Our own David J Bonne (Independent Insurance Agent & Craft Beer Aficionado), loves insuring breweries, and he really loves writing about it. For further information, or to have David look over your current policy, simply call Hudson Valley Agents, 845-778-2141.
Insuring Breweries, Part 1 – Property Coverage
Many breweries have property-driven insurance plans because of their significant and substantial building and business personal property exposures that are often located in rural areas which may have limited water and are sometimes served only by volunteer fire departments. They also have liability concerns because their products are meant for human consumption and can become contaminated. Another major concern must be injuries to workers. Farm-related injuries are higher than most other industries, so coverage is critical.
Package policies are the most convenient way to combine several coverages on a single policy. Most coverage for brewery operations can be combined and receive package discounts under a commercial package policy.
When it comes to the property insurance aspect of this, larger brewery risks should consider an agricultural output policy for property exposures. The additional coverages and extensions could be very important. Other risks like a small brewpub may prefer a regular output policy. Equipment breakdown protection coverage is particularly essential coverage because of the processing operations performed and pressurized vessels used in the process. Utility services direct damage coverage is essential optional coverage that should be considered because the processing risk is dependent upon an uninterrupted power source for its continuing operations.
Kinds of property to think about when insuring your craft brewery:
· BUILDING – Besides the building or structure, it is also interior and exterior fixtures, equipment employed to service the structure, and permanently installed equipment and machinery. Kinds of building service equipment are refrigeration, cleaning, and cooking equipment, but these are only examples, and many other types of equipment are covered.
· BUSINESS PERSONAL PROPERTY – is the furnishings and fixtures, equipment and machinery, stock as well as other personal property that belong to the business which is used utilized in the business. Labor, materials or services that are provided or arranged by the business on the property of others, or use the interest of the business as a tenant in improvements and betterments made to the property and leased personal property for which the protected is contractually responsible for providing coverage can also be business personal property.
· PERSONAL PROPERTY OF OTHERS – is the property that is considered to be in the care, custody or control of the business while it is situated on the insured premises.
· IMPROVEMENTS AND BETTERMENTS – is the business’s use interest in alterations and additions made to premises or structure occupied but not owned by the business and that must remain with the building even when the insured business moves out. This type of property can be listed as a separate item with its own limit on the policy, or it can be combined with all other forms of business personal property within the business personal property limit. The loss settlement is based on the replacement cost of the items if replaced. If not replaced, the valuation is based on the actual cash value reduced by the percentage of the lease contract that has passed.
· AGRICULTURAL OUTPUT POLICIES combine multiple property coverages into a single policy that provides insurance protection from the production stage through processing operations and to the wholesale distribution function. The agricultural output policy incorporates unique coverages needed by agricultural suppliers, cultivators, and processors. Feed and fertilizer manufacturers, grain elevator operators, and seed processors also benefit from this kind of policy. Although it has characteristics similar to a farm-owners policy, it has different eligibility requirements, coverages provided and pricing considerations. Many breweries are small craft brewers that source their own grains and hops locally or on their own farm now.
· EQUIPMENT BREAKDOWN PROTECTION COVERAGE – covers damage from an accident to covered items; damage to the other property of the business as a result of an accident to the items covered; and income loss from damage to the subjects covered or damage to other insured property. The items covered consist of boilers and other heating devices. Most electronic devices, equipment, and machinery can also be included.
Be cognizant of the form your company is using when insuring your brewery. Just like a homeowner or farm-owners policy, there are different levels of perils or risks that can be included in your policy depending on the form you choose. Form choices are usually basic, broad, or special. Special is the more comprehensive coverage out of the three.
There are also optional property coverages to consider such as earthquake or flooding now as well.
Additional property coverage options to consider are:
· DEBRIS REMOVAL COVERAGE – is a result of any building or business personal property loss. It must be removed before reconstruction can begin. Debris removal coverage in the building and personal property coverage form is limited to 25% of the loss. An additional $25,000 is provided as an enhancement to the basic form. These amounts may be insufficient for some businesses, and an option is available to purchase additional limits. Limits are obtained for each location and not on the basis of each building. This approach gives your business the opportunity to consider the entire location and determine the total potential debris removal consideration. Unusual construction or areas with access problems can mean higher debris removal expenses.
