SDV Insights

Checklist: What to Know About Wildfire Insurance Coverage


California, and the greater Western United States, have experienced devastating wildfires over the last ten years. Not only are the fires more destructive than in years past, but they are also no longer constrained to specific seasons. Because one of the effects of climate change is a drier and hotter climate in the West, California is susceptible to fires year-round. This means that it is increasingly a matter of when, not if, your home or business may be susceptible to a wildfire, and knowledge of wildfire insurance coverage can be helpful when making important decisions. 

Although individual homeowners and business owners can do little to prevent a wildfire from burning down their property, they can manage the risk with the right insurance coverage. Wildfire coverage is routinely added to homeowners or renter’s insurance policies to cover the property damaged in the fire. However, business owners need to consider more than the loss of physical property—fires can disrupt supply chains or restrict customer access to the business, reducing business revenue. This blog post - Checklist: What to Know About Wildfire Insurance Coverage is a valuable tool for any business owner to ensure that they have adequate insurance coverage in place as destructive wildfires become increasingly common throughout the Western United States.
 

Table of Contents

  • Types of First Party Coverage Claims that Arise from Wildfires
    • Property Claim
    • Lost Rents
    • Business Interruption
    • Contingent Business Interruption
  • Types of Third Party Coverage Claims that Arise from Wildfires
    • Liability for causing the fire.

As wildfires and other natural disasters grow in frequency and cause more damage to property, understanding how to protect your business is more important than ever. Most business owners’ first and overarching concern is whether they have coverage for the economic loss associated with wildfires. Even if the physical property of a business is spared, there may still be substantial interruptions to operations or access by customers. Below, we provide a checklist of policies that may offer coverage for a variety of claims that can arise from a wildfire. Each policy’s terms may expand or restrict coverage, including endorsements that specifically exclude coverage for losses caused by wildfires. Please read your policy carefully to determine what coverages may be available under these circumstances.

First Party Exposure
Possible Claims

  • Property Claims
    • Structure is partially or completely damaged by fire or smoke.
    • Inventory or business personal property damaged or destroyed.
  • Where to look for coverage:
    • Commercial Property policy
    • Beware of Wildfire exclusions
       
  • Lost Rents
    • Typically affects the hospitality industry.
    • Location of business is in a mandatory evacuation zone for an extended period of time.
    • Lost rents after sustaining physical damage to structure that requires rebuild or repairs.
  • Where to look for coverage:
    • Business interruption coverage under Commercial Property Policy
    • Civil Authority coverage
    • Ingress/Egress coverage
       
  • Business Interruption
    • Businesses forced to close due to threat of fire or mandatory evacuation orders.
    • Business becomes inaccessible to customers because fire cuts off roadways or evacuations remove the customer base from the area.
    • Roads closed for extended periods by state and local authorities related to fire-fighting efforts or damage from fire.
    • Events, such as concerts, are canceled because of threat of fire or physical damage to property.
  • Where to look for coverage:
    • Business interruption coverage under Commercial Property Policy
    • Civil Authority coverage
    • Ingress/Egress coverage
       
  • Contingent Business Interruption
    • A business the insured relies on for materials or supplies is damaged or shut down due to a fire, but the insured’s business is unharmed.
    • Access to a business the insured relies on is cutoff because roads are damaged or closed due to a wildfire, but the insured’s business is unharmed.
  • Where to look for coverage:
    • Contingent business interruption covers these losses when the insured’s business is unharmed, but the other business it relies on is shutdown or cutoff because of wildfires.

Third Party Exposure
Third party claims will only arise if the insured’s business is responsible for accidentally starting or causing a wildfire. The types of industries that are most likely to be at risk for these claims are utility companies, energy companies, telecommunication companies, railroads, logging companies, and businesses performing services for the aforementioned companies or environmental services.

Possible Claim

  • Bodily Injury, Property Damage, Business Interruption
    • People are injured or killed by a wildfire accidentally started by the insured’s operations.
    • Property damaged by a wildfire accidentally started by the insured’s operations.
    • Business suffering economic losses because of a wildfire accidentally started by the insured’s operations.
  • Where to look for coverage:
    • Commercial General Liability Policy

Conclusion
As the risk of wildfires grows each year, it is critical that business owners prepare for the worst. Understanding the types of coverage you have or need is the first step towards protecting your business and income before disaster strikes. This checklist is a great tool to aid in that process; however, the needs of each business are different, and each policy is different. Therefore, work closely with your insurance broker to identify the risks to your particular business and carefully read each of your policies to understand the types of wildfire insurance coverage available.
 






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