FAQs: Business Interruption Insurance

Many small businesses are relying on their business insurance coverage to pull them through the coronavirus crisis gripping the nation. Already, insurance experts are saying the courts will ultimately determine what claims will be paid.

Will my business insurance policy cover the loss of income from the coronavirus?
Most policies that include business interruption coverage protect the physical loss of property caused fire, mother nature and power failures – to name a few.

If you have a policy, read it carefully to determine your coverage. The coronavirus outbreak is a unique phenomenon that might not be covered in most policies.

If you’re looking to buy business insurance, ask what the company will cover. There’s nothing worse than paying for insurance that doesn’t protect you during a time of need.

What does business interruption insurance actually cover?
Most business interruption insurance covers the following:

  • Lost revenue
  • Mortgage, rent and lease payments
  • Loan payments
  • Taxes
  • Payroll
  • Relocation costs

If an insurance company won’t cover the impact of the coronavirus, will it include an imposed shutdown ordered by local authorities?
Most policies don’t cover any branch of federal, state or local government forcing your business to close temporarily. Unless direct physical damage occurs on your property or adjacent properties, coverage is usually not triggered. There are cases when you can negotiate this kind of coverage with your insurance company ahead of time.

However, if such a closure occurs, as it now has in most U.S. communities, governments often offer relief programs. Concerning COVID-19, the federal government has passed protections to extend benefits to support employers faced with hard economic times and employees whose job security is now uncertain. Local, state and federal government agencies have released information about small business loans and disaster assistant loans that can help when disasters like these strike.

How is a contingent business interruption policy different?
This type of coverage protects against revenue-related losses by covering lost revenue as a result of a third-party shutdown such as a vendor or supplier.

How are business interruption insurance claims settled?
Most claims are negotiated, which is why an attorney experienced in the process is recommended.

What documents will I need for a claim?
An essential part of the process is documenting your case. Make sure to keep up-to-date financial records. A skilled business interruption attorney can help determine the value of your claim based on detailed profit and loss statements.

Keep in mind the following:

  • Actual loss sustained: Document how much of your business was affected.
  • Business income: Business income includes the net income that would have been earned or incurred and the continuing normal operating expenses, including payroll.
  • Period of restoration: Insurers are liable for the loss of business income only during the period of restoration, which is the length of time required to rebuild, repair, or replace a damaged or destroyed property.
  • Extra expense: These are expenses incurred by the insured during the period of restoration and because of it.

If I’m looking for business interruption insurance, how do I determine how much I need?
Use your gross earnings and projections to estimate future profits to determine your coverage. You don’t want to face a situation where your coverage is less than the value of your business interruption costs.