Utility Service Interruption Insurance: What Craft Brewers Need to Know

Business insurance is a complex animal. The list of potential risks is long and fairly nuanced, depending on the type of business at hand. Without an industry expert in your corner, it can be easy to overlook certain “what-if?” scenarios that aren’t expressly covered by your business owner’s policy. Having the right agent on your team, to anticipate and explain hidden gaps, is essential.

In the world of microbreweries, utility service interruptionis a perfect case in point. Utility service interruption is a specific type of loss event—an event not typically covered by standard commercial property terms, nor equipment coverage (a.k.a. “inland marine”), nor basic business interruption, despite its similar-sounding name. Meanwhile, utility service interruption is a very real and very costly exposure.

So here’s what you need to know:

What is utility service interruption insurance?

Also known as “off-premises power coverage,” utility service interruption (USI) is an endorsement that can beaddedto basic business interruption and/or commercial property coverage. USI typically covers disruptions to the following: 

·       Your Water Supply (pumping stations, water mains, sewer mains)

·       Your Power Supply (utility generating plants, switching stations, substations)

·       Your Communications Supply (optic fiber transmission lines, coaxial cables, microwave radio relays, overhead transmission lines)

USI endorsements vary widely, in terms of which utility services are included, whether both “Direct Damage” and “Time Element” losses are covered, whether transmission lines are covered, and other variables. Your brewery insuranceteam should help you define which elements within these categories are covered on your policy.

What’s the difference between Direct Damage and Time Element Losses?

There are two ways to extend your basic insurance program by adding USI coverage: a direct damage endorsement and/or a time element losses endorsement. 

A Direct Damage endorsement acts as an extension of your propertyinsurance, offering protection against damage to tangible property, resulting from a utility interruption. So if, for example, a power line down the street is struck by lightning, and a surging electrical current flows back into your building, the burst can overwhelm your surge protectors—damaging your computers, appliances, breakers, switches and receptacles. A Direct Damage endorsement would kick in to cover any new wiring needed or equipment replacement.

Time Element Losses, on the other hand, are associated with stalled operations and lost income. After a utility disruption, lacking electricity or water would likely prevent you from opening your doors—costing you money.  Similarly, if a prolonged power outage affected your ability to control fermentation temperatures, you might lose valuable batches of beer: more lost income. A USI Time Element endorsement would extend your business interruption coverage to help you recoup these losses, up to a predetermined time limit or until utility service was restored.

But I already have business interruption coverage? Isn’t this the same thing?

Not necessarily. Basic business interruption insurance covers your costs if an unexpected event (e.g. a fire or a flood) damages your propertyand forces you to close shop for a short time. In some cases, basic business interruption may also cover certain types of utility disruptions while excluding other types; overhead transmission lines are a prime example. Be sure to ask your agent which utility disruptions, if any, are included in your current BI policy. 

How common are utility service interruption events?

In the past 10 years we’ve all been affected by at least one severe weather event. Following the October snowstorm of 2011, thousands of New England customers lost power—many for more than a week. Hurricane Sandy caused nearly 400,000 power outages in Massachusetts alone, dragging out over a five-day span. 

Lightning is another common concern. According to electro-mechanical consultants, direct and indirect lightning strikes happen every day, causing a variety of business interruptions. “…All business machines and various equipment types can be electrically shorted and mechanical components become fused, resulting in premature failure, if not instant total loss. Water pumps, blower motors, alarm systems and machinery can be compromised.  Building plumbing, HVAC air handlers, heaters and wiring can have extensive damage affecting the operation and control.” In fact, in 2015, nine percent of all reported claims involving HVAC systemswere caused by lightning strikes. 

What does utility service interruption insurance cost?

Costs and ideal coverage limits vary, depending on your operation. The cost may also be a function of your carrier’s property rating algorithm. To provide a ballpark figure, our craft brewery insurance team was able to add $25,000 in utility service coverage—including overhead transmission lines—for a mid-sized brewery/tap room, for less than $200 per year. Well worth it, when you consider the cost of new equipment or multiple days of downtime.

What do I need to ask my agent about USI coverage?