· ORDINANCE OR LAW COVERAGE – a standard unendorsed insurance policy excludes coverage for any costs associated with the operations of building laws or ordinances. This endorsement is available to give coverage for the elevated costs and effects as a result of building laws that may have previously been grandfathered but may be activated as a result of a significant loss. Coverage applies when laws require that a building is not meeting current building codes be torn down following a substantial loss so that it can either be constructed to meet current standards or that the owner must move to another location. It covers the value of the undamaged portion of the building that must be destroyed. It can pay for the cost to demolish the undamaged part of the building. It also covers the increased cost of construction required to meet current building codes.
· SPOILAGE COVERAGE applies to direct physical loss or damage to perishable stock caused by equipment breakdown or contamination and/or by an interruption of power beyond the control of the insured. Established limits are available, and you can select the cause(s) of loss to insure. The term “perishable stock” means personal property that must be maintained under controlled conditions for its preservation, because it is susceptible to loss or damage when conditions change.
· UTILITY SERVICES–DIRECT DAMAGE COVERAGE. Standard insurance policies exclude on-premises losses caused by the disruption of communications, power or water utility services. This endorsement fills that gap and covers such losses provided the outage is due to physical damage at the utility service provider or its power lines. The physical damage to the utility service provider or power lines must be caused by an insured peril or cause of loss.
Insurance policies also have different methods of evaluating your product. Take a look at some of the valuation options you need to know about when deciding on your insurance:
· MANUFACTURERS’ SELLING PRICE – Property coverage forms apply actual cash value treatment to a manufacturer’s finished stock. This valuation approach covers only the cost of raw materials and production but not other expenses and profit related to that product. The MSP endorsement modifies the valuation loss condition to base the loss settlement for the manufactured finished stock at whatever price the manufacturer would have sold the stock. However, the valuation is still reduced by discounts the manufacturer would have provided and reasonable expenses in shipping the product that the insured does not incur.
· MARKET VALUE STOCK – This form is added to a commercial property policy covering a manufacturing risk with stock that is subject to market swings. Valuation is based on the market price at the time and place of loss or damage, but reduced by its standard discounts and any expenses the insured otherwise would have had but does not incur because of the loss. “Stock susceptible to market value” means stock customarily acquired and sold at a recognized market exchange in which the market prices are published and quoted. Some examples may be certain commodities traded on the market, such as grains, or coffee.
· PEAK SEASON LIMIT OF INSURANCE – increases the scheduled business personal property limit of insurance to a higher threshold to cover anticipated inventory increases for specified time periods. This endorsement is recommended in place of a property reporting form when inventory is relatively constant, except for a few known peak periods. The peak time period selected should anticipate and include early deliveries and unsold inventory. Note that business owners policies (BOPs) include automatic coverage for seasonal or abnormal inventory increases as long as the business personal property scheduled limit equals at least 100% of the average monthly values.
· VALUE REPORTING for business personal property should be considered when values regularly fluctuate or move between locations. It is used with stores, processors, businesses, manufacturers, and warehouses with significant inventory levels. This form assures full recovery of loss when required periodic value reports are submitted on a timely and accurate basis, and limits of insurance are maintained at proper levels. The most commonly used reporting frequency is monthly but, depending on the insured’s operations and requirements, the reporting period may be daily, weekly, quarterly or annually. A provisional premium charged at the beginning of the policy period is adjusted at the end of the policy year, based on the values reported. Using this approach, the insured pays only for the insurance coverage needed.
There are also many time element coverages to consider with your agent such as:
· BUSINESS INCOME WITH EXTRA EXPENSE COVERAGE reimburses a business for the amount of the net income which would have been procured in addition to its ongoing expenses for the amount of time needed to fix or restore property after having a covered cause of loss. The process is within line with commonly accepted accounting methods. The coinsurance stipulation in the endorsement pertains to the 12 months after policy start. This form may also insure loss of rental income. The rental value exposure is typically associated with a building owner. Nevertheless, there are cases where it might even be significant for a lessee with a lease that demands continued rent payments after a covered loss causes the insured building to become unusable.
Extra expense coverage will not include a monthly limitation and is bundled as an automatic coverage element. This will make use of separate extra expense insurance unnecessary for many businesses. Remember that the coinsurance stipulation doesn’t apply to this coverage. It pays the expenditures needed to continue business operations, including rental of other locations as well as the use of other facilities and speeding up other expenditures.
