Employee Benefits – Page 2 – Setnor Byer Insurance & Risk

Affordable Care Act: Will Your Group Health Plan be Affordable in 2019?

Unlike the Individual Mandate, the Affordable Care Act’s Employer Mandate isn’t going anywhere in 2019. Employers with 50 or more full-time and full-time equivalent employees will still have to offer “affordable” health coverage to avoid ACA penalties. But, there is a sliver of good news. Next year, employers will be able to increase the required employee contribution for coverage under their group health plans.

To satisfy the ACA’s initial affordability requirement, an employee’s required contribution for the lowest cost, self-only coverage could not be more than 9.5 percent of the employee’s household income. However, the initial affordability percentage is adjusted annually by the Internal Revenue Service. In 2019, the affordability percentage will be 9.86 percent.

When compared to prior years, the 2019 affordability adjustment represents the largest percentage increase under the ACA.

2014 9.5

2015 9.56

2016 9.66

2017 9.69

2018 9.56

2019 9.86

We can use the ACA’s affordability safe harbors to translate this percentage increase into dollars and cents. These safe harbors provide various methods for calculating the most an employer can charge employees for the lowest cost, self-only health coverage option without exceeding the ACA’s affordability threshold.

W-2 Safe Harbor. The maximum monthly contribution for a federal minimum wage employee ($7.25 per hour) who works 40 hours per week for 52 weeks in 2019 will be $123.91 (+ $3.77).
Rate of Pay Safe Harbor. The maximum monthly contribution for a federal minimum wage employee ($7.25 per hour) in 2019 will be $92.93 (+ $2.83).
Federal Poverty Line Safe Harbor. Based on the 2018 single individual FPL of $12,140, the maximum monthly contribution in 2019 will be $99.75 (+ $3.03).

These increases may be modest, but they can add up quickly for very large employers. They can also provide some much-needed wiggle room for employers teetering on the edge of unaffordability. The ultimate impact of the 2019 affordability percentage increase can be inconsequential or substantial. Employers will need to reevaluate their cost-sharing structure to find out.

Please contact us if you would like to learn more about ACA-compliant group health plans.

Does Workers’ Compensation Coverage Follow Employees Working Out-of-State?

Does workers’ compensation insurance coverage automatically follow employees when they travel or work out of state? Nope. Workers’ compensation laws are state-specific. So are workers’ compensation insurance policies. An employee injured while working out of state will not have workers’ compensation coverage unless that state is identified in Items 3.A or 3.C. of the policy’s Information Page.

Item 3.A is used to identify the state or states in which the employer is operating on the policy’s inception or renewal date. Item 3.C. identifies other states in which the employer plans or expects to be working, but the work will not begin until after the policy’s inception or renewal date.

How do you know which states should be listed in Item 3.A? This can be simple for employers operating entirely and exclusively in one state. It can be tricky for employers with operations in or connections to multiple states. There aren’t any fixed rules, but various factors can be considered to help determine which states need to be listed in Item 3.A. For example, Item 3.A states may include:

The state of incorporation;
The state of domicile (principal place of business or home office);
States with branch offices, regional operations or subcontractors;
States in which employees have significant contact (often involves employers located near state borders);
States in which employees regularly work or temporarily work more than a specific number of days during the policy year;
States with no or limited workers’ compensation reciprocity;
States in which employees are contracted for hire; and
States in which employers have multiple employees

In addition to identifying states in which an employer plans to work in the future, Item 3.C. should include bordering states in which employees may reside and states employees may occasionally visit or travel through. Remember, when work actually begins in a 3.C. state, employers must notify the insurance company at once.

Properly identifying states that need to be listed in your workers’ compensation insurance policy is critical. The consequences for failing to list a state under either Item 3.A. or Item 3.C. can be severe for employers and employees alike.

Please contact us if you have any questions about out-of-state workers’ compensation insurance coverage. You can subscribe to our newsletter to receive regular insurance and risk management informational updates.

