California Wildfires: Are You Covered?
The wildfires currently raging in California have displaced thousands of residents and caused substantial damage to properties across the state. The California Department of Forestry and Fire Protection estimates that close to 200,000 acres have been burned and more than 700 structures have been damaged or destroyed by wildfires in 2019.
For businesses, the first priority should be the wellbeing of your people, some of whom may be personally affected. You must also protect your own properties, assets, and operations.
Business Interruption Is a Stark Reality
Even businesses that do not suffer direct property damage could see their operations negatively impacted by the wildfires. Over the last several weeks, a major utility has intermittently conducted public safety power shutoffs in several Northern California communities to reduce the risk of its equipment sparking wildfires. These intentional, preemptive blackouts have affected up to 2.5 million people and contributed to economic losses for many businesses.
A pressing question for affected businesses is whether property insurance policies will respond and cover losses caused by planned outages. Standard property policies are unlikely to respond to the extent that the outages do not result from a covered cause of loss or were planned for by the utility. Businesses in areas not directly affected by wildfires where the utility has not sustained physical loss or damage leading to a service interruption will likely not have coverage for business interruption claims or extra expenses.
On the other hand, businesses in areas where wildfires are burning could see their property coverage respond to business interruption claims and/or extra expense even without suffering damage if their insurance includes an “interruption by civil authority” extension. This will depend, however, on a number of variables, including distance to the fires, local evacuation orders, and, most importantly, specific policy language. Businesses also may be covered by contingent or dependent business interruption coverage for losses involving suppliers and customers, which would also be subject to several variables.
Senior executives are also asking whether loss of market due to relocation of impacted communities is covered. Business interruption coverage under property policies will not pay such losses indefinitely and typically will limit the recovery for any loss of income to the estimated time required to repair or replace any damaged or destroyed property.
Information Remains Crucial
Businesses that have been or could be affected by ongoing wildfire activity should gather information about any sustained property damage and business interruption losses, including possible causes, evacuation orders, road closures, and electric utility service interruptions. Organizations should track revenue losses and extra expenses and gather documentation about any supplier or customer issues.
You should be familiar with the coverage your policy provides for business interruption and related losses. Review your policy wording carefully and discuss your situation and options with your insurer or broker.
As the risk of wildfire persists, businesses should also consider additional measures to protect their operations, including backup power generation and alternative production sites outside the affected areas.