9 Things You Need to Know About Business Interruption Insurance Claims

Business interruption insurance covers fixed expenses incurred by your business as a result of a covered event. If a fire destroys your coffee shop, for example, then business interruption insurance covers certain expenses while waiting for repairs to complete.

Business interruption insurance may sound straightforward. However, claims can get messy. Today, we’re highlighting some of the most important things you need to know about business interruption insurance claims.

What is Business Interruption Insurance?

Business interruption (BI) insurance covers certain business operating costs after a covered event.

Also known as business income insurance, business interruption insurance compensates businesses for their loss of income after a covered event.

Business interruption coverage would cover employee wages, rent, training expenses, relocation expenses, and other costs incurred by your business after a covered event, for example.

What Does Business Interruption Insurance Cover?

Business interruption insurance covers fixed expenses for your business – like the cost of rent. It also covers any additional costs you incur as a result of operating your business off-site – say, if a covered event forces you to leave your original location.

• Some of the things covered by a standard business interruption insurance policy include:
  Fixed business expenses
• Lost revenue the business would have normally earned if the business had stayed open
• Costs incurred while operating at an offsite location

How to Get Business Interruption Coverage

Business interruption coverage is a standard part of a businessowners policy (BOP). A BOP is a bundle of insurance products ideal for small businesses, and a BOP is the most commonly-purchased policy by small businesses.

In fact, larger businesses may not have business interruption coverage. It’s primarily used by small and medium-sized businesses.

To qualify for a BOP and receive business interruption coverage, you typically need to have fewer than 100 employees and revenues under $5 million.

In addition to business interruption coverage, a BOP could have general liability coverage, commercial property coverage, and other coverages.

According to the NAIC, 30 to 40% of small business owners carry business interruption insurance.

Business Interruption Coverage vs. Other Coverages

A standard business owners policy (BOP) consists of three core types of insurance coverages, including:

• General liability
• Commercial property
• Business interruption

After a covered event, your insurer applies these coverage in different ways. They cover different things. Here’s how these coverages could apply to a typical insurance claim:

General Liability: Also known as business liability insurance, general liability insurance protects the business in situations where it may be liable for damages to people or property. This coverage could apply to customer injuries, property damage, libel, or slander, for example. If a customer is hurt in your shop, then general liability insurance could cover the medical fees for that individual.

Commercial Property: Commercial property insurance protects the physical property associated with the business, including the location and any inventory or equipment. If a covered event – like a fire – damages this property, then the small business can file a claim through their commercial property coverage.

Business Interruption: Business interruption coverage covers lost income from the closure of a business while it’s being repaired. If you’re unable to operate your business as you normally would, then your insurer could compensate you for fixed expenses, lost income, rent, employee wages, and other costs.

In many cases, a covered event leads to claims across multiple types of coverage. A fire, for example, could lead to a commercial property claim and a business interruption claim. Your business’s property and inventory are damaged and you’re unable to continue operations at that location because of the fire.

Most Common Covered Items for Business Interruption Coverage

Business interruption insurance covers fixed expenses for your business along with additional costs you may incur as a result of operating your business from a new location while repairs are underway.

A typical business interruption insurance claim covers the following:

• Lost net income due to the closure of the business while repairs are underway
• Rent or lease payments
• Relocation costs
• Employee wages and training costs
• Taxes
• Loan payments

If a fire damages your business to a point where you cannot safely operate from that location, then your business interruption insurance could cover rent for the original location, rent for a new temporary location, and other costs associated with operating your business from the new location – from relocation costs to employee wages.

What Does Business Interruption Insurance Not Cover?

Business interruption coverage isn’t a blank check that covers everything associated with your business; instead, like all policies, BI coverage has certain exclusions.

Common business interruption insurance exclusions include:

• Losses unrelated to property damage – like losses related to viral outbreaks or pandemics
• Damages or losses linked to flooding, earthquakes, and mudslides (unless you purchased additional coverage)
• Damages or losses linked to civil authority coverage – like local, state, or federal regulations prohibiting access to your business (unless your policy has a civil authority clause)
• Undocumented income (income not listed on your business’s financial records)
• Utility costs at your original location (typically, utilities are turned off after a covered event)

How Much Does Business Interruption Insurance Cost?

The cost of business interruption insurance varies based on multiple factors. The most important factors include:

• Industry
• Number of employees
• Amount of coverage you wish to purchase
• Local risk factors (say, if you live in a hurricane-prone region)

Commercial insurance providers make it easy to request a business interruption insurance quote online, compare prices, and get the coverage you need.

Why Insurers Deny or Reduce Business Interruption Insurance Claims

Insurers aren’t charities. They want to pay your business as little as they’re legally obligated to pay, then close your claim as quickly as possible.

Some insurers use the fine print of insurance contracts to deny or reduce claims. Others act in bad faith, applying your coverage improperly and convincing you to accept a lower settlement.

Some of the reasons insurers deny or reduce business interruption claims include:

• Insufficient coverage
• Improper or insufficient documentation
• Poor property maintenance

How Business Interruption Insurance Claim Disputes Work

You buy a business owners policy (BOP) to protect your business from unexpected events. Unfortunately, that policy may not be there when you need it most.

Some commercial insurers challenge your business interruption insurance claim. They pay less than expected or deny certain coverage, for example.

Business interruption claims are complicated. It’s difficult for insurers to calculate risk and price policies effectively. It’s also difficult for businesses to accurately determine how much business interruption coverage they need.

Disappointed with your business interruption insurance claim? Some of the steps to take include:

• Contact a public adjuster. Public adjusters represent business owners like you in an insurance claim. They review your claim and policy, assess damage, and approach your insurer with a fair valuation. They know the tactics insurers use to pay less-than-expected for insurance claims. They also know how to fight back against these tactics.
• Provide additional documentation and evidence. Some insurers simply require you to provide additional documentation, evidence, or paperwork before authorizing a business interruption claim. A public adjuster can help organize this documentation on your behalf.
• Negotiate with your insurer via their formal dispute resolution process. All insurance policies have a formal dispute resolution process. The insurer may assign a new company adjuster to your claim. Or, an independent arbitrator could rule on your claim.

By following the steps above, you can help ensure an optimal settlement outcome for your business interruption insurance claim.

Stephanie Corona

Stephanie is a property insurance claim expert with over 20 years of experience working as an insurance adjuster, expert witness, appraiser and umpire. She is passionate about sharing her expertise, knowledge, tips and training to help both property owners and Public Adjusters in their pursuit of effectively managing claims and recovering the claim settlement they deserve after a loss.