Workers’ Compensation 101: What Does Employers Liability Insurance Cover?

Did you know that a standard workers’ compensation insurance policy has more than one part? It’s true, check for yourself. Part One Workers Compensation Insurance provides indemnity and medical benefits that employers are legally required to provide employees who are injured on the job. You probably knew that already.

But, if you keep reading, you will see that Part One is followed by…Part Two Employers Liability Insurance. What could that possibly cover?

Part Two of a standard workers’ compensation policy covers employers for liability arising out of an employee’s work-related injury, death or disease that is not otherwise covered under a state’s workers’ compensation laws. Unless otherwise excluded under the policy, Employers Liability Insurance will typically respond to a variety of claims that stem from an employee’s work-related injury, including the following common claims.

Third-Party Over. Despite providing workers’ compensation insurance, an employer may end up being held indirectly liable for an employee’s workplace injury. Third-party over claims occur when: 1) an employee sues a third-party to recover damages for their workplace injury; and 2) that third-party then turns around and attempts to hold the employer responsible for the employee’s lawsuit.

For example, assume an employee injured by workplace machinery sues the machine’s manufacturer for damages. A third-party over situation would occur if the manufacturer tries to recover money it paid to the employee by suing the employer for negligently failing to maintain the machinery.

Loss of Consortium. Consortium generally refers to one spouse’s legal right to the company, affection, assistance, service, companionship and marital relations of the other spouse. The spouse of an injured employee may bring a claim for care and loss of services.

Consequential Bodily Injury. An injured employee’s spouse, child, parent or sibling may sue the employer for their own bodily injuries that are a direct consequence of the bodily injury suffered by the employee. Examples may include a spouse who develops migraine headaches or a parent who has a stroke induced by the stress caused by their child’s workplace injury.

Dual-Capacity. Depending on the circumstances, an injured employee may be able to sue their employer in a nonemployment-related capacity. For example, an employer may be sued as the manufacturer of the machinery that injured the employee or the landlord that failed to adequately maintain the premises.

Employers Liability Coverage is automatically included in standard workers’ compensation policies available in most states. But, North Dakota, Ohio, Washington and Wyoming only allow workers’ compensation insurance purchased from a compulsory state fund. Employers in these ‘monopolistic’ states must purchase stop-gap coverage, which is essentially an Employers Liability Coverage endorsement added to a General Liability policy.

Please contact us if you have any questions about Worker’s Compensation and Employers Liability Insurance Coverage. You can subscribe to our newsletter to receive regular insurance and risk management informational updates.

Fair Labor Standards Act: Wage & Hour Law Update

What is the most recent development involving Fair Labor Standards Act? Here’s a hint. It’s not the highly-publicized rise and fall of those new white-collar overtime exemption regulations. In fact, quite a bit has happened since the Department of Labor officially abandoned its fight for new white-collar regulations in late 2017.

Opinion Letters

In June 2017, the DOL announced that it would reinstate the issuance of written opinion letters to help employers and employees better understand the FLSA. These letters provide the Wage and Hour Division’s official opinion of how the FLSA applies in the specific circumstances described by the person requesting the opinion.

On January 5, 2018, the DOL made good on its promise when it re-issued seventeen FLSA-specific opinion letters, the first in nearly a decade. These letters were originally prepared in 2009 by the departing Bush administration and quickly withdrawn under the new Obama administration. Then, on April 12th, the DOL issued two new FLSA-specific opinion letters.

This new round of opinion letters covers various topics, including:

Compensability of frequent rest breaks required by a serious health condition;
Compensability of travel time;
Calculation of salary deductions;
Salary deductions for full-day absences based on hours missed; and
Year-end non-discretionary bonuses.

Opinion letters are significant because they can provide an affirmative defense for actions that may otherwise be unlawful under the FLSA. An employer may avoid liability for actions:

Taken in good faith; and
In conformity with and in reliance on any written regulation, order, ruling, approval or interpretation of the DOL’s Wage and Hour Division.

