Business Interruption Insurance Claim – Are You Covered?

Did you have to file a business interruption insurance claim? Not sure if you’re even covered for business interruption? Maybe you’re not even sure what business interruption insurance is.

If you are a business owner, you should get familiar with this important coverage. If you ever need to file a business interruption claim, this coverage could be one to save your business. When faced with a loss of income claim, many business owners have questions including: How is it calculated? How much money will I get?

If you have a loss to your business and can’t operate normally, or at all, business interruption coverage is critical,   and knowing a few key things about this important coverage can make filing your business interruption claim a lot easier.

What does Business Interruption insurance cover?

So, let’s look at a scenario were a business owner would file a business interruption insurance claim:

Let’s say you own a restaurant and had a fire. Your insurance covers fire losses to your property. Since the kitchen is totaled you are forced to close your restaurant while repairs get made.

You file a business interruption claim to replace some of the income you are losing by having the business closed.

What do I need to know if I have to file a Business Interruption Claim?

Now that you have an idea of what business interruption insurance covers. There are some key terms you may want to be familiar with in case you have to file a business interruption insurance claim.

The Business Interruption Insurance Clause

Most business policies have a clause on business interruption that says they will pay for:

“The actual loss of business income sustained due to necessary suspension of your business operations during the period of “restoration.” The suspension must be caused by the direct physical loss, damage, or destruction to property. The damage must be caused by a covered cause of loss.”

Your policy may not have this exact phrase, but if you have business interruption insurance coverage, your policy contains a similar definition.

So, if you do have to file a business interruption insurance claim, it would be helpful to understand what this phrase means. Let’s look at some of the terms:

Actual loss sustained:

To successfully file a business income insurance claim, two things must happen. Your business must have been interrupted by a covered loss on the policy, and because of this interruption, you have sustained some loss of business income.

The actual loss sustained refers to the actual amount of income that was lost during a covered business interruption insurance claim.

For example, let’s say you own a nail salon and are open Monday through Friday. Saturday morning, you discovered a pipe burst. The damage was minimal, and you managed to get everything repaired and dried out. You were able to open for business Monday morning.

Your insurance policy may cover water damage from a burst pipe, but there is no coverage for business interruption. Why? Because you opened on time Monday morning and didn’t lose any income.  There was no “actual loss” sustained.

Business income:

Business income refers to the amount of profits you lost if you had to file a business interruption insurance claim.

This is usually calculated by studying previous months business profits.

Business income includes the net income your business would have earned and the expenses your business would have incurred if you didn’t have to file a business interruption insurance claim.

If the loss is covered, the insurance company is responsible for the income you lost when your business couldn’t operate – either at all or completely.

Period of restoration:

Period of restoration is another term you should know if you must file a business interruption insurance claim.

The term refers to the period needed to repair, rebuild or replace the property that was damaged in the loss.

Keep in mind the period of restoration isn’t connected to the policy term. The restoration period may extend beyond the policy expiration date. If the initial loss occurred within the policy period, the policy should cover any business interruption insurance claim.

Additional coverages when filing a Business Interruption insurance claim

In addition to coverage for business income, the business interruption coverage provides additional coverages that may be available if you must file a business interruption insurance claim.

Extra Expense coverage and a Business Interruption Insurance Claim

One of the most common and helpful additional coverages is the extra expense coverage.

Extra expense coverage is usually included in the business interruption insurance. It is available to cover any extra expenses you may incur because of the interruption of your business operations.

This may include any extra expense you must incur that you would not have had if it weren’t for the business interruption claim.

For example, if you can’t operate out of your office space due to a covered loss and the only way to continue operating is to rent some other office space, that additional rent is considered an extra expense and may be covered under your business interruption insurance claim

What should I do if I have a Business Interruption Claim?

If you have suffered a business loss and think you may have a business interruption claim here are some tips:

• Call your insurance company
• Mitigate your damages – do anything you can to minimize the damages. This may include boarding up doors or windows or calling a water remediation company.
• Document your expenses, and save all your receipts
• Gather your operating expense and profit records from the past six months.

Having a business interruption claim is difficult and frustrating. But if you have proper coverage, you should not have to absorb a loss of income or extra expenses taken to continue operations. Call Your Large Loss Adjuster if your business is struggling after a business interruption insurance claim or loss of income. 

If you have experienced a loss and your business operations were affected, contact Your Large Loss Adjuster for help.

Related: What is the Difference Between Denied and Partially Denied Claims?