered because of a disaster, such as flood, and any required repair. Many policies, however, require that the loss of income result from an otherwise covered cause of loss. In addition, many policies afford coverage for business interruption even where the insured business sustains no physical loss or damage, but a key supplier or vendor does. Called “contingent business interruption,” this coverage applies where business operations are affected by physical damage sustained off-site by a supplier, transporter, customer or other party on which the business relies. Unlike dollar deductibles in other policies, business interruption coverage usually includes a waiting period, which requires that a set amount of time—typically 24 to 72 hours—pass before coverage becomes available. Once triggered, however, business interruption coverage often continues until either a specified sublimit is reached or such time as the affected property is actually or hypothetically repaired, replaced or rebuilt.
Finally, businesses may be entitled to coverage for losses of business income that result solely from the issuance of an order by a civil authority—such as an evacuation order. This coverage usually applies when a civil authority order prevents or restricts access to an insured business due to actual or threatened property damage. Similarly, most commercial property policies provide coverage for business income loss caused by an inability to ingress or egress a covered business as well as when a service or utility outage impacts ordinary business operations.
Rebuilding after a flood is often expensive and time consuming. Fortunately, insurance may help to keep your business afloat after the waters recede.