Coverage automatically extends for as much as 60 more days to cover the additional time required for functions to be restored to the condition that existed prior to the loss occurring, provided the limit of insurance hasn’t been depleted. If worries exist over loss of market and the amount of additional time required to get to the normal income level, the 60-day extension can be increased for additional money. 90 days is often a more appropriate time extension.
· LEASEHOLD INTEREST COVERAGE is designed for tenants who have more favorable long-term leases than the prevailing rate in the area. It pays the gap between the prevailing rent amounts and the current rent being paid after the cancellation of the lease as a result of direct damage to the building by a covered loss. It covers many up-front amortized expenses along with the rental or lease difference. The coverage limit decreases based on the length of the lease.
It is crucial to review your lease agreement with your agent to determine what losses could occur that would break the lease and trigger coverage. The lease should dictate the cause(s) of loss for which coverage is purchased.
· BUSINESS INCOME FROM DEPENDENT PROPERTIES COVERAGE – relates to covered causes of loss that happen at scheduled dependent properties contributing directly to the suspension of functions at the insured property. Some examples of dependent properties might include your suppliers or your customers. This protection is provided using an endorsement linked to the business income coverage. There isn’t any requirement that business income coverage is obtained on your premises as a prerequisite to buying business income from dependent properties coverage.
· ORDINANCE OR LAW INCREASED PERIOD OF RESTORATION COVERAGE – is not incorporated into any business income protection form. This endorsement expands to cover the extra time needed to rebuild damaged property in conformity with current building codes. Additionally, it includes the time necessary to destroy the undamaged area of the building. If the ordinance or law direct damage coverage form is procured, this coverage also needs to be purchased.
· UTILITY SERVICES–TIME ELEMENT COVERAGE is not provided in most standard property forms. However, disruptions of electricity, water, and communication can limit or completely stop operations at certain businesses. This endorsement provides coverage if a covered cause of loss or insured peril damages the off-site utility service provider location and/or its power lines causing a disruption of power to the insured’s operation and causing a loss of income.
The food product must be moved from the processor to the consumer. Coverage for the product during the transport is extremely important because any loss is often a total. While property coverage forms include some transit coverage, the limits are low and may not have the needed causes of loss. Inland marine transportation coverage is usually broader and more inclusive. This is a significant coverage even if carriers for hire are used to transport your product. Also, electronic data processing coverage may be needed if highly mechanized processing systems are used. The following coverages may be considered inland marine by your insurance carrier:
· ACCOUNTS RECEIVABLE COVERAGE protects against loss resulting from your inability to collect accounts receivable due to the loss, damage or destruction of your books or records of accounts. A small amount of coverage is usually included in property coverage forms.
· ELECTRONIC DATA PROCESSING EQUIPMENT COVERAGE insures against loss or damage to electronic data processing equipment and its media and data owned, leased or used in your business. Electronic or advanced production equipment can also be insured as well as traditional computer equipment. Protection might or might not integrate breakdown and power interruption.
· TRANSPORTATION COVERAGE protects your business property while being shipped. Coverage includes both shipments to and from your business. One of three forms usually provides coverage. The transportation form covers all deliveries made during the policy period using transportation companies, carriers for hire, owned vehicles, railroads, and airlines. The owner’s form covers all shipments made using only the owned vehicles of the insured. The trip transit form is used for a single shipment by a specific mode of conveyance, on a “one-shot” basis.
· VALUABLE PAPERS AND RECORDS COVERAGE applies to the papers of a business. These papers may include the deed to the property, original copyrights, and patent rights to key products, patient records, books, construction plans or manuscripts. Few businesses can operate without acquiring quite a few valuable papers. If any of those papers are lost, the operation of the business could be severely affected. Coverage is written on an all risk type basis, including misplacement and mysterious or unexplained disappearance.
Crime coverages are another aspect to insuring your property. The primary crime exposure for food processors is employee theft of inventory. Money and investments or securities exposures could be present if retail and wholesale procedures are conducted on premises or at offsite facilities. Internet sales may create additional vulnerabilities. Here are some solution endorsements:
· COMPUTER AND FUNDS TRANSFER FRAUD COVERAGE – applies to money, securities, as well as other property fraudulently shifted from the business premises or banking facility to a location other than the insured property or the banking premises. Protection is worldwide.
· EMPLOYEE THEFT COVERAGE – is the insuring contract that pertains to employee theft losses involving investments, securities, money, in addition to other property. It protects the unlawful taking of covered insured assets by employees. The insurance applies no matter the number of employees involved in the loss. This is an essential point because the limit of protection applies to each instance, and not to each employee. This is the only coverage that relates to dishonest acts of employees.
