In this 6-minute read:
- What is business interruption insurance?
- Do I need business interruption insurance?
- What is covered, and what isn’t?
- Does business interruption insurance cover COVID-19 losses?
- What do I need in order to submit a claim?
As a business owner, you don’t want to think about damages that may occur to your property or losses of income that can come from an unexpected disaster, government shutdown, pandemic, social unrest, etc. We want to be optimistic and hope for the best. But we can’t predict the future, and it’s definitely better to be prepared for unknown circumstances.
Business interruption insurance is one way that you can help your business prepare for the worst.
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What is business interruption insurance?
Business interruption insurance is typically offered as additional coverage under your commercial or business insurance. This coverage can help with damages that occur from natural disasters such as hurricanes, tornadoes, and other severe storms. In some cases, this type of coverage may even protect your business against losses caused by vandalism and acts of violence.
Do I need business interruption insurance?
There is no law that requires your company to have business interruption insurance, but no one can predict the future. It’s better to be safe and prepared in the event of a disaster or unexpected occurrence than to lose everything because of it.
If you don’t already have business interruption insurance, talk to your provider about what options are available to you at what price.
What types of losses are covered under business interruption insurance?
Business interruption insurance generally isn’t a policy that you can purchase individually. It is generally bundled with commercial property insurance. So you can only get coverage for business interruption insurance if you choose to add that into your bundle.
The items covered under most business interruption policies include the following:
- Income losses: If your business has to close due to a natural disaster or accident that is covered by your policy, then losses of profit and income caused by those circumstances can be received
- Relocation costs: If your building was damaged and you have to relocate, your policy can help cover the costs of that
- Expenses for operation: Any bills that you still have to pay, despite the damages, can be covered. This may include rent or lease payments, utilities, and employee wages
- Property taxes: Business interruption insurance can help if you are paying property taxes on a damaged building
Is there anything that business interruption insurance doesn’t cover?
It’s smart to be aware of the different circumstances that are not covered by most business interruption policies. Knowing what expenses are not in your coverage can help you to be prepared and set aside savings to cover unexpected costs that may arise in this area.
Pay attention to the items below that are not covered by your business interruption insurance so that you can adequately prepare:
- Income that isn’t documented: If you don’t have up-to-date records for your income and profits, you may not be able to get any coverage from your business interruption policy. Updated, recent records are required as part of the claims process
- Losses from damages not outlined in your policy: You can only make claims for specific circumstances that are mentioned in your business insurance policy. If your property insurance specifically doesn’t cover floods, then you can’t claim loss due to floods under your business interruption policy
- Recessions in the economy: Business interruption insurance does not cover economic slumps, so it’s important to have some kind of savings to fall back on in these circumstances
- Power outages: Coverage is not typically offered in the event of a power outage. However, some policies may allow you to receive assistance if the power has been out for a specified amount of time
Does business interruption insurance offer protection during COVID-19 and other infectious diseases?
Generally speaking, COVID-19 and other infectious diseases are not covered by business interruption insurance. Diseases don’t cause physical property damage and that makes it difficult to file claims and prove loss of income related to the disease.
That being said, some states are retroactively requiring insurance companies to cover damages and losses due to COVID-19. States like Louisiana, Massachusetts, New Jersey, New York, Ohio, Pennsylvania, and South Carolina are introducing bills to help with circumstances related to the coronavirus pandemic.
Stay up to date on your state’s laws in regards to business interruption insurance and COVID-19 and talk to your insurance provider to see what your options are for a claim.
Another option that may help in regards to COVID-19 is an addition to your business interruption policy for “Interruption by Communicable Disease.” If you already had this inclusion covered in your insurance, you may be able to submit claims for losses caused by COVID-19. However, if you are only adding that to your policy now, it likely won’t retroactively cover your losses (unless specifically required by your state).
What do I need in order to submit a business interruption claim to my insurance?
If you find your business in a circumstance that may be covered by your business interruption insurance, there are a few things that you will need to gather in order to submit a claim.
- Copy of your insurance policy: The wording of your policy is going to be vital in whether or not your insurance provider accepts a claim. Review your policy with an attorney to determine if you have a viable foundation for a claim
- Know your time requirements: Most insurance companies require you to submit a claim within a certain time frame of experiencing damages or loss of income. Know what your insurance provider’s time requirements are and submit your claim well within your limit
- Sufficient documentation of losses: You must document everything. You need to be able to prove loss of income and damages that were made. Take pictures of your building if it was damaged and include sufficient documentation of your income and profits before and after the damage occurred. This also includes any documentation for costs that you incurred as a result of the damage
- Documentation of saved expenses: Saved expenses are those expenses that your business already had, expenses that don’t result from any damage that occurred. This might include employee wages, inventory costs, and utilities/rent.
- Attempt to mitigate losses: It can help your claim if you can show that you have tried to mitigate the losses to your business by continuing to operate, limiting restoration periods, and doing everything in your power to limit expenses caused by the damage
- Constant communication with your insurance adjuster: Ongoing communication with your insurance provider is critical in order to keep with the proper time limits and to discuss all of the options for your coverage
- Have all of your documentation ready: Get help preparing all of your documentation if you need it. You may need to provide financial statements, tax returns, invoices, sales forecasts, contracts, receipts, reports from payroll and accounting systems, and other records in order to make any traction with your claim
Review all of these items with your attorney and collect every possible record that you may need before submitting your claim.
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