Are You Still Covered? The Basics of Business Interruption Insurance

Many business owners do not consider the indirect economic cost of a loss. When a disaster strikes, inventory and other assets may be lost or employees may be unable to get to work in a timely manner. To resume productive activities, business owners must replace their inventory, restore communications, provide their employees with a safe working environment, and ensure that everyone is up to speed on the new policies. The costs of such a disruption in the workflow can dwarf the direct costs of merely replacing inventory or repairing a building.

What is Business Interruption Insurance?

Business interruption insurance is a form of insurance designed to ameliorate the challenges that business owners face when experiencing a pronounced disruption in the organizational workflow. It insures against the lost income sustained while the business is unable to operate due to circumstances outside its control. It differs from conventional property insurance in that property insurance only covers physical damages while business interruption insurance covers the lost profits and other indirect expenses associated with the interruption.
Covered expenses include the expenses associated with operating a new location. Covered revenues usually consist of the difference in the profit that the business would be generating without the disruption and the profit that it generates with the disruption. Covered expenses include employee salaries, rental payments on the affected property, and other fixed expenses as well as any variable expenses associated with resuming normal operations. Thorough documentation such as prior tax documents, financial statements, payroll stubs, and bank statements will help business owners substantiate these figures in the event that it becomes necessary to initiate a claim.

What Types of Events Are Covered?

Organizational disruption has a wide number of potential causes. Thieves can steal essential assets, fire can damage corporate offices, workplace accidents can result in a hazardous materials spill which will require the building to be cleared, and a natural disaster like a tornado or flood can negatively affect a corporation’s communications. The specific exclusions will vary between insurers and policies, but most policies will cover most incidents. Potential policyholders should read their policies thoroughly to determine any potential exceptions.

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Do I Already Have Business Interruption Insurance?

Some businesses may be covered already in the event of disrupted operations. Some insurance providers offer businesses comprehensive packages including property and liability insurance with other forms of insurance such as business interruption insurance. If the company experiences a disruption caused by damaged assets, the company may be forced to make an insurance claim under two different policies; one claim for property and one claim for the lost profits.

However, many companies do not have this form of insurance. It is usually offered as an independent form of insurance that business owners must purchase in addition to standard property and liability policies. Not every insurer will offer every policy, although many will offer multiple policy discounts. This may require changing insurance providers.

The economic costs of business disruptions are often overlooked until they are incurred. Businesses understand that downtime is costly, yet many organizations do not insure against it. The lost income associated with a disaster can cause further issues by reducing the organization’s financial leverage and flexibility. By insuring against these losses, business owners can ensure that their organization can maintain its strength even as it continues to rebuild.

Melanie Fleury has owned a small business for several years and is aware of the stress that can come from a business disruption. Doyle Raizner LLP Trial Lawyers, at, help small businesses get what they rightfully deserve from insurance companies that try to underpay business interruption insurance.

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