Business interruption refers to an unexpected disruption to the operation of a business.
There are many reasons why businesses may suffer interruptions to their operations. Interruptions are usually the result of a catastrophic event, such as a natural disaster or possibly a pandemic such as COVID-19.
When a business is not able to operate, the ability to generate revenue ceases or is drastically limited. Despite operational limitations, business obligations continue. Business interruption insurance, or loss of revenue insurance, provides a solution for businesses in these unexpected situations.
What Is Business Interruption Insurance?
Business Interruption Insurance is a form of insurance set up to support businesses in the event of a temporary ceasing of operations. This type of insurance is especially crucial for businesses relying on a physical location to generate income.
Coverage plans operate to include replacement of lost revenue and payment of expenses when unexpected events require a business to shut down temporarily. The purpose of business interruption insurance is to place the business in the position it would be in had the interruption not occurred.
While property damage is the most common reason for business interruption insurance, various scenarios exist that may result in an interruption to business operations.
What Is Covered by Business Interruption Insurance?
Business interruption insurance provides coverage for various losses that a business may suffer including:
- Actual losses: The loss sustained by the insured business resulting from the interruption to business operations is an actual loss.
- Business income: Business income is income the business would have received had the interruption not occurred.
- Period of restoration: Period of restoration is the time when business operations cease in order to repair, restore, or replace damaged or destroyed property. Period of restoration is applicable in situations where a natural disaster has damaged the business premises and business is interrupted until repairs are complete.
Coverage plans offered under business interruption insurance assist in the following scenarios:
- Lost revenue. An example includes the loss of revenue suffered after substantial property damage closes a business while the owner completes repairs.
- Rent or mortgage payments. If a business closes, rent or mortgage payments must continue even if the business is not operating.
- Relocation costs. Relocation costs refer to situations when a business must relocate to a new location due to an unforeseen event.
- Payroll. Despite the closure of a business, payroll obligations continue.
- Taxes. Payment of quarterly or annual tax obligations must continue, despite the business’s ability to generate revenue.
- Loan payments. Payments for loan obligations of the business.
- Property damage. Damage to the business premises.
- Other expenses. The insurance plan may outline specific definitions of “other expenses.”
Policies may also include “extensions of coverage.” Extensions of coverage may include the following:
- Service interruptions. Service interruptions refer to damage to the sewer, electrical, water, telephone, or other utilities resulting in a disruption to business operations.
- Contingent business interruptions. Contingent business interruptions cover interruptions caused by losses of third-parties, such as suppliers.
- Leader property. This extension of coverage is applicable in situations where there is a loss, damage, or destruction to property not owned by the insured but that may affect the insured’s business. An example of a leader property is a large department store that attracts business to smaller stores in the same mall.
- Interruption by civil or military authority. This refers to situations where the government disrupts continuing business operations. This may be particularly applicable as many businesses are forced to cease operations due to COVID-19.
When looking for business interruption insurance, you should choose a policy that sufficiently covers your company expenses for more than just a few days. Prices of plans depend on the type of business seeking coverage. Higher risk businesses will likely have higher policy rates than businesses with a lower risk of business interruption.
What Is a Business Interruption Claim?
A business interruption claim is filed with the insured’s insurance company and details the specific request for coverage. A business must present the most recent income and expense reports, business history, and employee information. Most insurance companies require you to file specific documents to complete a claim.
An essential element of any business interruption claim is the ability of the business to quantify the losses suffered by the business accurately. Accurate and up-to-date records of business operations are an essential element of any successful claim. These documents provide insurance companies with the detailed information needed to prove that a business did, in fact, suffer extensive losses as a result of the business interruption.
How Are Business Interruption Claims Calculated?
Business interruption claims intend to place the business back into the position it would have been in had the interruption not occurred. Business interruption insurance most commonly addresses losses in the following areas:
- Loss of profits due to the ceasing of operations;
- Additional expenses and the business’s inability to pay the costs due to loss of revenue; and
- Claim preparation costs to an attorney and accountant.
A simple formula used to calculate business interruption claims is net expenses + continuing expenses + additional expenses = business interruption losses.
Once calculated, it’s crucial to determine the extent of the business interruption insurance plan’s coverage. Any difference exceeding the plan limits will not be covered and is deemed a loss by the business.
What Damages Are Recoverable from Business Interruption Insurance?
Damages will vary from business to business, so careful calculation of the losses sought in addition to detailed records ensures a more successful claim.
It is particularly vital for businesses to continuously maintain detailed income and expense reports, not just for the year in question, but from previous years. This useful information generates an accurate picture of the losses suffered from the business interruption by comparing the performance of the business to that of prior years.
In addition to income and expense reports, your claim should include property damage estimates and invoices, careful records of the dates of business interruption and commencement, and any other records related to your claim.
How Can BrewerLong Help with Your Business Interruption Insurance?
When faced with an interruption to your business, time is of the essence. Business interruption insurance ensures your business continues to satisfy its obligations despite the inability to operate.
A knowledgeable business law firm like BrewerLong will guide you through a stressful time with efficiency. Experienced BrewerLong attorneys research the extent of your business interruption coverage and the requirements to file a complete business interruption claim.
Each insurance company has different requirements for the filing of a business interruption claim. Mistakes lead to further delays in getting the support your business needs to get coverage through a difficult time.
Sometimes, even when a business follows all of the required steps to submit a business interruption claim, the insurance company pushes back. We can help ensure business owners are supported and represented in requiring insurers to pay business interruption claims.
Business Insurance Attorney Michael Long
To learn how BrewerLong can help with your business interruption insurance, contact us today.
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