Business Interruption Insurance Basics

Expect the best, but prepare for the worst. Simply reading the following list may be enough to make any small business owner cringe. However, before wasting your time, and your insurance agent’s, be sure that these three elements are in place before attempting to collect on your interruption policy. If a loss has occurred, check this list to be sure you can collect on your interruption policy.

1. Your business must lose income

I told you it was ugly. How do you know if you lost income? Take your necessary continuing operating costs and add them to your profits/losses. If that sum is less than what you were earning regularly, you’ve got something to work with. Just be sure that you can document everything.

2. There must be a ‘suspension’ of operations during restoration

A suspension does not necessarily mean a complete stop of all operations. Some policies define a ‘suspension’ as simply a slowdown. The restoration period includes the time following the loss until damaged property is replaced or repaired.

3. Loss of income must be a direct result of a loss to premises described in the policy

This third element is extremely difficult to describe. Hopefully this example will illustrate the finer points of the third criteria.

Suppose a tornado wipes out every house on the street opposite your shop. As a result your business suffers a loss of income. The first step has been satisfied.

The second step would also be satisfied by the fact that until the houses are rebuilt your business will continue to suffer.

The third step is the tricky one. Because the tornado did not damage your building specifically you’re out of luck. There must be damage or loss to the property described in the policy.

Not all business interruption policies are created equal

If the unfortunate shop owner had included the all the buildings in the area in the policy then he most certainly have been covered. Because of the nature of interruption insurance, policies are always open to some interpretation. When shopping for a policy, it is extremely important to find an agent that will explain in plain terms, what is and is not covered. Hopefully you don’t end up like our poor shop owner here.