BUSINESS INTERRUPTION
UNDERSTANDING THE
BUSINESS INTERRUPTION
CLAIMS PROCESS
Continuity is critical in business,
and there are few things more
important than continuous
revenue and cash flow. In
fact, just one brief business
interruption can be incredibly costly for
an organization, often leading to serious
reputational damages or financial harm.
That’s where business interruption
insurance can help. In the event of
a disruption, business interruption
insurance provides coverage for income
your business would have earned
during a closure period if it had been
operating normally. It may also reimburse
organizations for expenses they were
unable to pay for as a result of a covered
peril.
Business interruption insurance
provides protection against a variety
of common interruptions, including
natural disasters, equipment damage
and vandalism. However, these policies
are complex, and it can be difficult for
policyholders to understand what triggers
coverage and how the claims process
works. This Coverage Insights highlights
considerations related to business
interruption claims, helping you gain a
better understanding of your coverage and
how to respond to a loss.
COVERAGE REQUIREMENTS AND
CONSIDERATIONS
While business interruption insurance can
provide much-needed financial protection
following a disruption, there are a number
of requirements that must be satisfied
before a policy kicks in.
In general, this form of coverage will pay
for the actual loss of income your business
sustains due to a necessary suspension
of your operations during the period of
restoration. What’s more, the suspension
of operations typically must be caused by a
direct physical loss, damage or destruction
to insured property. Finally, the loss or
damage must be caused by or result from a
covered cause of loss. Let’s examine these
considerations in more detail:
• Physical loss or damage caused by a
covered peril—In order for business
interruption policies to provide
coverage, there must be an actual
physical loss or damage to the insured
property caused by a covered peril.
Coverage will not be afforded in cases
where the loss was caused by a peril
excluded by the policy. What’s more,
the physical loss or damage to the
property typically needs to occur at
the location described in the policy.
• Business income—Business
interruption policies typically cover
reductions in net income that result
from the business having to suspend
operations due to a physical loss at
their premises. Under most policies,
business income is defined as the
net income (net profit or loss before
income taxes) that would have been
earned or incurred by the insured
and the continuing normal operating
expenses incurred. What’s more, to be
covered, the loss of business income
must be the result of the necessary
"suspension" of the policyholder’s
operations.
• Period of restoration—Typically,
business interruption policies will
cover losses to business income
only during a period of restoration.
A typical definition of "period of
restoration" is the period of time that
begins immediately after the direct
physical loss and ends on the earliest
date the property can be repaired,
rebuilt or replaced with reasonable
speed and similar quality. It may
also end on the date when business
resumes at a new, permanent location.
Remember, coverage will differ from policy
to policy, and there may be additional
considerations to keep in mind. The
variances in polices underscore the
importance of working with qualified
insurance brokers when purchasing or
renewing your business interruption
coverage, as well as filing claims.
TYPICAL DUTIES IN THE EVENT OF
A LOSS
In the event of a business interruption loss,
insurance companies will typically require
insureds to take a number of steps. In order
to avoid claim issues, it’s important for
businesses to be aware of these duties and
take appropriate action, which can include:
• Notifying the police or authorities if
the property damage in question may
have been caused by criminal activity.
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