Hurricanes underscore need for deep bench of insurance options
Hurricanes underscore need for deep bench of insurance optionsPublished October 9, 2017
The financial impact extended beyond franchises and universities, affecting businesses — from food and apparel vendors in and around stadiums, to television networks and licensing partners — that contract with these teams and service their fans.
The storms are a dramatic reminder to leagues, franchises, college programs and other sports businesses that they remain financially vulnerable to damage and disruptions from severe weather. Planning for such contingencies is crucial, and ought to include securing appropriate commercial insurance — particularly event-cancellation and time element coverage for interruptions of business — to mitigate any losses. Toward that end, a few tips bear mention:
Property Insurance: Virtually everyone is familiar with property insurance covering physical damage to buildings; commercial property policies often also include coverage for flood loss (sometimes subject to lower coverage amounts). Fewer people may know of certain key enhancements to such coverage. Civil Authority coverage concerns actual loss of business income caused by the actions of local or state government (e.g., mandatory evacuation orders) that prohibit access to the policyholder’s premises due to direct physical damage to property resulting from a covered event. Ingress/Egress coverage provides similar protection even absent civil authorities issuing such orders.
Time Element Coverage: Enhancements to commercial property policies to cover “Business Interruption” and “Contingent Business Interruption” losses offer protections against what often are the most financially severe losses sustained by policyholders. Business Interruption (BI) coverage typically covers a policyholder’s loss of net income and continuing fixed expenses (such as payroll and taxes) when damage to the policyholder’s property forces operations to slow or stop. Contingent Business Interruption (CBI) coverage provides similar protection should property of suppliers or customers sustain damage, even if the same event spared the policyholder’s property. Suitable CBI coverage may, for example, cover significant business income losses of a major catering or merchandising vendor due to storm damage to a sports arena that it services.
Event Cancellation Insurance, similar to Business Interruption coverage, helps protect policyholders who produce live events and competitions and sustain lost revenue (such as ticket refunds) or losses via commitment of expenses (such as non-refundable payments to food or merchandise vendors) due to “necessary” or “unavoidable” rescheduling, delay or cancellation of games due to causes beyond the policyholder’s control. Some EC policies even cover reduced attendance due to unplanned contingencies like severe weather.
EC insurance typically covers lost business income without any “waiting period deductible” typical in Business Interruption coverage, which relieves insurers from covering a loss suffered during a specified period (often 72 hours) immediately following a covered event.
EC insurance may also cover loss of income even absent physical damage to property of the insured or third parties resulting from a covered event.
Forewarned is forearmed. With many observers predicting that the ferocity of the 2017 hurricane season is a “new normal,” now more than ever leagues, franchises and others in the sports industry ought to secure suitable Property, Business Interruption, and Event Cancellation insurance products. Together, they can provide critical protection to your bottom line from severe weather and other unexpected disruptions.
Evan T. Knott and Noel C. Paul are Chicago-based attorneys at global law firm Reed Smith LLP.
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