Tipped Employees

In December 2017, the DOL proposed new tip regulations. Under the FLSA, employers can credit tips toward their minimum wage obligation. This “tip credit” is equal to the difference between the cash wages it pays the employee (which must be at least $2.13 per hour) and the $7.25 per hour Federal minimum wage.

Under current regulations, employees must be allowed to keep all of their tips, except for tips distributed through a tip pool. However, the tip pool must be limited to employees who customarily and regularly receive tips, like servers, bartenders and bussers. This restriction applies regardless of whether an employer claims a tip credit.

The proposed regulations remove this restriction for employers that do not take a FLSA tip credit and pay a direct cash wage of at least the full Federal minimum wage. The proposed regulations do not change the rules for employers that do claim a tip credit.

Under the proposed regulations, employers who do not take a tip credit would be allowed to share tips with back-of-house workers and other employees who do not customarily and regularly receive tips. According to the DOL, this lets employers reduce wage disparities among employees who all contribute to a customer’s experience, and also incentivizes all employees to improve customers’ experience.

The period for public comment on the proposed regulations ended February 5, 2018, so we can only wait to see what the DOL does next.

The rapidly changing FLSA can put employers at serious risk. Adjusting to change takes time, but violations can happen in the blink of an eye. Employers should consider Employment Practices Liability Insurance to protect against various employment-related claims, including limited coverage for wage and hour claims.

Please contact us if you would like to learn more about protecting your business with employment practices liability insurance.

To receive regular updates about developments which may affect your business, subscribe to Setnor Byer Insurance & Risk’s weekly risk management news brief.

Workers’ Compensation Rates Decreasing in 2018: When Will Your Premiums Go Down?

Good news for Florida employers! Workers’ compensation insurance premiums are going down in 2018. The Office of Insurance Regulation approved a statewide overall premium decrease of 9.8 percent. This should provide welcome relief, particularly after last year’s 14.5 percent increase. The premium reduction for new and renewal policies started January 1, 2018.

Why are premiums going down?

Last year, the Florida Supreme Court decided two cases that were expected to increase workers’ compensation costs. The Office of Insurance Regulation responded by approving a 14.5 percent rate increase, but the actual impact of these cases turned out to be less than initially projected. Other marketplace factors also contributed to the premium reduction, including:

Reduced assessments;
Increases in investment income;
Declining claims frequency; and
Lower loss adjustment expenses.

When will premiums go down?

Most employers did not see lower premiums on January 1st. That’s because the premium calculation for an existing policy will not change until the policy renews in 2018. This means that premiums for policies that renew early in the year will go down before those renewing later.

Rather than wait, some are asking whether they can simply cancel their current policy and replace it with a new one that has an earlier effective date. However, this isn’t really necessary for most employers. Remember, those with early renewal dates are not saving more, they’re just saving sooner.

For those that simply don’t want to wait, this course of action may ultimately lead to a premium increase in 2018. Before deciding to cancel and rewrite a worker’s compensation policy, employers must consider a number of factors, such as:

Experience Modification. A new policy means a new Experience Modification Factor (“Experience Mod”). Experience Mods, which are used to make sure premiums reflect an employer’s actual loss experience, are calculated by comparing an employer’s loss history with that of similar employers operating in similar industries. A better-than-average loss history, typically over a three-year period, means a lower Experience Mod and lower premiums.

Insurance companies look at an employer’s loss history during a specific experience period, which can range from less than 12 months up to 45 months. The experience period is based on the policy’s effective date, so a different experience period will be used to calculate the Experience Mod under a new policy. If this new experience period covers new claims, your premiums will go up.

Short-Rate Cancellation Penalty. Insurance companies impose a penalty to discourage early cancellations. A short-rate cancellation lets the insurance company keep a larger percentage of the unearned premium if the policy is terminated before the normal expiration date. The manner in which the penalty is calculated often varies by insurance company and policy form. Depending on the circumstances, the penalty may be substantial and must be considered in any cost-benefit analysis.

