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Interpreting Business Interruption Insurance

Posted by Jeffrey Forbes on Dec 7, 2017 9:00:00 AM

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Losses that prevent a company from continuing operations can cause massive headaches for business owners.  When a business cannot continue operating for a period of time, it often continues to incur fixed expenses while no longer generating the revenue necessary to pay those expenses, let alone turn a profit.  It can also affect issues of customer awareness and satisfaction if a shutdown extends too long.  The total losses from even a short cessation of operations can add up quickly.

What Is Business Interruption Coverage?

This is the reason many businesses obtain business interruption coverage.  The coverage basically replaces a company’s regular revenue stream when a qualifying event forces the business to close temporarily.  The company can then use that income to cover fixed expenses as well as continuing their normal profitability.  While the disruption to their normal operations might still have some difficult long term effects as far as customer relations, the company can continue financially as if little has changed. READ MORE: Interruption Insurance Is The Lifeline Your Business Needs

How Do You Get Business Interruption Coverage?

Business interruption coverage, however, does not exist as a stand alone policy.  Instead, it is an endorsement companies often add to their property insurance policy.  A covered loss must occur before a business owner can seek to recover business interruption claims.  Since most businesses that purchase business interruption coverage do so through their property insurance policy, physical damage to the described premises or the contingent business premises must occur before the insurance company will pay for business interruption losses.  Furthermore, that physical damage must occur as a result of a covered cause of loss, such as a fire. 

Types Of Coverage Other Than Business Interruption That May Help Retail Business Owners

One does not need an overactive imagination to foresee ways this may create problems for business owners.  Within the context of a natural disaster, for example, the actual retail space used by the business may luckily escape damage at the same time that the storm destroys enough surrounding property to render the business inoperable for a period of time.  At the same time, forced closures due to actions by the civil authorities will typically trigger coverage under the standard policy.  This may put the business owner in the position of praying that the civil authorities shut down necessary roads or institute a curfew. 

Interruption Issues For Office-Based Businesses

Another interesting problem may result when a company uses office space or retail space in a building also used by other businesses.  The described premises for the property insurance policy may only include the specific suite or office.  If actual physical damage occurs to another part of the building that forces the company to cease operations temporarily, determining whether business interruption coverage kicks in may get tricky.  Blocked access will almost always be covered; if damage to the first floor prevents a business from accessing its location on the second floor, coverage will result.  The extent to which this extends outward those depends upon the definition of the phrase “contingent business premises” included in the standard business interruption policy. 

Businesses Should Review Their Policies

Phil Coyne, Vice President at ECBM suggests, "Companies need to review the coverages provided to them by their insurance policies to ensure it matches their risks.  Business interruption coverage is a useful endorsement for many companies, but without an adequate understanding of the covered events that can give rise to a claim, it can lead to confusion and wasted time at the point when a business can least afford it. "

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Topics: Claims, For Your Business, Retail, Risks For Businesses, Phil Coyne