Coverage for Business Interruption
Understanding Business Interruption Coverage
Many business owners purchase Business Interruption (BI) Coverage, sometimes called Business Income Coverage, to protect themselves and their business in case of commercial property damage after a hurricane, tornado, fire, or other disasters. However, following commercial property loss, it’s often hard to understand what types of business interruption losses can actually be recouped.
What is Business Interruption Coverage?
Business interruption coverage is insurance is intended to compensate for the losses that occur as a consequence of having to close your business after your commercial property is damaged by a covered loss. Business interruption coverage is not standard on commercial insurance policies. It usually needs to be specifically added to your commercial property policy and always has a coverage limit (for example, $30,000 per incident). However, to obtain Business Interruption insurance proceeds, your business must have sustained a physical loss that is covered under your commercial policy (like water damage or damage caused by fire, hurricane, tornado, etc.). Unfortunately, property damage covered under a flood policy does not usually include business interruption coverage. For example, standard flood insurance policies issued by the National Flood Insurance Program (which is administered by FEMA) do not provide business interruption coverage. But always be sure to check your policy and ask your agent to be sure you know your coverages and understand your rights.
What Losses are Usually Covered Under Business Interruption Coverage?
Many business interruption insurance clauses provide that your insurance company will pay the actual loss sustained during the necessary suspension of business operations. Below is a non-exhaustive list of types of losses your insurance company will usually pay if you have business interruption coverage and have sustained a covered physical loss to your commercial property:
- Lost Income and Earnings. This is your revenue loss or lost profits – the normal income your business would normally have earned if it had not been forced to close after the loss (based on prior recent financial statements).
- Fixed Expenses. These are expenses like rent or lease payments.
- Employee Wages. This is to help you make payroll when business is closed and your employees cannot work.
Unfortunately, your business interruption coverage likely will NOT cover (this is a non-exhaustive list):
- Utilities. Loss of utilizes is usually excluded from standard business interruption coverage.
- Voluntary Closures. Your insurance company likely won’t pay if you closed your business voluntarily or as a precaution. The covered loss must have forced your business to close and be unable to operate for a certain period of time, usually 72 hours or more.
- Losses caused by a non-covered event. As stated, many commercial policies don’t cover flood damage. If your property flooded and that is the reason your business cannot operate, the resulting losses likely won’t be covered.
Contingent Business Interruption Coverage
If your business property wasn’t damaged, but your business still suffers a loss due to a covered event, you may be protected if you have Contingent Business Interruption coverage. For example, a hurricane hits Florida, destroying the site of your major supplier. Your business property in Texas wasn’t damaged, but you can no longer get the supplies you need from your damaged Florida supplier and consequently, you suffer business loss. Contingent business interruption coverage may protect your company from the resulting business losses. However, this contingent coverage is not a standard business interruption coverage. It usually requires an additional rider or premium and the contingent property might have to be specifically named.
Be sure to carefully read your policy to determine whether you have business interruption coverage and understand what your insurance company will cover. If you have business interruption coverage and intend to make a claim for lost income, earnings, or other interruption costs after a covered loss, be sure to keep organized documentation and be ready to provide recent financial balance sheets and monthly income statements to prove your usual costs and earnings.
We know that dealing with your insurance company after a commercial property damage claim can be difficult and confusing. If you feel your business loss claim was unfairly denied or underpaid, contact Mostyn Law. We are property damage attorneys who specialize in insurance law, including business interruption claims, and we are here to help you.