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JULY/AUGUST 2014 • VOLUME 10 • NUMBER 6

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14 July/August 2014

Risky BusinessProperty Insurance Considerations for Small Businesses and Best Practices for Securing a Policy of Insurance and Avoiding Financial Disaster After a Natural Disaster

By Michael Fabian

The chaos, uncertainty and financial damage caused

by a fire, windstorm or other natural disaster can be

devastating for small businesses. Time is of the es-

sence since delays in resuming normal operations can

result in a loss of loyal customers to your competition

as they seek to have their needs met elsewhere while you are

responding to the disaster.

Insurance coverage can help a business get back on its

feet in the case of a disaster, replace damaged property and

compensate the business from the loss of income and extra

expenses suffered as a result of the disaster. However, as an

attorney who represents business owners in their insurance

claims after a fire or other disaster, I have found that business

owners sometimes cannot become adequately compensated to

allow the resumption of normal business activities through their

insurance policy, simply because the business owner failed to

obtain adequate insurance coverage. Therefore, for small business

owners, it is critical to both understand how to obtain adequate

insurance and to know what to do in order to collect all of the

benefits that the business may be entitled to receive under the

policy of insurance.

Make Sure Your Insurance Agent Knows Your Business

Spend time with your insurance agent. Keep in mind, you are

buying insurance to prevent a natural disaster from becoming a

financial disaster. A simple phone conversation or a brief meeting

with the insurance agent is generally not sufficient. Your insurance

agent should spend the time to become familiar with the operation

of your business, as well as becoming familiar with the physical

assets owned by the business and its financial structure.

Make Sure You Have Adequate CoverageMost insurance agents have the necessary means to calculate

the proper amount of insurance on a building and its improvements

after performing a detailed inspection and analysis of the premises.

However, when it comes to coverage for equipment and inventory,

that is something you are best equipped to assess, since you have

the best information on the cost of your equipment and the cost

to replace your inventory.

You should also obtain business interruption coverage that

will compensate you for loss of income and the extra expenses

incurred after a loss. Your accountant can help your agent assess

your needs should you experience an interruption of operations

that cut off your cash flow.

Review the PolicyWhen you receive a copy of your insurance policy, read it and

make sure it provides the coverage you thought you were getting

and does not contain any exclusions or conditions that you were

not aware of. Since the law presumes that you have read and fully

understand your policy, if you believe there may be a mistake in

the coverage, let your agent know of the mistake. If you are silent,

you may not have any recourse if the policy does not provide the

coverage you thought you had.

Know What to Do When Disaster StrikesAfter a loss the policy requires you to give the insurer prompt notice

of the loss and to take reasonable steps to prevent further property

damage, such as boarding and securing damaged buildings or removing

water that may result in mold. The expenses incurred in protecting the

property from further damage are covered by the insurance policy so

detailed records of these expenses should be maintained.

F E AT U R E STO RYF O C U S

LISTEN TO AN AUDIO INTERVIEW WITH MICHAEL FABIAN ON SBAM’S “BUSINESS NEXT” PODCAST. Go to michiganbusinessnetwork.com/radio/Business_Next and navigate to the March 12, 2014 program.

Small Business Association of Michigan 15

Preparing the ClaimContrary to popular belief, and the

images promoted by the insurance industry,

it is the duty of the business owner – not

the insurance company – to make sure all

damage claims are properly documented and

valued and all insurance policy conditions

are met. The insurance company uses

professionals to determine its liability for

a loss, therefore, in significant claims, it is

advisable for business owners to engage the

services of an experienced property damage

attorney or a public adjuster to professionally

evaluate and inventory the damaged property

and to meet with the insurance company’s

adjusters to reach an agreement on the

amount of loss. If potential liability issues

may exist concerning the cause of the loss,

the attorney can retain qualified investigators

to determine the cause of loss.

The policyholder must meet all re-

quirements in submitting a claim in a timely

fashion. If a proof of loss is is requested in

a timely manner by an insurer, the failure

to submit a signed and sworn proof of loss

within the time period specified by the insurer

may result in the claim being denied.

Provide Requested RecordsThe insurer may require the policyholder

to provide tax returns, business records and

to submit to an Examination Under Oath

(EUO), which is a pre-suit deposition. The

business owner must provide the requested

information and testimony or risk violating

the contractual obligation to “cooperate” in

the investigation, which also might allow the

insurer to deny liability.

Protect Yourself From Financial DisasterTo be protected from having a natural disaster become a financial

disaster, the business owner should utilize the services of an experienced

insurance agent who will spend the time necessary to make sure the

policy adequately insures the business. If faced with a significant loss, the

business owner should consult with an experienced property damage

attorney to protect their rights, to make sure all policy conditions have

been met, to see that a proper claim investigation has been conducted

and to ensure that a claim has been properly prepared and timely

submitted to the insurance company. These steps are necessary in order

to reach a settlement with the insurance company that provides the

business owner with the full amount of the benefits due under the policy

of insurance that avoids large uncompensated losses and to allow the

business to resume its normal, pre-loss profitable operations. — SBAM

Michael H. Fabian is the founding shareholder

of Farmington Hills-based Fabian, Sklar & King, P.C.,

a nationally recognized leader in fire injury, explosion

and property damage claims. To learn more,

visit www.fabiansklar.com.