FAQ: Riots and Business Insurance

Riots across the U.S. and the subsequent damage to thousands of businesses have many business owners asking what their business insurance policies will cover. In this interview, Triple-I Vice President of Media Relations Loretta Worters answers some frequently asked questions about business insurance and what it covers.

Are businesses covered for property damage from riots?

Yes, they are. Business property that has been damaged by riot, civil commotion. vandalism and fire are covered under virtually all businessowners and commercial insurance property policies. This typically includes damage to windows, doors, light fixtures, store windows and plate glass on office fronts. There is also coverage for the contents of the building such as furniture, office supplies, computers or machinery that may be either damaged or stolen.

Should a business insure its building and contents at replacement value or actual cash value?

A business may have the option to insure its business property at replacement value or actual cash value. The difference is that replacement value coverage can help a business replace its property at market prices, whereas actual cash value coverage takes depreciation into account. Replacement value coverage costs more, but it also pays out more in the event of a claim.

What about loss of income?  

Businesses that are forced to suspend operations or limit hours due to rioting, vandalism or civil commotion and have coverage for the loss of income under business income insurance (also known as business interruption, or BI) do have coverage. Coverage is typically triggered if there is direct physical damage to the premises.

What if a business is unable to access its property due to a government order? If there is a curfew in place, how will that impact a business?

While insurance policies vary, typically there is business interruption coverage for civil authority orders, such as curfews (when a business has reduced hours) or when a business is unable to access its property due to a government order requiring the business to close. Such coverage nearly always requires the existence of property damage within some limited geographic radius surrounding the policyholder’s location. This often ranges from 1 to 10 miles. Typically civil authority coverage has a waiting period of 24 to 72 hours, depending on the policy, before a policyholder can begin claiming the benefits of coverage. Coverage typically lasts up to four weeks, but the time period can be extended by paying an additional premium. However, once a curfew is lifted and business can resume, coverage ceases. 

Is business income coverage subject to a deductible?

Under most policies, business income coverage is subject to either a waiting period, which acts like a form of deductible or a monetary deductible. 

How will the amount of the business income loss be determined for a business?

Under most policies, business income coverage includes both net income (the profit a business earns after expenses and allowable deductions) and the cost of continuing normal operations.

What information does a business need to support its business income claim?

Most insurers require the following:

  • Profit and Loss statements
  • Sales records
  • Income tax returns
  • Rent or mortgage statements
  • Payroll records

What if a business vehicle has been damaged in a riot?

Damage to vehicles is covered under the optional comprehensive portion of an auto policy. This provides reimbursement for damage to the vehicle and its contents caused by fire, falling objects, vandalism or riot. Comprehensive coverage also reimburses a business if the vehicle’s windshield is cracked or shattered. Some companies offer glass coverage without a deductible.

Any advice for business owners?

Know your risks! Every smart business owner recognizes that business insurance is an essential element of an overall business plan. It should be factored in with fixed operational expenses like utilities. Without adequate coverage, business owners may have to pay out-of-pocket for costly damages from a riot, hurricane or other disaster, which could spell financial ruin.

IRC Study: Social Inflation Is Real, And It Hurts Consumers, Businesses

“Social inflation” is the name used to describe growth in liability risks and costs related to litigation trends. A new white paper by the Insurance Research Council  (IRC) examines this phenomenon and shows that insurers’ losses across several business lines have accelerated rapidly in recent years – much more rapidly than economic inflation alone can explain. 

Some have tried to downplay the importance of social inflation and even cast doubt on its existence. The IRC study draws from a range of industry and scholarly resources to show that it does exist and hurts individuals and businesses who rely on insurance. 

Among the drivers the IRC examines are: 

  • Shifts in public sentiment about litigation 
  • Increasing numbers of very large jury verdicts  
  • Tort reform rollbacks 
  • Legislative actions to retroactively extend or repeal statutes of limitation
  • Increased attorney advertising and involvement in liability claims 
  • Proliferation of class actions  
  • Emergence and growth of third-party litigation financing

Using loss data published by the National Association of Insurance Commissioners (NAIC), the IRC documents loss trends in several key insurance lines, including commercial and personal auto insurance and product liability coverage. The report notes that loss trends reflected in the data “are consistent with anecdotal observations and concerns about the impact of social inflation on insurance claims costs.” 

The IRC links these trends to rising claims and losses that in turn lead to more expensive insurance for businesses and consumers. While the analysis is based on data and trends that predate the COVID-19 pandemic, the IRC notes that state efforts to impose business interruption coverage for economic losses under insurance policies that specifically exclude bacteria and virus-related losses are a current example of the forces that drive social inflation. 

Social Inflation: Evidence and Impact on Property-Casualty Insurance is a valuable resource that explains the causes and impacts of social inflation. It can be downloaded from the IRC website. 

Further reading: 

Florida’s AOB Crisis: A Social-Inflation Microcosm 

Florida Dropped From 2020 “Judicial Hellholes” List