Owning and operating a business can be challenging, particularly when an unforeseen event causes the business or one of its locations to shut down indefinitely. When this happens, business interruption insurance can often help the business recuperate some of the losses. Understanding what business interruption insurance is and why owners should obtain it early on can be helpful when disaster strikes.

Business Interruption Insurance

Business interruption insurance has been at the top of the mind of many business owners since the influx of the COVID-19 pandemic nearly two years ago. However, this type of coverage is nothing new and when utilized correctly it can help aid business owners when their operations unexpectedly shut down.

Essentially, business interruption insurance helps replace a business’s lost income in the event a location shuts down due to unexpected physical damage from a covered event. In these cases, covered events could include a fire, hail, or other natural disasters, as well as instances of vandalism. Business interruption policies, however, are not sold as stand-alone policies, but as an addition to a commercial property policy. Sometimes it is included in a comprehensive package policy as an endorsement or rider.

While this coverage can help businesses with a myriad of expenses to stay afloat while a location is inoperable, policyholders need to know this coverage does not last for an indefinite period. Rather, coverage lasts only for a timeframe known as the period of restoration. In measuring the period of restoration, most policies are very specific as to what constitutes the beginning and endpoint. The beginning is usually pretty simple to determine while determining the endpoint gets complicated and contentious.

The starting point of the period of restoration varies, but it usually falls within 72 hours of loss or damage to the property at issue. On occasion, the property at issue refers to property other than that owned by the insured. The 72-hour waiting period is a common component in many business interruption policies and makes it clear that coverage will not begin until after a designated timeframe has lapsed.

When determining the endpoint of the period of restoration, many questions can be raised. Typically, the period of restoration ends when the property at issue should be repaired, rebuilt, or replaced with reasonable diligence and similar quality, or when the business resumes operations at a new, permanent location. This is because the overall need for business interruption insurance is to compensate a business owner for losses sustained during the time it takes to get their business up and running again, but not thereafter.

In certain cases, however, businesses may not have the option to fully reopen or resume operations at the same working capacity they had before the event that triggered coverage. When this happens, an endorsement known as a period of indemnity can be utilized to extend the period of restoration beyond the timeframe detailed within a business interruption policy. In most cases, these timeframes are specific and can be 30, 60, or 90 days.

Why Is Business Interruption Insurance Necessary?

Business interruption insurance is incredibly necessary for businesses operating within a variety of different verticals. This is because even when a business is inoperable, full operating costs often remain in effect despite the business not bringing in any income. Because these dips in revenue will likely hinder businesses from resuming normal operations, business interruption insurance acts as a safety net to enable the policyholder to recoup significant losses associated with running the business, including payroll and other pre-opening expenses accrued to restore revenues to pre-loss levels.

While many different types of businesses can benefit from obtaining business interruption insurance, it is especially crucial for those that have permanent brick and mortar storefronts. Restaurants, retailers, hospitals, schools, and even businesses that operate within the entertainment industry often benefit the most from this coverage. However, as many companies’ office spaces have been empty while their workforce has gone fully remote in recent years, this coverage may not be necessary unless the business works off of a hybrid schedule or has plans to return to an in-office structure in the future.

Commercial Insurance Coverage Attorneys

Having business interruption insurance on hand can be a great help to business owners when the unexpected happens. Despite this, insurance providers can utilize various bad faith tactics to undermine the claims process for their benefit. At Raizner Slania, we are familiar with the many ways insurance companies attempt to wrongfully delay, underpay, and even deny valid claims. If your commercial property has been damaged and your insurance provider delays, grossly underpays or denies your valid business interruption claim, we can help. Contact our office today to see how we can best assist you.

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