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Business Interruption Insurance Explained

What is Business Interruption Insurance?

Business interruption insurance is a type of insurance that covers the loss of income that a business suffers after a disaster. The income loss covered may be due to disaster-related closing of the business facility or due to the rebuilding process after a disaster.

Business Interruption Coverage

Having to temporarily close a business damaged by a fire, natural disaster, or other similar event could cause significant financial hardship for a company. A commercial property insurance policy might pay to rebuild your physical property, but many business owners also buy business interruption coverage to pay for lost income, operating expenses, and extra expenses while they’re restoring their operations after experiencing a covered loss.

How Business Interruption Coverage Works

Business interruption coverage compensates you for lost income and certain operating expenses if you are forced to vacate your business because of a loss covered in your policy. Payments typically begin 24 to 48 hours after the loss occurs or after you pay a deductible. You will only receive payments if your property is damaged or destroyed by a risk or peril covered by the policy language. Typically, business interruption policies cover losses from fire, lightning, windstorms (except along the Gulf Coast), vandalism and theft, vehicles, aircraft, and civil commotion.

Your business interruption insurance policy should list or describe the types of events it covers. Events that are not listed on, or not described in, the policy are typically not covered. It is important to review the policy exclusions, coverage limits, and applicable deductibles. You should also determine if the policy requires your business interruption to last for a certain time period before you are entitled to any policy benefits.

Business Interruption FAQs

How does my coverage work if I have more than one business interruption insurance policy?

Multiple policies may have been structured to provide greater limits or broader coverage than what might have been available from one policy. You should contact your broker or insurer(s) or any related agent to obtain a full explanation of your total coverage.

I do not have any policy that says it is a business interruption policy – is it possible I have coverage under another type of policy?

It is possible to have business interruption coverage under another type of insurance policy. For example, there may be available coverage in policies that cover perils arising out of actions by civil authorities or interruption of your supply chain. Business interruption coverage may also be part of a package of multiple coverages that have been combined or are contained in a Special Multi-Peril or Business Owners policy.

I have a policy that is called a contingent business interruption insurance policy – how is that different from a regular business interruption insurance policy?

As explained above, business interruption coverage requires a related property damage. For a contingent business interruption insurance policy, that property damage can be on someone else’s property but causes your business interruption. One example could be that a fire in a building on your street has closed the street to traffic and prevented your employees from coming to the office.

How does my business interruption insurance policy treat the novel coronavirus (COVID-19)?

It is unlikely that a current business interruption policy has contemplated the coronavirus specifically. However, you should check to see if your policy has an exclusion that would disable coverage for an incident triggered by an epidemic or pandemic, which might apply as the COVID-19 situation evolves. Also, any claim would still need to be related to your property damage for coverage to be triggered.

If I do not have an existing business insurance policy that covers COVID-19, can I buy one?

Insurers typically do not write coverage for known events for which the extent of potential damage is not easily understood, although it is possible to insure specialty risks such as business interruption due to COVID-19 in the Excess Lines market. Because the Excess Lines market is not regulated by the Department of Financial Services, we do not recommend it – there is much less regulatory protection for consumers in that market and the cost may be excessive. You should discuss any potential purchase in the Excess Lines market with your broker or insurance consultant.

Does my business interruption insurance policy cover me if my employees stay home out of concern about COVID-19?

As explained above, business interruption coverage requires a related property damage. Fear of COVID-19 alone is unlikely to trigger business interruption insurance coverage.

How to get business interruption insurance coverage?

Please contact CMR & Associates for information on how to obtain proper business interruption insurance coverage. You can email us for more information at info@cmr-associates.com.

About CMR & Associates

CMR & Associates provides independent risk management consulting, group benefit, insurance, and retirement advice by reviewing your current plans to improve coverage and reduce cost.  Through our proprietary database – The CMR Database® (comprised of some 13,000 brokers and specialists globally) – we maximize access to the insurance and retirement industry for greater options that will translate to better coverage and lower cost. Since 1999, we have saved clients over $120 million.

Please email CMR Associates or call 877-447-4301 or 212-447-4300 for more information.