Dividends. Some insurers offer policyholder dividends as an incentive for employers to implement safety programs that eliminate or reduce claims. The opportunity to collect a dividend, which is essentially a return of premium, may be lost if the policy is cancelled early.

Employers must also consider the time, effort and inconvenience of getting a new policy (applications, inspections, underwriting requirements, etc.). Some insurance companies may refuse to cancel and rewrite a policy, so changing the effective date would mean changing insurance companies.

The decision to cancel and replace your workers’ compensation policy needs to be based on more than just wanting next year’s premium reduction sooner than later. For most employers, this benefit will not be worth the expense.

Florida’s Minimum Wage Will Be Going Up In 2018

On January 1, 2018, Florida’s minimum wage will be going up fifteen cents to $8.25 per hour. The minimum wage for tipped employees, which is in addition to tips, is also going up fifteen cents to $5.23 per hour. The Florida Minimum Wage Act, which is the result of a 2004 voter-approved amendment to the Florida Constitution, applies to those employees entitled to receive the federal minimum wage under the Fair Labor Standards Act.

Florida’s minimum wage is recalculated annually on September 30th to adjust for inflation. The recalculation is based on the annual percentage change in the federal Consumer Price Index for Urban Wage Earners and Clerical Workers for the South Region. The Florida Department of Economic Opportunity is responsible for calculating and posting the new minimum wage.

According to the Florida Supreme Court, only upward adjustments are permitted. Since becoming effective in 2005, Florida’s minimum wage has gone up almost every year.

2005 $6.15 +1.00
2006 $6.40 + .25
2007 $6.67 + .27
2008 $6.79 + .12
2009 $7.21 + .46
2011 $7.31 + .06
2012 $7.67 + .36
2013 $7.79 + .12
2014 $7.93 + .14
2015 $8.05 + .12
2017 $8.10 + .05
2018 $8.25 + .15

Employers are required to pay the federal minimum hourly wage or their state’s minimum hourly wage, whichever is higher. Florida’s 2018 minimum hourly wage of $8.25 remains higher than the federal minimum hourly wage of $7.25.

Florida employers must prominently display a minimum wage poster in a conspicuous and accessible place wherever minimum wage employees are employed. This poster must notify employees of the minimum wage and of their rights and protections under Florida’s Minimum Wage Act.

Employers who violate Florida’s Minimum Wage Act can be sued by their employees. However, employees must first notify their employer, in writing, of their intent to sue. This notice must:

identify the minimum hourly wage to which the employee claims entitlement;
provide the actual or estimated work dates and hours for which payment is sought; and
state the total amount of alleged unpaid wages.

After receiving such a notice, an employer has 15 calendar days to pay the total amount of unpaid wages or resolve the claim to the employee’s satisfaction. Otherwise, the employee will be allowed to file a lawsuit for unpaid minimum wages. The Florida Attorney General can also bring a civil action against employers. Each willful violation can result in a $1,000 fine.

Dealing with state and federal wage and hour laws can be hard. To protect against employment practices liabilityclaims, employers should implement a training program and explore their options for insuring against wage and hour claims.

Please contact us for more information about protecting your business from employment-related liabilities.

To receive regular updates about developments which may affect your business, please subscribe to Setnor Byer Insurance & Risk’s weekly Risk Management Newsletters.

The Affordable Care Act: What Does President Trump’s Executive Order Mean for Employers?

It wasn’t long before campaign promises to repeal Obamacare became official White House policy. On his first day in office, President Trump issued an Executive Order stating that “it is the policy of my Administration to seek the prompt repeal of the Patient Protection and Affordable Care Act.” This clearly marks the beginning of a long period of uncertainty about the future of Obamacare. What isn’t so clear is how the President’s Executive Order will affect employers.

