Business Interruption Insurance Basics
Three things need to happen in order for a business interruption insurance policy to take effect
Expect the best, but prepare for the worst. Simply reading the
following list may be enough to make any small business owner
cringe. However, before wasting your time, and your insurance
agent's, be sure that these three elements are in place before
attempting to collect on your interruption policy. If a loss has
occurred, check this list to be sure you can collect on your
interruption policy.
1. Your business must lose income
I told you it was ugly. How do you know if you lost income?
Take your necessary continuing operating costs and add them to
your profits/losses. If that sum is less than what you were
earning regularly, you've got something to work with. Just be
sure that you can document everything.
2. There must be a 'suspension' of operations during
restoration
A suspension does not necessarily mean a complete stop of all
operations. Some policies define a 'suspension' as simply a
slowdown. The restoration period includes the time following the
loss until damaged property is replaced or repaired.
3. Loss of income must be a direct result of a loss to
premises described in the policy
This third element is extremely difficult to describe. Hopefully
this example will illustrate the finer points of the third
criteria.
Suppose a tornado wipes out every house on the street opposite
your shop. As a result your business suffers a loss of income.
The first step has been satisfied.
The second step would also be satisfied by the fact that until
the houses are rebuilt your business will continue to suffer.
The third step is the tricky one. Because the tornado did not
damage your building specifically you're out of luck. There must
be damage or loss to the property described in the policy.
Not all business interruption policies are created equal
If the unfortunate shop owner had included the all the buildings
in the area in the policy then he most certainly have been
covered. Because of the nature of interruption insurance,
policies are always open to some interpretation. When shopping
for a policy, it is extremely important to find an agent that
will explain in plain terms, what is and is not covered.
Hopefully you don't end up like our poor shop owner here.