Business Interruption
If a business must close because the premises are damaged by a natural disaster, such as a flood, hurricane, or windstorm, fire, the business may suffer a substantial financial hardship. While commercial property insurance may rebuild the physical structure, replace damaged or lost equipment, some businesses purchase business interruption coverage to compensate for extra expenses, lost income, or additional operating expenses as they restore operations after a covered loss.
The purpose of a business interruption policy is to restore the commercial enterprise to the economic position it would have enjoyed had there not been an insurable loss. That’s the primary reason Texas businesses buy these types of policies.
How Does Business Interruption Insurance Work?
A business interruption insurance policy compensates the business for some operating expenses and lost income if the workforce and management are forced to vacate the premises because of a policy-covered loss:
- Typically, payment is initiated within 24-48 hours after the occurrence of loss, or after the business pays the deductible.
- The owner will receive payments from the policy only if the property is destroyed or damaged by “risk or peril” described in the policy language.
- In general, a business interruption policy covers losses and damages from civil commotion, fire, aircraft, lightning strike, vehicles, vandalism, or windstorms (with the exception of businesses along the Texas Gulf Coast).
What Does Business Interruption Insurance Cover?
Most commercial property insurance doesn’t include flood coverage. If the business owner purchased separate policies for windstorm or flood coverage, these policies may include coverage for business interruption as well. A business interruption policy probably won’t include losses from loss of electricity, earthquake, evacuations related to severe weather, disease pandemic, or terrorism that doesn’t directly damage the premises.
For this reason, it’s imperative to understand what the business interruption policy covers and its dollar limits.
Types of Coverage Associated with Business Interruption Policies
Four coverage types are associated with business interruption insurance:
- Business income replacement coverage: “business income” is the net profit/loss before taxes and typical operating expenses (including payroll). If your business income is interrupted and you make a claim against the policy, your payment is calculated on the basis of historical sales volume and expenses referenced in your financial records.
- Extra expense insurance: an “extra expense: is that which is higher than the business’ usual monthly expenses. Extra expenses are used to restore the business after a covered event at either the original premises or at temporary quarters. (Note: businesses may buy extra expense insurance on its own. It might offer sufficient cover without the need to buy a full business interruption policy.)
- Contingent business interruption insurance: is used to compensate the business for lost income from a property loss or damages at a customer or supplier location. For example, if the owner’s business is a florist shop and the primary supplier’s premises are shut down from a fire, the policy would pay for resulting lost income.
- Civil authority coverage: pays for extra expenses of lost income resulting from a governmental decision to deny the owner access to his or her business because of a covered loss owned by another party at another location.
Business Interruption Insurance Policy Marketing vs. Business Interruption Claims
On paper, a business interruption insurance policy sounds like an excellent financial management tool for all Texas business principals. When the time comes for the insured to use the policy after a windstorm, flood, fire, hurricane, and the like–when it’s time to submit business interruption claims and receive payments to cover damage and loss–the insurance company who sold the policy may substantially undervalue its insured’s losses or deny the claim.
If you submitted valid business interruption claims, the law in Texas requires the insurer to promptly pay the claims. When your insurer acts in bad faith, you need an experienced business interruption claims attorney as soon as possible.
The Mindiola Law Firm provides clients with aggressive representation, excellent service, and results when quantifying commercial losses or assessing the impact of a disaster is necessary. If your insurer has acted in bad faith, discuss a potential business interruption claim with our experienced Texas first-party insurance claims lawyers. We’ll work with you to address your concerns. Our network includes financial experts who will assess and present a clear picture of your total losses to the insurer. Call us now at (877) 420-4753.