Having comprehensive insurance coverage is essential for commercial property owners. While standard commercial property insurance policies can aid in rebuilding the physical damage to a property, the costs of running the business during this time can quickly pile up. Business interruption insurance can help to mitigate these costs; however, these policies are very specific with regard to what can and cannot be covered. Because of this, commercial property owners should know what triggers this type of coverage so that it can be utilized effectively.
Business Interruption Coverage
Physical property damage is often inevitable when running a business. Sometimes an event like a natural disaster can leave a business completely destroyed or inoperable for some time. However, the expenses of running the business don’t just go away in the event the property has to shut down indefinitely for repairs. In these situations, business interruption insurance can be incredibly useful.
Business interruption insurance works as a means to help replace lost business income in the event the business is unable to operate due to physical property damage. This specific coverage is typically bundled into a business owner’s policy (BOP). A BOP combines coverage for a business’s property, liability, and business interruption coverage for small to mid-sized operations.
While this coverage is great to have, it’s important business owners ensure the policy limits are sufficient to cover losses lasting more than a few days or even weeks. After a major disaster impacts a business, it can take much longer to recover than many realize. Additionally, business interruption insurance policies come with a period of restoration, which sets a duration of time before the coverage even goes into effect. Often, this period is a 48 to 72 hour waiting period and can last up to 30 days, but it can sometimes be extended through purchasing policy endorsements.
What is Covered Under Business Interruption Insurance
To obtain coverage under a business interruption policy, there must be physical damage present at the primary commercial property or a neighboring leader property. Leader properties are often recognized as those that bring in additional revenue to the insured’s property and thus can be added to a business interruption policy through an endorsement. Typical examples include amusement parks, casinos, malls, or destination retailers, among others. The covered perils for business interruption insurance most often include severe storms or natural weather events, fires, and/or other types of unexpected events that cause significant physical damage to the physical location of the business.
When coverage is triggered following a covered event, it can be used for business costs including:
- Revenue the business would make if it were open as normal
- Monthly mortgage, lease, and rent payments
- Loan payments
- Taxes
- Payroll
- Relocation costs if the business has to move to a temporary location
- Training costs for employees
What Isn’t Covered Under Business Interruption Insurance
What cannot be covered under a business interruption insurance policy is more complex. Many businesses saw this due to the COVID-19 pandemic beginning in 2020, as a multitude of business owners attempted to utilize their business interruption policies as a means to recoup costs from mass closures. Unfortunately, business interruption insurance can only be triggered when physical property damage is present. Viral outbreaks like COVID-19 aren’t the only exclusions from business interruption insurance, however. Most policy exclusions include:
- Damage from a flood or earthquake (separate commercial flood or earthquake insurance is required)
- Undocumented income not listed in the business’s financial records
- Utility expenses
- Communicable diseases
- Damaged property repairs
Denied Coverage For Valid Business Interruption Claims
Despite having a business interruption policy and filing a valid claim, insurance companies notoriously look for different ways to deny coverage altogether. This is because insurance providers do not make money from paying out on claims. Because of this, they often attempt to delay, underpay, and deny valid claims to protect their revenue – even when policyholders need their aid the most.
Like many other commercial insurance policies, business interruption insurance is incredibly complex and often includes highly nuanced language that can be confusing for policyholders to decipher. Because of this, having the aid of legal counsel can be incredibly important in ensuring business owners not only understand the ins and outs of their policy, but also in holding their insurance providers accountable in the event they attempt to delay, underpay, or deny coverage.
Commercial Insurance Coverage Attorneys
At Raizner Law, we are well versed in the many ways insurance providers take advantage of their policyholders. If you need assistance with a valid commercial property claim that has been delayed, underpaid, or denied, we can help. Contact us today to learn more about how we can assist you.
