By Joey Romeo
Business Interruption insurance may provide coverage for financial losses arising from an inability to conduct business, as well as the extra expenses occurred in dealing with the business interruption. In the event of a loss, this insurance can make the difference between a business recovering from a loss, or from being unable to continue operations and going out of business.
One crucial consideration is that this coverage is generally an optional coverage, which must be purchased separately and added to a business’ basic property policy.
Policyholders must provide written notice of the claim as soon as possible and be prepared to fully document their loss with records such as sales receipts, financial statements and tax returns.
Business interruption losses are measured on a net basis which would be the gross earnings less the normal expenses incurred, plus any additional expenses which are solely attributable to the loss.
Normally, business interruption insurance only applies when there is direct physical damage from a covered cause of loss to the insured’s property which causes the business interruption. For example, a fire burns down the insured’s location.
In addition to the basic business interruption insurance, there are also several additional coverages that should be considered and added to the business interruption insurance. However, these coverages need to be reviewed thoroughly, as they may contain further restrictions and limitations on coverage, such as a “waiting period” (the power must be out for at least 24, 48, 72, 96 hours, etc.), or a sublimit such as $25,000 in coverage.
Utility Interruption coverage applies when a business loses income solely due to a power loss to their location. There are two types of utility interruption coverage- “on premises”, where the business suffers physical damage to utility equipment on their premises, such as an electrical box, a transformer, or wires. “Off premises” utility interruption coverage is where the business will receive coverage even if the utility interruption is due to events away from the insured’s premises, such as a widespread power outage.
Civil Authority coverage provides coverage when a governmental authority issues an order preventing the insured from accessing its premises to conduct business. For example, if there is a mandatory evacuation order.
Ingress/Egress coverage also provides coverage when an insured is prevented from accessing their location to conduct business, but need not arise from a governmental order. For example, where there are numerous large trees down from the wind that blocks the only road into and out of the insured’s location.
Contingent Business Income coverage provides coverage where the insured location is not affected physically, but the insured’s supplier has suffered physical damage that prevents it from fufliling its obligations to the insured to provide material, supplies, etc.
Dependent Properties coverage provides coverage where the insured location is not affected physically, but the insured’s customer has suffered physical damage that prevents it from accepting the insured’s products and services as it normally would (for example,a routine monthly delivery is not able to be completed, and the insured loses that sale).