The California wildfire season is well underway. Only a year ago, the Lake County fire destroyed hundreds of homes, thousands of acres and threatened vineyards and wineries. A recent report on climate change predicts that wildfires in the western U.S. and Canada will become more frequent and severe. And the Napa earthquake — only two years ago as of Aug. 24 — reminded us of another constant danger for California residents and businesses, particularly those with costly products like wine in tanks, barrels and bottles.
In the face of these risks, you can take steps now to be sure you have the right insurance and are prepared to get the most out of it if the worst happens.
Review Your Policy
Don’t just renew your policy as a routine matter. Make sure the limits of coverage will allow you to replace damaged property in full. Reconstruction costs will rise with inflation and increasing property values. New building code and environmental regulations may also increase demolition and reconstruction costs. Unless your property is very new, code upgrade coverage should be a component of your policy. Also, if your property has uniquely valuable features or equipment, document them on paper and by photo or video if possible.
Reconsider whether earthquake insurance makes sense. Premiums can be high for a policy with 10 percent–15 percent deductibles. But test periodically what’s available in light of market conditions, the value of your business and property, and the company’s available cash. Consider also whether you should buy earthquake insurance separately for stock and inventory, as this is usually more available and less expensive.
If you do decide to go “bare,” have a contingency plan. Make sure your building and storage areas are earthquake-proofed as much as possible. Set aside reserves — or know where you can get a loan quickly — so you can rebuild if the worst happens. Know how you’ll operate temporarily if needed.
Maximize Your Coverage
If you sustain a fire (or earthquake) loss, notify your insurer immediately. Your agent can help you locate your policies and notify the right people. Your insurer can help you with the immediate aftermath, providing contractors to help with clean-up, making initial estimates of damage, and locating contractors to help start with the rebuilding.
Ask your insurer for an advance to cover immediate expenses, such as the cost to protect your property against vandals, clean up and dispose of debris, while complying with environmental regulations. You may also be entitled to payment for costs you incur to avoid or minimize disruption to your business, including the costs to relocate and equip a replacement location, to expedite repair or replacement of property or inventory, or restore lost business records.
Document your loss. Keep track of all of your expenses, whether you think they’re covered or not. As you receive advances from the insurer, document them and make sure you’re not signing anything that suggests it is a final payment of your insurance claim.
You will likely be presenting two claims: one for loss of physical property, the other for “business income and interruption” losses. The former will be more straightforward and may be resolved first.
Keep in Mind for Wine
Special valuation issues may arise for wine businesses. For example, if bottled wine is damaged or destroyed, you may be entitled to recover based on the retail selling price, rather than a replacement-cost valuation. Be sure you review your policy carefully for these kinds of losses.
Coverage for business income and interruption can involve a more complicated accounting. You will need to document carefully higher-than-normal expenses as you continue operations in the wake of the loss, and any loss of profits resulting from the interruption in your business. Here again, a partial advance may be possible with a full accounting to be worked out later.
Insurance adjusters will sometimes try to impose “cookie-cutter” solutions on unique situations. But no one knows your business as well as you do.
This is particularly true in our experience with Wine Country losses, where the value of wine is at issue. Get your accountant, and a business consultant if necessary, involved as early as possible to help document losses and prepare the claim. (Your policy may even help pay for some of these consultant costs.) Extra attention early in the process can help to avoid disputes and maximize coverage.
Note also that many commercial policies provide “contingent business interruption” coverage. This applies when a fire damages a material or service provider upon whom you rely to carry out your business. It may also apply if, as a result of a fire, roads are closed or utility services interrupted during a critical period of time for your business. If the fire and its aftermath cause you to incur extra expenses or to lose profits, you may be entitled to coverage even if your own property wasn’t damaged.
Remember, the burden is ultimately on you, the insured, to document your claim. If you have a complicated claim or if you have concerns about how your claim is proceeding, seek professional help as soon as possible. Insurance companies have both contractual and statutory/legal obligations to policyholders. We recommend that you seek guidance early in the process to identify possible pitfalls and avoid disputes. If issues arise, seek help as to whether your insurer is properly meeting its obligations.