We recommend having a conversation with your brewery insurance agent as soon as possible—especially now that we’re officially into hurricane season. He or she can explain the conditions under which your insurance company offers USI coverage, as well as advise you on what makes sense for your microbrewery. Talking points should include:

• The types of utility power or service to be listed on your policy
• The specific waiting period (often 24 or 48 hours) that must elapse before coverage is triggered. (Instead of a flat deductible, there is typically a waiting period for coverage to kick-in.  Because of this, you will want to consider how much your business could absorb before you would need to be reimbursed, factoring in peak and low periods of business.)
• Whether or not your USI coverage applies to contingent third-party locations (suppliers and receivers)
  
  In addition to utility service interruption, there are many other niche coverages and endorsements that craft brewers should at least consider adding to their policies. If you’re not sure what your current program covers (and what it doesn’t), please don’t hesitate to contact our knowledgeable brewery insurance team.

In addition to being a craft brewery insurance expert, Ben Cavallo is the owner and principal of C&S Insurance, a proud member of the Mass Brewers Guild. He holds degrees from Emory University and Boston College, as well as CIC, AAI, and CISR insurance designations. He can be reached at 508.339.2951 or ben@candsins.com.

What Does Microbrewery Insurance Cover?

In addition to being a craft brewery insurance expert, Ben Cavallo is the owner and principal of C&S Insurance, a proud member of the Mass Brewers Guild. He holds degrees from Emory University and Boston College, as well as CIC, AAI, and CISR insurance designations. He can be reached at 508.339.2951 or ben@candsins.com.

By: Ben Cavallo, owner and principal of C&S Insurance

When breweries are shopping for insurance the most common questions we hear are: 

• What does microbrewery insurance cover? 
• What comes in the “standard” startup package?
• Which coverages am I required to have in place so I can open a microbrewery, nanobrewery, or brewpub?

Folks starting new breweries—and plenty of long-time owners, too—call to ask for the baseline minimum. After all, running a business comes with all sorts of hidden costs and unforeseen expenses. No one wants to shell out extra money for insurance—which is basically a business tool you can’t see, can’t touch, can’t even use unless something goes wrong.

Unfortunately, we have to give these brewers the same answer: it all depends. Not very helpful in the immediate sense, but individualized needs are the reality of craft brewery insurance. There’s not much standard about it, despite the results you can find online for “business insurance packages.” What’s more, shopping for a cheap, generic option often leaves craft brewers exposed to serious gaps. Here’s a quick look at some examples:

1.     Property Insurance

Unlike a typical restaurant or bar, the products and equipment inside your microbrewery are especially costly and time-consuming to replace. In the event of a fire, prolonged power outage, tank leak or other machinery failure, you have to consider the potential loss of business income, product spoilage, and other unique concerns. Only an agent with experience in microbrewery insurance can advise you property coverage blanket limits based on your in-house capacity.

2.     General Liability Insurance

Allegations of wrongdoing don’t just damage your brewery’s reputation; they’re often expensive and drawn-out legal events—and that’s before they even get to a courtroom. It’s difficult to anticipate how much liability coverage you’ll need (on a “per occurrence” basis and in aggregate) without enlisting an industry professional. Even if you opt to forego certain coverages as a startup operation, it’s important to at least understand the different types of risk and protection—from liquor liability, to special events, to employment practices liability (employee lawsuits)—as your brewery grows and evolves.

3.     Workers’ Compensation Insurance

We know lots of microbrewery startups begin with a pair of spouses, siblings, or hometown buddies, which might seem to negate the workers’ compensation discussion… But the truth is that most small businesses in the Commonwealth of Massachusetts are  required by law to have a valid workers' compensation policy at all times—even for a staff of just two people. If your business is an LLC, LLP or otherwise qualifies for exemption, there’s still a conversation to be had. Chances are you don’t intend to be a two-man (or two-women) show forever. Anticipating the measures and protocols that will affect your workers’ comp rates is a smart thing to start doing now. Take advantage of the free advice you can get from a dedicated brewery insurance agent.

Bottom line: when you ask yourself, “what does insurance cover?” you should be prepared to sit down and have a longer conversation with an agent who is an expert in your industry. He or she will listen to your complete business description and ask a series of questions designed to map your unique risk profile. Meanwhile, learn more about the factors that affect microbrewery insurance rates and carrier options: 

Three Keys to Crafting a Better Business Protection Plan

By: Matt Montesano
A craft brewery insurance consultant at Cavallo & Signoriello 

It’s a warm, sunny day in Massachusetts. The Red Sox are up by five runs. The food truck is serving your favorite grilled cheese (the one with the fontina and the perfectly caramelized onions...). Clusters of friends are gathered outside on the patio, sipping your summer special—a smooth brew of honey and citrus.

