Newsletter: How insurance works for looted small businesses

Good morning. I’m Rachel Schnalzer with the Los Angeles Times business section’s weekly newsletter, which aims to help you navigate the financial and work-related challenges of the COVID-19 pandemic.

Over the last week the landscape shifted yet again as another pressing issue came to the forefront: A Minneapolis police officer killed George Floyd, and largely peaceful protests bubbled up nationwide over law enforcement officers’ use of force and treatment of black people. Some of the protests have involved property damage. In the commotion, looters have targeted businesses big and small.

The reasons for the destruction and thefts are nuanced. But businesses, especially those rocked by the effects of the coronavirus, feel new losses keenly.

Many small-business owners have been trying to protect their storefronts. Some wait inside, hoping to deter crowds themselves, or hire guards. Others have boarded up windows and posted signs saying things like “Black Owned,� hoping to convey that their interests and the demonstrators’ are aligned. On Saturday, as police clashed with protesters nearby, Canter’s Deli — with a “Black lives matter� sign in a window — stayed open and handed out bottled water to all takers, free of charge.

Another way business owners are protecting their livelihoods is with insurance. As Sam Dean, Laurence Darmiento and Ronald D. White report, some policies cover losses from merchandise theft and destruction of property.

Is your business covered by insurance? How can you tell?

Most business owner policies cover property damage and loss regardless of the cause in situations like this, and many businesses are required by their lease agreements to have basic insurance. But it’s often up to the business owner to choose how much insurance they want to purchase to cover their products and equipment. This coverage may range widely depending on the type of business, the inventory value and a business owner’s own savings.

It’s always best to read your policy to understand your degree of coverage. Inventory and equipment are likely to be covered under a standard business operators policy. Business interruption insurance, which typically covers lost revenue, may come with more conditions. It may be helpful to look for language like “riots or civil commotion,� as mentioned in this Insurance Business story published in the wake of unrest in Baltimore following the 2015 death of Freddie Gray in police custody.

Not all businesses hold insurance policies to cover their inventory and equipment. Owners who do not have insurance would need to cover losses out of pocket.

What should you do if your business was looted?

Due to the pandemic, California Insurance Commissioner Ricardo Lara ordered that insurers refund part of their commercial premiums for businesses affected by the coronavirus. Lara also requested that grace periods for paying premiums be extended through mid-July.

Contact your insurance company to discuss premium rebates and grace periods. Because of Lara’s actions, you should have additional time to pay premiums and be able to qualify for lower rates. The Department of Insurance is a resource for help submitting claims or questions about coverage.

What should you do if you don’t have insurance for your business?

If you don’t have insurance, you should try to get it — before you think you need it, if possible. The U.S. Small Business Administration has a guide to business insurance that provides more information on how to do this.

Other stories you may find helpful

— “We describe the violence as senseless, but it is not.� Columnist Frank Shyong explains what images of burning buildings and broken windows from the aftermath of mayhem over the weekend tell us — and what they don’t.

— Will small-business owners in L.A. go to jail for breaking coronavirus rules? We’ll likely find out soon. Margot Roosevelt reports that thousands of businesses in L.A. County have been found to be out of compliance with virus safety rules, and some face criminal prosecution.

— Georgia Gov. Brian Kemp released recommendations for film crews operating in the state’s entertainment industry, writes Anousha Sakoui. Among the guidelines: No more open calls for casting, clear barriers between actors and an end to self-service fruit platters.

— Canceled cruise vacation? You may have a hard time getting your travel insurance money back. Columnist David Lazarus explains how some travel insurers are refusing to refund policyholders despite cruises being canceled amid the pandemic.

Reader question

A reader asked us: What help do you know of for mom-and-pop property owners who risk losing their only source of income? So far I have a three-month forbearance with mortgage companies, but what if they want full payment at this time?

Housing reporter Andrew Khouri looked into it and put together this explanation:

If you’re a landlord who received a forbearance on your mortgage, how you repay the payments you missed depends on what kind of loan you have. If you have a mortgage that is not backed by the federal government, your mortgage servicer can set the terms of a repayment plan, but may be willing to negotiate and work with you to find an affordable solution.

If you have a mortgage backed by the federal government — for example, through the Federal Housing Administration, Fannie Mae or Freddie Mac — there are additional rules your mortgage servicer must follow.

What are those rules?

If you have a Fannie Mae- or Freddie Mac-backed loan on a one- to four-unit rental property, you have the same repayment options as a typical homeowner with a loan backed by one of those companies, according to the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac.

The options include a deferral. That means when your loan ends, such as at the end of 30 years or when you sell your property, the missed payments are supposed to be paid all at once. In the case of a refinance, missed payments would be added to the principal of the new loan.

The repayment options are the same whether you live in one of the units on the property or rent them all out, according to FHFA.

For loans backed by the Federal Housing Administration, things work differently.

If you have a two- to four-unit property and live in one of the units, repayment options are the same as for a typical homeowner with an FHA mortgage, according to an official with the Department of Housing and Urban Development, which oversees FHA.

Those options include a deferral option in which missed payments are due at the end of the loan.

If you have an FHA-backed loan on a one- to four-unit property and don’t live in one of the units, repayment options vary, the HUD official said. Such borrowers can call (800) CALL-FHA (225-5342) to learn more about what options are available.

What if you have a federally backed mortgage on a property with five or more units?

If you have a Freddie Mac-backed loan on such a property, you will repay the missed payments over 12 months. If you have a Fannie Mae-backed loan on it, you will pay everything back in 12 months, or potentially sooner if you receive an influx of cash, such as from your insurance or relief funds, according to FHFA.

For loans backed by either of those companies, if you can’t pay everything back in 12 months, FHFA said you might qualify for other options, but foreclosure is a possibility.

If you have an FHA loan on a property of five units or more, your repayment plan will be a negotiation between you and your servicer, according to HUD.

One more thing

Here’s some good news about the coronavirus federal stimulus money: It doesn’t count as income or an asset, certified financial planner Liz Weston writes. She also explains why some people’s payments haven’t arrived yet.

Have a question about work, business or finances during the COVID-19 pandemic, or tips for coping that you’d like to share? Send us an email at [email protected], and we may include it in a future newsletter.