· FORGERY OR ALTERATION COVERAGE – is the safeguarding agreement that applies if somebody other than an owner or worker forges a signature on a check or another negotiable instrument to acquire funds belonging to the insured. Protection will not apply to forgery or alteration of checks done by the business owner or any employee, manager, director, trustee or representative.
· INSIDE THE PREMISES THEFT OF MONEY AND SECURITIES COVERAGE – is the insurance agreement that insures against theft of money and securities from inside the business premises or from within your bank. Also, it covers damage to the interior of the property as well as the exterior of the structure caused by an attempted or actual theft. Last but not least, it provides for damage to locked cash registers, vaults, safes, cash boxes and cash drawers inside the building caused by attempted or actual theft.
· INSIDE THE PREMISES ROBBERY OR SAFE BURGLARY OF OTHER PROPERTY COVERAGE – is the insurance agreement where insurance applies only to the robbery of a person accountable for the property or to safe burglary. The act has to take place inside the premises. Money and securities are not covered. This is nominal coverage and shouldn’t be used when a “special” cause of loss form pertains to the property simply because it would duplicate the coverage.
· MONEY ORDERS AND COUNTERFEIT MONEY COVERAGE – is the insuring agreement that covers money taken in good faith in return for purchases as well as money orders acquired from customers that are not approved when presented to the expected issuer. The protection territory is restricted to the United States, its territories and possessions, and Canada.
· OUTSIDE THE PREMISES COVERAGE – is the insuring agreement that covers thievery, disappearance, and destruction of money and securities when off premises and in the custody of a messenger, courier, or an armored car company.
Crime Coverage Options to Consider:
· CUSTOMERS PROPERTY COVERAGE is similar to the employee theft insuring agreement, but it covers theft of customers’ property by your employees. Covered property must consist of either property owned by the customer, property of others held by the customer, or property for which the customer is legally liable. Coverage applies only when the employee who caused the loss is identified
· DESTRUCTION OF ELECTRONIC DATA OR COMPUTER PROGRAMS COVERAGE – pays costs incurred by you to regain or replace damaged or destroyed software or electronic data. Coverage has limitations and applies only to data or programs stored on the computer. The damage can be from an outside source or from the actions of an employee, manager, director, trustee, representative or official of the business. Damages or destruction has to result directly from either a computer virus created to damage or destroy electronic data, software or programs or from vandalism to applications or data by a person with unauthorized access to the computer.
In addition to the above property coverage considerations, a brewpub may also want to consider the following coverages:
· BAILEE CUSTOMERS COVERAGE is used to insure bailment situations. In a bailment, one person accepts goods from another and promises to return them to that person in the same condition or better. This creates both a contractual obligation and a goodwill obligation. Bailee customers coverage is a nonstandard form offered by many inland marine insurance carriers. Coverage can be for legal liability only or can also include goodwill coverage. Valuation may be on an actual cash value or a replacement cost basis. Coverage can be purchased for the property involved while being worked on or not. Coverage may be for risks of direct physical loss or damage or for designated perils only. Coverage applies at the insured’s premises, in transit or at another premises performing services on behalf of the insured
· FINE ARTS COVERAGE – protects scheduled works of art, including paintings, etchings, sculpture, and stained or etched glass windows, against risks of direct physical loss or damage. Protection applies on-site, off-site, and in transit. An exclusion for breakage is common, but coverage for it can often be bought back for a significant premium surcharge. A requirement for professional packing may apply to some objects when they are transported or shipped.
· SCHEDULED PROPERTY COVERAGE – insures your property and that of others without limitation concerning place. It is a floater form, and protection is on an all-risk basis. The property protected has to be specifically identified and detailed, and have a limit of insurance assigned to it. Insurance applies on-site, off-site, and in transit.
· SIGNS COVERAGE – insures neon, fluorescent, automatic, mechanical and electric signs against risks of physical loss or damage except when excluded or limited. However, protection will not apply to loss of use, internal explosion or blowout, short circuit, wear and tear, deterioration or damage sustained while being worked on.
That’s all for part 3 of our Farm to Table insurance blog. Part four will be the 2nd half of this blog post where we will talk about proper liability coverages for your brewery or brewpub.
#farmtotable #brewlocal #drinklocal #insurelocal #HudsonValley #HudsonValleyinsurance