The following article is adapted from a conversation originally recorded for The Manufacturing Minute podcast, hosted by Megan Meador, Audit & Assurance Partner and Manufacturing & Distribution A&A Practice Leader at Brown Edwards. The discussion has been edited and formatted for readability while preserving the key insights shared during the episode.
In this episode, Megan sat down with John Pendleton of Scott Insurance.
Their conversation explores Business Interruption Insurance and what manufacturers should know related to this type of coverage.
John kicked things off by telling us a bit about his firm. Scott Insurance is 100% employee-owned and based in Lynchburg, Virginia, with 10 offices across the Southeast and clients operating in every state, as well as internationally. Alongside property and casualty insurance, which is John's focus, Scott Insurance also offers employee benefit consulting, bonding, and personal lines of insurance.
John has been with Scott Insurance for 14 years. He spent his first decade in the Richmond office before moving back to his hometown of Roanoke about four years ago. I've always appreciated how similarly Scott Insurance's size and geographic footprint mirrors our own here at Brown Edwards, and it's part of why we collaborate so closely on shared clients.
I asked John what he sees companies, and manufacturers specifically, get wrong about insurance in general. His answer struck a chord: most people hate dealing with insurance. At times the language feels intentionally confusing, claims are unexpectedly denied, yet people feel forced to buy it. Because of that frustration, many businesses treat insurance as a once-a-year chore they power through ahead of their renewal.
In John’s experience, the best client relationships involve an ongoing dialogue throughout the year, rather than a single annual check-in. That means talking with your broker about changes to your products, new markets you're entering, and other shifts in the business as they happen. The risk of not doing this? Filing a claim and discovering the loss was excluded even though you paid all your premiums.
This is where our conversation turned to the heart of the episode. Business interruption coverage is extremely important and relevant to manufacturing companies. This coverage is triggered by a physical loss to property. The classic example: a fire at your production facility interrupts your operations.
Once triggered, business interruption coverage can help in three main ways:
Net Income Subsidy – Business Interruption covers your lost net income while you're down until you return to normal operating conditions.
Payroll Subsidy – This coverage can help subsidize payroll while you are down as well. However, this is a choice each company makes on their own. Some companies in a tight labor market will elect to have their Business Interruption insurance cover ordinary payroll as they can’t afford to lose employees to competitors while the company is down. Other companies, however, may choose to simply lay off their employees temporarily, forgo coverage, and rehire employees once the facility is back up and running.
Extra Expense – This covers costs the business wouldn't normally incur had the loss not occurred. An example would be the cost to temporarily lease a new building while the business is getting back up to normal operating levels.
I asked John to clarify what qualifies as a Business Interruption event. Natural disasters like Fires, Hurricanes (we talked about Hurricane Helene's impact here in Southwest Virginia), and Tornadoes are classic triggers involving physical loss to property.
I asked John if a Cyber event like a Ransomware attack would qualify. John explained that a Ransomware Attack (a bad actor hacks your system and won’t let you operate unless you pay them a ransom) can also cause a business interruption. However, this would not qualify for coverage under Property Insurance as there was no physical loss to property-the key trigger for coverage we discussed earlier. That said, Cyber Insurance policies do contain Business Interruption Insurance for electronic interruptions like a Ransomware Attack.
As a CFO, one of the first questions you'll ask is: what's the right coverage limit? John walked us through the process his team uses with clients which is called a “business income worksheet”. This worksheet walks a company line by line through financial details, cost of goods sold, payroll, and other items, and produces a projected limit.
John described this process as "part art, part science." The science is going through the worksheet itself. The art comes afterward: applying risk management judgment to decide whether to adjust that number up or down. He was emphatic that manufacturers should complete this worksheet every year, even though it can feel like a hassle.
We also talked about why this matters more than ever right now. With tariffs affecting costs (and hopefully sales prices too), a company's bottom-line net income can shift significantly, which directly impacts the coverage limit a business should be carrying.
Beyond the worksheet, John shared that the real best practice is drafting a disaster recovery plan. In the chaos and emotion of an actual event like a fire or tornado, a documented plan gives your team a clear "break the glass" playbook to follow. It is essential, however, that companies actually practice the plan on a regular basis and tweak it accordingly.
John outlined several core elements every manufacturer should work through in advance:
Build a crisis management team with a designated leader, including representatives from finance, HR, and sales (since sales will be the ones contacting customers). For manufacturers with multiple locations, John recommends having at least one point of contact serving as the lead for each facility.
Know your suppliers, products, and equipment lead times. Ask suppliers and vendors in advance how quickly they can send new inventory. Specialized equipment, like a press brake or laser cutter, can take significant time to replace, so understanding lead times ahead of a loss is critical since the business income policy clock is running the whole time you're rebuilding.
Map out an alternative production strategy. Could other locations pick up the slack if your main facility goes down? If not, is contract manufacturing with an outside partner for a viable backup?
Centralize your documentation. John recommends storing all claim-related communication, receipts, and financial statements (insurance adjusters typically want to see the last two years) in one secure, shared location like SharePoint, so the response stays as organized as possible amid the chaos.
John shared a great quote on this point: "We don't rise to the level of our goals; we fall to the level of our systems." A polished, color-coded disaster recovery plan is only useful if your team practices it regularly, ideally through an annual tabletop exercise with your crisis management team.
I asked John to share a real example of when business interruption coverage made a critical difference for a client, and his story was powerful. A client's main facility, which also housed their headquarters, was directly hit by a tornado. John described the scene as looking "like something out of a movie."
Rather than routing the claim to a standard adjuster, John's team escalated it and brought in a catastrophic adjuster flown in from the Midwest, someone whose full-time job is responding to major disaster claims across the country.
That claim ultimately totaled over $3 million. To the client's credit, John said, they got creative and were able to get back into business far faster than it originally looked like they'd be able to, a testament to their resilience. As John puts it, these business interruption situations are thankfully rare, but when they happen, they're severe.
Nobody wants to have to use their insurance, but as John and I discussed, it's a cost of doing business, and ultimately a way to make sure your employees and their families are taken care of if the unexpected happens. My biggest takeaway from this conversation is John's recurring theme: treat your insurance relationship as an ongoing dialogue with your broker, not a once-a-year box to check. Revisit your business income worksheet annually, and build (and practice) a disaster recovery plan before you ever need it.
If you'd like to continue the conversation with John directly, he welcomes questions and is happy to provide an objective, second-opinion perspective. You can reach him by email at jpendleton@scottins.com.
Thanks for tuning in to this episode of Manufacturing Minute. As always, our goal is to keep our manufacturing clients informed, aware of their options, and ready for the conversations that matter most.