I. What is Business Interruption Coverage?
Business interruption coverage is a tightly constructed part of broader commercial insurance policies. This coverage is most commonly found in commercial property insurance policies and business owner’s policies (a package policy for small businesses, often referred to as a “BOP”).
There are four critical elements to business interruption insurance:
  •  It is only triggered in three limited circumstances:
1. There is physical damage to the premises of such magnitude that the business
must suspend its operations.
2. There is physical damage to other property caused by a loss that would be covered under the company’s insurance policy, and that damage totally or
partially prevents customers or employees from gaining access to the business.
3. The government shuts down an area due to property damage caused by a peril covered by the company’s insurance policy that prevents customers or
employees from gaining access to the premises.
  •  Even after a covered event, most policies have a waiting period of several days before business interruption coverage comes into play. Once it is in play, the coverage is not retroactive to the day of the event.
  • Coverage is limited. Specifically, after the waiting period expires, coverage is provided for lost net income, temporary relocation expenses (designed to reduce overall costs), and ongoing expenses such as payroll that enables businesses to continue paying employees rather than laying them off.
  • Coverage is not open-ended. Coverage is available only for as long as it is necessary toget the business running again, and usually not longer than 12 months. In addition, the business is required to prove all business interruption losses to its insurer.
II. Business Interruption Coverage is Limited
Business interruption coverage is a limited form of coverage, and is not a blank check for every business disruption.
In addition to the above limitations, standard business interruption coverage is restricted in the following ways:
  • Suspension of Operations – Suspensions, slowdowns and cessations by a covered event are covered.
  • Unfavorable Business Conditions Not Covered – However, lost net income due to unfavorable business conditions following a loss is not covered.
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