Business interruption insurance or business income insurance is a clause or endorsement either within another policy or added on to an existing policy. We will refer to both types as business interruption insurance (BII) within this blog article. We buy insurance to help us through times of difficulty.
Business interruption insurance provides money for business owners when they lose money because of a covered peril. The current “hot topics” for BII are losses from COVID-19 suspending operations and civil unrest resulting in property damage and looting.
With so many claims recently, many insurers will try to find any argument to avoid paying benefits to their insureds. The language in the policy will control which losses have coverage. A South Carolina business attorney can help you prepare your claim to meet the requirements of your BII carrier and advocate on your behalf.
Six Things You Need to Know About Business Interruption Insurance Clauses and Extensions
There is no standard template for business insurance policies. Your policy might include some of the following types of coverage within the main policy, as a clause or extension of the main policy, or not at all:
1. Service Interruption Coverage
When a covered peril causes an interruption in the delivery of utilities like electricity or other vital service providers, and the policyholder sustains a loss as a result, service interruption coverage could provide financial compensation. There are waiting periods before the coverage kicks in. Most policies require the interruption to last at least 24 or 48 hours. The language in your policy will control the length of the waiting period.
2. Contingent Business Interruption
If you lost business income because someone else could not engage normal business operations because of a covered peril, you might have a contingent business interruption claim. This extension addresses problems with suppliers and those who receive your product in the supply chain.
3. Business Interruption by Civil or Military Authority
Sometimes a business owner gets denied access to his premises by civil or limitary authorities. When this happens because of a covered peril, the owner might have a claim under this type of extension.
4. Reduction in Business Income
BII policies typically cover situations in which the company’s net income got reduced by a covered peril that caused the business to suspend or decrease operations. Usually, business income in these policies includes the ordinary operating expenses the company continued to pay during the suspended operations, like payroll, and the net income the owner would have earned but for the shut-down. Net income generally means the net profit or loss before the payment of taxes.
5. Actual Loss
BII policies only have to pay benefits if the policyholder sustained an actual loss from a covered peril. For example, a business that lost 90 percent of its sales during COVID-19 could be eligible for compensation, while a company that saw a surge in its revenues and profits during that time would not.
6. Restoration Period
Typically, a business cannot conduct operations while damaged or destroyed property gets repaired or replaced. “Period of restoration” coverage provides cash benefits to replace some of the income the owner loses by not being open for business during that time. Many policies define the restoration period as running for a reasonable period after the damage.
Some policies give additional benefits to cover the slow return to operations after the restoration period, since many businesses need time to return to the level of activity they enjoyed before the damaging event. The amount of time depends on the coverage purchased, which can range from 30 to 720 days after the completion of repairs or replacement.
We understand that insurance policies can be challenging to interpret. Contact us today. Our South Carolina business attorneys can review your business insurance policy and provide guidance on your coverage.