Let’s start by clarifying that the Executive Order did not amend or repeal the Affordable Care Act (ACA). Only an act of Congress can do that. Instead, President Trump essentially issued marching orders to the heads of executive agencies about how their ACA-related authorities and responsibilities must be exercised under his administration. As head of the Executive Branch, this is within the President’s authority.

Specifically, the President directed these executive agencies to exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any ACA provision or requirement that would impose costs, fees, taxes, penalties or regulatory burdens. Can a directive as simple as this really change the ACA?

No, it can’t change the law itself. What it can do is change how the ACA is interpreted and enforced. This is because Congress sometimes uses broad strokes to enact a law. It then empowers one or more federal agencies to fill in the details. When it comes to the ACA, Congress did this quite a bit.

For example, Congress gave various federal agencies, including the Department of Health and Human Services(HHS) and the Internal Revenue Service (IRS), the general authority to promulgate any rules and regulations that may be necessary or appropriate to carry out a number of ACA provisions. Congress also gave these agencies some very specific and significant authority.

Hardship Exemptions. Congress included a hardship exemption in the ACA so deserving individuals can avoid the penalty for failing to have health insurance. Congress authorized HHS to define and determine whether someone qualifies for a hardship exemption.
Large Employer Reporting Requirements. Congress required applicable large employers to furnish and file information reports detailing offers of health insurance coverage to full-time employees. Congress authorized the IRS to determine how these reports must be prepared and when they are due.
Reasonable Cause Waivers. Congress included a waiver provision in the ACA so employers showing reasonable cause could avoid the penalty for failing to comply with the ACA’s reporting requirements. Congress authorized the IRS to define and determine whether an employer qualifies for a reasonable cause waiver.
Large Employer Penalty. Congress created a penalty for applicable large employers failing to offer full-time employees a minimum level of health insurance coverage, which must be paid when the employer receives a notice and demand for payment. Congress made the IRS responsible for not only determining when payments would be due, but for sending the actual demand for payment.

As you can see, various executive agencies have quite a bit of power to affect how the ACA is interpreted, applied and enforced. This power was given to them by Congress when the ACA was enacted. The Executive Order merely directs how these agencies must exercise the authorities and powers they already had under the ACA.

However, there are limits to this power. Formal rule and regulatory changes should be subject to the Administrative Procedure Act’s notice and publication requirements. This process can take months, possibly years. There may be a bit more flexibility when it comes to less-than-formal agency actions, but there are still statutory and constitutional limits that cannot be exceeded.

How far will President Trump and the executive agencies take the Executive Order to push their agenda? How far will opponents let them go before pushing back? How will the courts rule if (when) lawsuits are filed? The only thing we know for sure is that change is coming.

Setnor Byer Insurance & Risk is committed to guiding you through the constantly developing health care landscape. Check back with us periodically for future informational updates about the Affordable Care Act or contact us if you would like to discuss how we can help you comply with health care reform.

To receive regular updates about developments which may affect your business, subscribe to Setnor Byer Insurance & Risk’s weekly risk management news brief.

IRS Extends Deadline to Furnish ACA Forms to Individuals and Good-Faith Relief from ACA Reporting Penalties

On November 18, 2016, the Internal Revenue Service gave employers averaging at least 50 full-time or full-time equivalent employees in 2015 (Applicable Large Employers or ALEs) an early holiday gift. The IRS extended the Affordable Care Act’s due date to furnish 2016 Forms 1095-C to individuals from January 31, 2017 to March 2, 2017. The IRS also extended last year’s transition relief to protect ALEs from penalties if they make a good-faith effort to comply with the ACA’s 2016 information and reporting requirements.

The IRS did NOT extend the due date for ALEs to file their 2016 Forms 1094-C and 1095-C, which must still be filed with the IRS by February 28, 2017 (March 31, 2017, if filed electronically).

