Six weeks ago, one of Atlanta’s major transportation arteries collapsed, causing enormous hurdles for commuters and businesses alike. I’m sure you’re as thrilled as I am that the I-85 bridge reopened ahead of schedule! While the pain of the past six weeks is still fresh, it’s the perfect time to review three key areas of your business:
- Business interruption insurance coverage
- Force majeure provisions in your contracts
- Transportation accessibility risk
- Business Interruption Insurance
Business interruption insurance (also called business income insurance) is a type of coverage that pays for loss of income if a company suffers from certain types of disasters. The wording of these policies is crucial. Without proper phrasing, your policy may not provide coverage for some of the most common – or the most damaging – situations. On the bright side, once you have the right language in your policy, case law is mostly favorable toward businesses if your insurance company puts up a fight.
Keep in mind that the method for calculating income payments is complex. Historical revenues are typically used, which makes it difficult for new or quickly-growing companies, or if you’ve just released a new product into the marketplace. You’ll also have a tough time proving your predicted increases in sales.
Unfortunately, business interruption coverage doesn’t always apply. Bad situations are not always considered disastrous according to the terms of some policies. In the I-85 aftermath, businesses closest to the area cited drops in revenue from 30% and upwards of 50%. Some companies estimate it will take months to recover financially – if they do at all. For these businesses, their business interruption coverage may not kick in. Their challenge in making a claim against a business interruption insurance policy hinges on traffic to their business being severely impacted despite the businesses still being technically accessible.
Consider another scenario: What if there had been businesses that were completely shut off from automobile traffic, and possibly even pedestrian traffic? This is one situation that you absolutely need your business interruption policy to cover. In these instances, your actual property is not damaged, but all normal access to your location (for employees, suppliers, and customers) is unavailable. I say “normal access” because case law has already come to the logical decision that abnormal accessibility – helicopter access, for instance – isn’t enough to let your insurance company off the hook. Check your policy, and get it revised if necessary. Don’t let a wording technicality keep you from being compensated if this situation hits your business.
- Force Majeure
Force majeure (often called the “act of God” section) lets one or both parties off the hook to perform their contractual obligations if something extraordinary happens beyond their control. Weather disasters, such as hurricanes, floods, or blizzards, often trigger force majeure, as well as war, labor strikes, etc.
Typically, you’ll find force majeure provisions in the miscellaneous section near the end of a contract. Business professionals don’t always give the same degree of attention or negotiation to boilerplate provisions as they do with the rest of an agreement – but they should.
Force majeure provisions can require the customer to keep paying the vendor – even during an interruption of service caused by the force majeure event! Is this realistic for your company to continue paying for a service it’s not receiving? Is this provision negotiable with the provider? In the aftermath of Atlanta’s I-85 bridge collapse, I have no doubt that companies scrambled to analyze their contracts for force majeure provisions. Unlike business interruption coverage that probably would not be triggered, massive increases in street traffic could affect product deliveries in a way that could activate force majeure clauses.
Questions to consider: If your company is a service provider, are you protected against loss of revenue in an event beyond your control? If your business purchases outside services, do you have to continue making payments even if the service is down? Are you entitled to any form of payment or service credits during the downtime? Examine those boilerplate sections carefully.
- Transportation Accessibility, Business Risk, and Marketability
While business interruption coverage and force majeure provisions can be helpful in case of a disaster, companies would also be wise to think through transportation accessibility risk on the front end. When you’re scouting out a location for your business, think twice about those new digs that happen to be down a dead-end street. There’s only one way in and one way out. If that road becomes inaccessible to automobile or pedestrian traffic, you’ll be praying that your business interruption coverage was drafted properly.
On the other side, real estate developers should also consider transportation accessibility when they’re planning new or renovated properties, whether the tenants will be businesses or individuals and families. It’s easier to market locations that don’t have potential transportation accessibility issues. And, renters won’t be able to back you into a corner, using infrastructure risk as their bargaining chip. Invest up front to avoid issues down the road.
Have questions about how to protect your business’s interest using force majeure or business interruption coverage? InTown Legal can help. We provide agile, creative solutions to solve your legal necessities at the speed of business.
LAWYERLY DISCLAIMER: This information should not be deemed exhaustive, nor should this post be construed as legal advice.