Business Interruption Insurance is a type of insurance policy that provides coverage for loss of business income due to property or asset damage. This insurance can be included in the insured’s regular property policy by adding an endorsement from the insurance provider. The insurance is designed to protect the insured for loss of any business income that is sustained as a direct result of loss, damage or destruction of an insured property or business operations.
Conditions of a Business Interruption Insurance Claim
Generally, there are four main clauses of business interruption insurance.
- The loss in business income must have been sustained due to suspension of the business operations.
- The suspension must have been caused by the direct physical loss, damage, or destruction of a property that is used by the business to derive an income.
- The policy only provides coverage for a cause that is specifically noted in the policy.
- The business can only claim coverage for a restoration period.
Understand the Key Terms of a Business Interruption Insurance Policy
The insurer is only required to cover the losses if the operations of the insured business are actually interrupted due to the loss or damage of a property.
Consider the example of a restaurant business that provides dine in and food delivery services. If the business owns a delivery van that gets stolen or damaged, they can still carry out their delivery operations through contracting with delivery companies and the operations are not interrupted. However, if the restaurant building is damaged due to fire or any other disaster and unable to continue operations, then they can claim business interruption insurance.
Limits of Business Interruption Insurance Coverage
In case the insured business does sustain a business income loss, the insurance provider’s obligation is limited to the amount of loss actually sustained by the business. This is determined on the basis of a reasonable estimate of sale.
The coverage amount is also limited to the maximum amount of applicable policy limit.
Period of Restoration
The insurer is only liable to provide coverage for a reasonable period the business needs to restore its operations (more on this). This period is generally defined as the length of time that the business would need to rebuild, repair, or replace the damaged property.
The restoration period starts when the loss of revenue occurs. It ends at an agreed time by which the property should be repaired or replaced.
Types of Events Generally Covered by Business Interruption Insurance
There are many ways in which a business can be interrupted. The two most common causes of business interruption are fire and flood. Businesses never expect these two disasters to strike their premises and when these hazards do occur, they often mistakenly believe that their other policies will cover all their losses.
A business can also ask their insurer to cover other events that may lead to a loss of revenue, such as the spread of a pandemic. The ongoing mandatory business shutdown due to corona virus and subsequent loss of revenue is not covered in a typical business interruption insurance policy.
Importance of Business Interruption Insurance
Like most other insurance policies, business interruption insurance may seem like it is useless, until you actually need it. Businesses that have a high turnover and rely on generating income consistently will find it more important than businesses that rely on capital gains and price appreciation of assets. In either case, it is a useful policy to have.
Filing a Lawsuit Against an Insurance Company That has Denied a Claim
If your insurance carrier has denied your business interruption claim due to financial losses connected to the Coronavirus pandemic, you’ll likely need an attorney serving your state that has experience litigating against insurance companies.