March 16, 2021

A Hidden Pitfall of “Blanket Coverage” for Your Multi-Location Business: Part 1

Business owners – we want to flag a possible problem that arises from the “blanket limit of liability” you may have in your insurance coverage.

Let’s say you’re a business owner who is a franchisee, and you’re lucky enough to own a bunch of Dunkin’ Donuts locations in your area. If you’re located here in Massachusetts, that can be a popular investment. Maybe you rent your locations, and your insurance contains the all-important “Business Interruption” (BI) provision.

You’re always looking for ways to save, and you realize you can get a better premium on your insurance if you put all of those locations on one policy. Under your (single) policy’s ‘blanket limit of liability’ provision, you can recover up to that limit for any one loss. Basically, you’re paying less to have a higher limit than if you individually insured each location.

Insuring all your locations under one blanket policy has additional benefits. In order to make claim for depreciation, you must prove that you’ve spent the full replacement cost of your loss. If, after a loss, you undertake capital improvements at one location in the policy, you can use those dollars spent at another location to make a claim for depreciation, if you have that coverage in your policy. Basically, you don’t have to spend the full replacement cost at the loss location – you can spend it at any of the locations listed on your policy, and use that to make your depreciation holdback claim.

The potential problem can come about when you have a property loss at one of your insured locations and you pursue a BI claim. Typically, you would run a sales analysis at the store and calculate the amount of lost business income. But wait: the insurance company might point out that your supposed lost revenue actually only represents revenue that traveled – maybe across the street – to another one of your locations insured under your blanket policy. After all, the carrier insures all of your Dunkin’ stores. If a dollar goes across the street, it’s still the same dollar earned. So, the carrier will want to look at sales from the Dunkin’ you own across the street. The carrier may even ask to review business income numbers for every location you own to see if there’s an uptick elsewhere.

What’s more, business owners often put coinsurance on their properties. If that’s the case, you must do a coinsurance analysis for all locations. That’s burdensome – it requires a business owner to produce all sales information for every location. And if you’re not reviewing the limit annually, you could find yourself as an unwitting co-insurer and pay a substantial penalty, thereby reducing the claimed amount.

So, beware of this potential pitfall with BI claims involving a property covered under a blanket provision. You might end up having to produce extensive financial information, which could equip the carrier to scrutinize your claim.

Mindi Labella

Mindi is a CPA who specializes in commercial losses, business interruption, extra expense and time element claims. She is an integral member of the SMW team, drawing on her business background to advocate on behalf of our clients.
If you’ve had a fire, flood or other property loss resulting in an insurance claim, and need a public insurance adjuster in Massachusetts, New Hampshire, Rhode Island, New England or anywhere in the U.S. or Caribbean, call Swerling Milton Winnick. We are the oldest and largest public adjusting firm in New England, and our team of experts will give you personalized, 24/7 attention to successfully resolve your residential or business insurance claim.