Understanding Business Interruption Insurance

Many commercial property policies, as well as business owner’s policies (package policy for small businesses, often referred to as a “BOP”), include business interruption coverage.  It is designed to protect your business from a loss in income caused by an insurable event.  As Miami insurance coverage attorneys, we are experienced in helping our clients to maximize their recovery when a fire, hurricane or other disaster causes an interruption in business operations.  There are four important elements of business interruption insurance.  First, it is only triggered in three limited circumstances:

• Physical damages to the premises of such magnitude that the business must suspend its operations;
• Physical damage to other property caused by an insurable loss and that prevents customers or employees from gaining access to the business; or
• The government shuts down in an area due to property damage caused by an insurable event that prevents customers or employees from gaining access to the business.

Most Policies Have a Waiting Period

A second critical element is that even after a covered event occurs, most policies have a waiting period of several days before business interruption kicks in.  Once it does, coverage will not be retroactive to the day of the event.

Business Interruption Coverage is Limited

Third, after the waiting period ends, coverage will be provided for lost net income, temporary relocation expenses (designed to reduce overall costs), and ongoing expenses such as payroll that enable businesses to continue paying employees rather than laying them off.

Importantly, business interruption coverage is not a black check for every business disruption.  While suspension, slowdown and cessations of business operations will be covered, lost income due to “unfavorable business conditions” will not be covered. 

Coverage is Not Open-ended

Fourth, coverage is available only for as long as it is necessary to get the business running again, and usually not longer than 12 months.  Furthermore, the business is required to prove all business interruption losses to its insurer.

Misconceptions About Business Insurance Coverage

Opponents of business insurance coverage argue that it creates a disincentive to mitigate against losses.  However, the truth is that the insurance pricing system already provides a built-in incentive for businesses to mitigate against future losses.  When pricing a commercial insurance policy that includes business interruption coverage, an insurer will consider such factors as whether the business has sprinkler and security systems, as well as whether the business has implemented an emergency evacuation and contingency plan in the event of a catastrophe.  Moreover, as a condition of coverage, the policy will require the insured to resume its operations as quickly as possible and to take all reasonable steps to prevent future losses.

Another misconception is that business interruption insurance should not cover ongoing expenses such as payroll because workers can collect unemployment insurance benefits.  However, unemployment benefits are always lower than workers’ actual wages or salary, and are inadequate to cover the displaced worker’s ongoing obligations, such as mortgage and child care expenses.  Furthermore, it is less disruptive to both the worker and the business for the employer to continue paying the worker during the time it takes to get the business back up and running.    

Let Miami Insurance Coverage Lawyers Help You to Maximize Your Recovery

If you have questions concerning your business interruption insurance coverage or believe that your carrier has wrongfully denied your claim, we welcome you to contact Ver Ploeg & Marino at (305) 577-3996. 

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