Leave it to an insurance agent to spoil this idyllic scene, but hey, risk management is our job. And at the end of the day, most craft brewers thank us for pointing out the gaps they hadn’t seen before. Are any of the following exposures lurking around your craft brewery? If so, these three tips will help you take action.

1.     Understand Your Risk Profile

Craft breweries and brew pubs are unique businesses in every sense, but especially in terms of their insurance requirements. Sure, you need general liability, workers’ comp, and property insurance—just like any commercial outfit. But beyond these basics, coverage types get pretty specific. (Or at least they should.) Don’t settle for an insurance package that’s designed for a neighborhood bar or a manufacturing plant. Neither one is synonymous with your risk profile.

Instead, ask your agent about niche coverages that might need to be bundled into your program. Commonly overlooked coverages include tank collapse, tank leakage, boiler and machinery breakdown, water processing disruption, product contamination or recall, and key employee coverage for your head brewer or brew master. (Yep, that’s right. There’s an endorsement available to help you recoup the costs of recruiting and hiring a new point person if necessary.)

Business interruption insurance is another biggie. A lot of breweries have it, although not often for the right amount. With dozens of breweries entering the market each week, the wait time associated with new tanks and equipment orders has skyrocketed. Following a fire, major storm, or other door-closing event, your policy needs to account for this prolonged lag.

2.     Partner with the Right Team

Okay, so now you’re aware that craft brewery insurance is a super-nuanced product, much like the flavor profiles you create. It stands to reason that not every insurance agency is up to the task of quoting your business, nor every commercial insurance carrier. (You don’t want your business to be the guinea pig for someone’s foray into brewery insurance.)

Before choosing an insurance partner, find out if the different candidates are fully invested in your industry. For starters, do they spend any personal time at local breweries? Do they know the difference between Golding and Chinook hops? Do they even enjoy beer? Admittedly, these aren’t essential criteria, but it’s always easier to work with someone who recognizes and appreciates the value of what you do every day. More important qualifiers include number of years in business, customer references, value-added service offerings, industry association membership (e.g. the MBG), network and carrier relationships.

Why do networks matter? Because your insurance agent should be helping you more than once a year. As your business evolves, your footprint and risk profile can change, too. Maybe you’ll want to add a roof deck, start leasing kegs, bring in live entertainment, build an in-house kitchen, take your business on the road… In cases like these (and so many others!), a legal and/or financial expert should be guiding your path; brewery insurance professionals already have relationships with the folks you should consult. Meanwhile, they know how all of the above changes will affect your coverage needs.

3.     Prevent Loss Events before They Happen

Remember the Chris Rock bit that defines insurance as, “in case sh*t happens”? Good insurance partners don’t approach business protection this way, and neither should you. Ongoing, proactive risk management should be a built-in component of your business plan. If you don’t have the time or resources to get it done independently, don’t be shy about calling on your agent.

Some preventable loss events are obvious: liquor liability claims, for example. You staff should receive regular training on how to avoid over pouring, over-serving, or allowing intoxicated patrons to drive. But you can also take steps to prevent employee injuries and costly business disruptions. Hosting onsite trainings to teach proper lifting techniques, believe it or not, can save you a lot vis-à-vis workers’ compensation claims.

Here are some other pieces that belong in a thorough craft brewery safety program: employee handbooks, first aid and CPR training, defensive driver training for fleet drivers (if applicable), hazard analyses and written procedures in accordance with OSHA guidelines. Your brewery insurance partner should be available to help with all of it.

Because ultimately, creating the good stuff—the atmosphere, the flavors, the throngs of loyal fans—is your job.  Protecting your ability to thrive and grow: that’s the real definition of insurance. And when you leverage it correctly, it’s every bit as idyllic as a summer day on the patio.

Matt Montesano is a craft brewery insurance consultant with more than five years of experience in customer service and sales. He holds a degree in finance from Providence College, where he was a member of the Friars’ Division I hockey team. Outside the C&S Insurance office, Matt enjoys discovering new restaurants and breweries in and around Boston. He can also be found at the park or the beach with his 10-month-old English shepherd, Gordie. Follow Matt’s tweets @MattMontesano26.

Craft breweries and brew pubs have an extremely unique risk profile. Not every insurance provider is up to speed on the industry’s exposures and available products. At C&S, we work with leading carriers—several of whom offer brewery-specific insurance packages, designed to bundle the appropriate coverage into one, hassle-free insurance program. Ask our experts how your brew pub or craft brewery insurance should be structured, based on your individual operation.