Review Your Retail Company’s Existing Business Interruption Insurance to Ensure Proper Coverage

We welcome our affiliate, Fort Hill Risk Management LLC, as a guest blogger for today’s post. It is our hope that this advisory may help retailers address insurance issues in the wake of the Boston Marathon tragedy and other disruptions.

The bombings at the Boston Marathon have been extraordinarily difficult for individuals and businesses alike.

The significant business-related losses in the wake of the recent Boston Marathon tragedy underscore the advisability of a prompt and careful review of a company’s existing business interruption insurance coverage. Such a review is necessary to ensure that any current claims are properly asserted and to determine whether any modifications to existing coverage would enhance protection against potential future losses.

Whether a particular loss will be covered by business interruption insurance depends on the nature of the loss and the specific terms of the insurance policy. Perhaps more than many other lines of insurance, the scope of business interruption coverage may vary dramatically depending on when it has been purchased, which insurance carrier has issued the policy, and the evolving state of applicable law. The issues raised by such variations may include:

  • whether the policy includes coverage for acts arising from terrorism;
  • whether coverage is triggered by a material decline in business or whether a complete suspension of operations is required;
  • whether the policy responds only to physical damage to the insured’s property or whether coverage may be triggered without such physical damage;
  • whether coverage is afforded if access to the policyholder’s property was prevented or prohibited by “action or order of civil authority,” such as an evacuation, street closure, or lockdown order; and
  • whether coverage applies until the business has returned to pre-interruption levels or only until it reaches some lower threshold.

Pursuant to IRS Circular 230, please be advised that, this communication is not intended to be, was not written to be and cannot be used by any taxpayer for the purpose of (i) avoiding penalties under U.S. federal tax law or (ii) promoting, marketing or recommending to another taxpayer any transaction or matter addressed herein.
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