Business interruption insurance is fundamentally designed to protect a business against its inability to continue its normal day-to-day operations, or to occupy its physical premises, in the event of a property loss (due to fire, natural disaster, etc.). More precisely, this coverage can help provide for continuing expenses and for net lost profits during the time of business interruption. In the midst of the coronavirus pandemic, many businesses have a renewed interest in this coverage and questions about exactly how it works.
Essentially, the purpose of business interruption coverage is to put the policyholder back in the same position they would have been in had the property loss never occurred in the first place.
Many modern businesses can benefit from a business interruption insurance policy, something that was true even before COVID-19—yet it might surprise you to learn that this kind of coverage has existed for hundreds of years.
BUSINESS INTERRUPTION, YESTERDAY AND TODAY
In fact, business interruption insurance goes back to the late 1700s. Then, as now, many businesses had standard fire policies, which helped them recoup any damaged property resulting from a fire. The problem business owners faced is that while their fire coverage helped them mitigate the risk of property damage, it didn’t mitigate the risk of lost income while the business owners repaired their property. Business interruption insurance was conceived to provide companies with a way to receive compensation for this lost income.
Fast forward to today and you have a slightly modified version of business interruption coverage. This coverage still offers protection against interruption to your normal business operations and business interruption coverage helps you recoup those lost profits.
Additionally, many business interruption plans will also cover interruptions at third-party locations—for example, lost profits due to a major issue with a supplier. Business interruption coverage can even be obtained to protect against instances where property is rendered inaccessible due to conditions elsewhere—for example, if the highway on which your business is located gets shut down for several days and nobody can reach your office, business interruption coverage can offer a safeguard.
DIFFERENT KINDS OF COVERAGE
As you consider business interruption coverage for your own company, the first thing to note is that there are extreme variations in different policies. For example, a particular policy may or may not cover against all the specific examples mentioned above. It’s critical to do your due diligence and to truly understand what is and isn’t included in your business interruption coverage. Also note that coronavirus has brought up a lot of technical questions and grey areas about how business interruption claims can be handled.
It is also important to understand the conditions under which business interruption coverage can be obtained. Again, policies are different, but there may be requirements of physical property damage; that the property damage or loss is for an insured piece of property; and that this loss actually prevents or reduces the business’ ability to operate as normal. It is also important to note that the policy itself will dictate a “period of restoration” in which the company is covered. Again, this period can vary, and it’s important to double and triple check your policy as you consider a coronavirus claim.
CHOOSING BUSINESS INTERRUPTION COVERAGE FOR YOUR BUSINESS
As COVID-19 has proven, there are very few businesses that don’t have some risk exposure to operational interruption; as such, this is a kind of coverage that’s very much worth investigating, no matter your industry.
But again, there is a high level of variance among policies, and it’s important to work with an experienced insurance attorney who can help you get the policy that’s right for your business. Use coronavirus as an impetus to make a prudent decision, not a hasty one.
McLaurin Law has ample experience representing Houston’s small businesses in insurance matters, and we can guide you in in handling coronavirus-related coverage issues. Contact us today to learn more about business interruption insurance.
Jason McLaurin is a founding member of McLaurin Law. He has over a decade of experience representing clients at trial, arbitration, and mediation in matters concerning insurance policyholder recovery disputes, complex commercial litigation, and catastrophic personal injury claims. He also represents businesses as outside general counsel for clients in a variety of industries including construction, oil and gas, maritime, technology, and professional services. He is licensed and handles matters in both Texas and Louisiana.