Under the ACA, ALEs are required to annually furnish Form 1095-C (Employer-Provided Health Insurance Offer and Coverage) to individuals on or before January 31 of the following calendar year. ALEs must also file Forms 1095-C and 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns) with the IRS on or before February 28 (March 31 if filed electronically) of the following calendar year.

The IRS determined that a substantial number of employers need additional time beyond January 31, 2017 to prepare and furnish their 2016 Forms 1095-C to individuals, which is why the due date was extended to March 2, 2017. This extension does not require the submission of a request or other documentation. However, the IRS determined that employers do not need additional time to meet filing deadline, so the due date to file 2016 Forms 1095-C and 1094-C with the IRS remains February 28, 2017 (March 31, 2017, if filed electronically).

Perhaps more important is the extension of last year’s transition relief from penalties that may be imposed for failing to comply with the ACA’s 2016 information and reporting requirements, which can be substantial. The penalty for failing to timely furnish correct Forms 1095-C to individuals is generally $250 per individual. The penalty for failing to timely file correct Forms 1095-C with the IRS is generally $250 per form.

To avoid these penalties, an ALE must show that it made a good-faith effort to comply with the ACA’s 2016 requirements to furnish information about employer-provided health insurance coverage to individuals and file this information with the IRS. This relief only applies to forms with incorrect or incomplete information, such as missing or inaccurate taxpayer identification numbers, dates of birth, etc. It does not apply to ALEs that do not make a good-faith effort to comply with the reporting requirements or that fail to file or furnish forms by the due dates.

In determining good faith, the IRS will consider whether an ALE made reasonable preparation efforts to furnish and file the necessary forms, such as gathering and transmitting the necessary data to an agent to prepare the data for filing with the IRS or testing its ability to transmit information to the IRS. The IRS will also consider the extent to which an ALE is taking steps to ensure that it will be able to comply with the 2017 reporting requirements.

These extensions only apply to the ACA’s 2016 reporting requirements. The IRS does not anticipate extending this transition relief, either with respect to the due dates or with respect to good faith relief from penalties, to reporting for 2017.

Setnor Byer Insurance & Risk is committed to helping clients protect their businesses and navigate the ACA’s reporting requirements. Please contact us for more information about our online tool for preparing, furnishing and filing ACA forms.

To receive regular updates about developments which may affect your business, subscribe to Setnor Byer Insurance & Risk’s weekly risk management news brief.

Federal Judge Blocks New White-Collar Overtime Regulations

A federal judge in Texas has blocked the Fair Labor Standards Act’s new white-collar overtime exemption regulations. Ten days before their effective date, District Court Judge Amos Mazzant issued a nationwide preliminary injunction that temporarily prohibits the Department of Labor from implementing and enforcing the new white-collar overtime exemption regulations. As a result, the new regulations will not be going into effect on December 1, 2016.

In May 2016, the Department of Labor revised various white-collar overtime exemption regulations to:

increase the minimum salary requirement from $455 per week ($23,660 annually) to $913 per week ($47,476 annually);
increase the minimum annual compensation requirement for the highly-compensated employee exemption from $100,000 to $134,004; and
create a process to automatically update the minimum salary and compensation levels every three years, beginning on January 1, 2020.

In September 2016, twenty-one states filed a lawsuit to challenge the legality of the new regulations. On the same day, more than 50 state and national business organizations filed a separate lawsuit challenging the regulations. Both cases were filed in the Eastern District of Texas and were later consolidated.

The plaintiffs filed an Emergency Motion for Preliminary Injunction to prevent the new regulations from going into effect on December 1, 2016. Though a number of arguments were made, Judge Mazzant, who was nominated by President Obama, ultimately determined that the DOL exceeded its delegated authority and ignored Congress’s intent by promulgating and attempting to implement the new regulations.

According to Judge Mazzant, Congress unambiguously intended the white-collar exemptions to depend on an employee’s duties rather than an employee’s salary. By significantly increasing the minimum salary level, the new regulations essentially supplant the well-established duties test. If the intent is to replace the duties test with a salary requirement, then only Congress can make the change, not the DOL.

