platinum
Business Interruption: Are You Covered?
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The third condition franchisees need
to be aware of is “special form” coverage;
the insurance industry standard does not
provide coverage for damage resulting from
the following causes of loss: ordinance of
law, earthquake, flood, off-premises power
failure, neglect, war, nuclear hazard and
intentional acts. Earthquake and flood both
represent significant exposure to property
loss but are insurable.
If your clubs are located in earthquake
hotspots such as California, the Pacific
Northwest, Alaska, Utah and the New Madrid
area, special consideration should be given to
earthquake coverage. One thing to note, unlike
a hurricane there is very little, if any, warning to
help prepare for and mitigate potential damage
in the event of an earthquake.
Floods bring a different set of issues.
No longer is the concern of flooding specific
only to properties located close to bodies
of water. With the severity of the weather,
surface flooding is more prevalent and is
just as much, if not more, of an exposure
than traditional flooding. Surface flooding
is caused when the volume of rainwater is
not drained away properly through existing
drainage systems or soaks into the ground.
This type of flooding is usually short-lived
and associated with heavy downpours of
rain, thunderstorms, etc.
While the event may be short-lived,
surface flooding can create significant prop-
erty damage, and coverage for this cause of
loss should be considred. As surface flooding
usually is localized, how coverage is struc-
tured, especially for franchisees with multiple
clubs, needs to be taken into consideration.
Windstorms and hail, while normally a
covered cause of loss, are excluded for clubs
located in windstorm/hail areas – Florida being
the most prevalent. Or if not excluded, a wind-
storm/hail claim may be subject to a separate
and significant deductible. As with earth-
quakes and floods, special consideration needs
to be given to the purchase of windstorm/hail
coverage and/or understanding the risk you are
assuming by having a higher deductible.
With many causes of loss there is the
potential for significant property damage,
shutting a club down for an extended period
of time and having a negative impact on
revenue as clients leave. This is the crux of
business interruption coverage – the loss of
income due to a discrete event caused by a
covered cause of loss. If such an event were
to occur, do you have adequate coverage to
take you through the rebuilding process?
Other events can happen that, while
not causing physical damage to your
property, may temporarily create a situation
where you cannot operate your club. These
events, such as off-premise power, civil
authority and communicable disease, are not
covered under a standard property policy
and will not create an insurance event.
However, this is where consideration of
the Planet Fitness operating model must be
taken into consideration as you contemplate
the purchase of insurance coverage for these
types of “short-term” events. Questions
needing to be asked are:
• How long does your club need to be
closed before it impacts future monthly EFT
revenues?
• What will the impact be on revenue?
• What timeframe, if ever, will it take
to re-coup clients who left?
Numerous articles have been written
and there are differing thought processes
regarding business interruption coverage.
This is why it is important to work with an
insurance and risk management professional
who understands insurance coverage as
well as how it relates to the Planet Fitness
operating model. G
Jeffrey J. Fox, CPCU, ARM is senior
vice president – Planet Fitness program
manager for USI Insurance Services, LLC.
You may reach Fox at [email protected]
or 603-918-6449.
ith increasingly volatile weather
patterns, the issue of business inter-
ruption, aka business income/extra expense
coverage, has become a more focused topic of
discussion with Planet Fitness® franchisees.
The Planet Fitness model is unique, as
brick an d mortar is needed to drive revenue.
But the flow of and loss of revenue is not
derived like a typical store-front business
model where the loss of revenue starts imme-
diately when the doors close and the business
cannot provide goods or service to its clients.
Along with understanding the nuances
of the Planet Fitness model and how busi-
ness interruption coverage is applicable, it’s
important to know the conditions needed to
trigger a business interruption claim.
The following is the chain of conditions
that determine whether or not a property
loss is covered. This chain of conditions
applies to all your property coverages – busi-
ness personal property, tenant improvements
and betterments, buildings you own and/
or are responsible to insure, and business
interruption.
The chain of conditions that must take
place are:
1. A discrete event causes physical
damage to your property.
2. The property damaged must be
insured.
3. The cause of discrete event must
emanate from a covered cause of loss.
4. For business interruption, the event
and damage must cause an interruption of
your operations.
The first condition are events such
as a fire, lightning, explosion, smoke,
windstorm, hail, riot, civil commotion,
vandalism, etc. causing physical damage to
your insured property.
The property damaged must be insured
and, as noted previously, includes your busi-
ness personal property, tenant improvements
and betterments, buildings and business
interruption.
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