Business interruption in just 380 words

Business-interruption coverage is common, but policyholders often don’t understand it because the coverage is triggered infrequently. However, the early stages of the COVID-19 pandemic changed that when the coverage was thrust into the national spotlight—and in the insurance industry in particular.

What it is

Typically, business-interruption coverage is not a stand-alone insurance policy. It’s one of several coverages found in a commercial property policy. When a business’s property is destroyed or access to the property is denied, business operations either cannot resume—in-whole or in-part—until the property is restored, or some or all operations can continue only at another location. Business-interruption coverage is designed to help with these.

What it covers

In New York, business-interruption coverage can provide protection for a business’s more intangible losses. When a business’s building is damaged by covered perils like fire, wind, vandalism or an explosion (and thus, renders the business temporarily inoperable), the coverage could serve to replace the business’s income and the value of its continuing expenses (e.g., insurance, heating and electricity costs).

For example, if a restaurant is damaged by fire and the damage forces the restaurant to close for a period of two months, business-interruption coverage could cover the restaurant’s lost revenues during that time, including its payroll and loans. Furthermore, if the restaurant manages to operate out of a temporary location in the meantime, business-interruption coverage could cover those extra expenses (e.g., rent).

When it doesn’t apply

If a business’s structure is not physically damaged by a covered peril, then business-interruption coverage would not apply, even if the business is forced to close. For example, flooding is not covered by a typical property policy. So, if the restaurant in the above example sustained damage from a flood instead of a fire, business-interruption coverage—or physical-damage coverage—wouldn’t cover it.

Additionally, pandemics like COVID-19 usually are excluded from covered perils. That means that the business-interruption coverage contained within a property policy wouldn’t be triggered, and coverage wouldn’t apply.

For questions about business-interruption coverage and how you can update your insurance policy to best protect your business, give our office a call today.