Judge Mazzant noted that the new regulations would also be invalid because they are not based on a permissible construction of the FLSA and do not comport with Congress’s intent. The broad purpose of the white-collar exemptions was to exempt from overtime those engaged in executive, administrative and professional capacity duties. However, the DOL essentially created a de facto salary-only test by significantly increasing the minimum salary level.

Judge Mazzant ultimately concluded that the public interest is best served by a nationwide preliminary injunction that preserves the status quo until the case can be fully resolved on its merits. Since the DOL is currently prohibited from implementing and enforcing the new regulations, employers don’t have to change their wage and exemption practices for white-collar employees, at least for now.

The ultimate fate of the new regulations is uncertain. Though the preliminary injunction is temporary, this case can languish in court for more than a year. The DOL is currently considering all legal options. In the meantime, the Obama administration that initially directed the DOL to update the white-collar overtime exemption regulations will be replaced by a Trump administration that may direct the DOL otherwise.

Since the level of uncertainty and confusion surrounding the white-collar overtime exemptions has reached new heights, employers may benefit from having Employment Practices Liability Insurance to protect against various employment-related claims. Limited coverage for wage and hour claims may be available.

Please contact us if you would like to learn more about complying with the FLSA’s new (old) white collar overtime exemption regulations.

To receive regular updates about developments which may affect your business, subscribe to Setnor Byer Insurance & Risk’s weekly risk management news brief.

Business Interrupted? Don’t Let a Property Loss Jeopardize Your Business

Did you know that nearly 40% of businesses do not reopen and another 25% fail within a year after a catastrophe or disaster? The actual loss or damage to buildings, facilities and property is often the reason for this frightening statistic, but it isn’t the only reason. Businesses are increasingly struggling to recover after a property loss because of the economic impact caused by the interruption of business operations during and after the event.

It’s common for business operations to be suspended temporarily after a property loss. Depending on the severity of the loss, a business may be forced to shut down for weeks, possibly months. Though revenue often stops, expenses continue. The inability to pay expenses (payroll, mortgage, suppliers, taxes, etc.) can turn a temporary suspension of business operations into a permanent shut down. Business interruption insurance can prevent this from happening.

Business Interruption, also known as Business Income, is a type of commercial insurance that protects against loss of income when a covered loss causes a business to reduce or suspend its operations. In the event of a covered loss, business interruption insurance will cover lost revenue and fixed expenses, like rent and utilities, during the suspension of operations. Extra expense coverage is also available to reimburse costs over and above normal operating expenses, like temporary relocation costs.

Business interruption coverage is triggered when there is direct physical damage to property that was caused by a covered peril. For example, if wind damage is covered under a commercial property insurance policy, there would be business interruption coverage if operations were suspended due to a windstorm. On the other hand, if wind damage is not covered, there would be no business interruption coverage.

To calculate a business interruption loss, insurance companies need to determine how much the business would have earned if the loss had not occurred. They may review and consider various financial documents, such as tax returns, bank statements, profit and loss statements and balance sheets, to establish the amount of a business interruption loss.

According to the Insurance Information Institute, a recent report found that the economic impact from business interruption is often much higher than the cost of physical damage. Business interruption losses now make up a much larger part of overall property losses than they did just ten years ago. The increasing interdependence among businesses locally and globally also means that business interruption losses are expected to increase in frequency and severity.

Businesses should consider adding business interruption coverage to their existing insurance program. Though many aspects of this coverage are relatively standard, there are some variations among insurers and policy forms. For example, some policies may provide Civil Authority coverage. Given the relative complexity of business interruption coverage, an experienced and reputable insurance agent should be consulted to help identify needs and evaluate options.

Please contact us to learn how business interruption insurance can protect your business.

If you’d like to subscribe to our weekly newsletters, please click here.