Business Interruption Insurance Coverage, Exclusions, and COVID-19

pandemic business interruption insurance

If you’re a business owner, then your business is probably your livelihood and you rely on its operations to pay for food, shelter, and your family’s needs. If a business’s operations is forced to be put on hold, most business owners will have serious cash-flow issues and may be left feeling powerless without the right coverage. That is where the right business insurance and business interruption coverage can be a lifesaver.

Although it doesn’t cover all scenarios, business interruption insurance can come in handy for some business owners in specific circumstances. Learn more about what business interruption insurance is, what scenarios it usually covers, some details around these policies, and where today’s COVID-19 pandemic fits in.

What Is Business Interruption Insurance?

Business interruption insurance is expenses or revenue coverage for business owners in case their regular business operations are forced to be put on hold. If the coverage covers a business owner for a specific event, then the business owner’s revenue (or part of it) is covered by the insurance company. There are specific circumstances that business interruption insurance policies usually cover though. Read on to learn more.

What Does Business Interruption Cover?

In general, business interruption insurance covers part or all of a business’s revenue when it is forced to close its regular business – usually brick and mortar – operations to the general public due to unforeseen (but specific) circumstances. This usually has to do with sudden accidental damage to the building unit that the business requires for regular operations.

If the damage to the building is significant enough that the business needs to shut down for repairs, business interruption insurance covers the loss of earnings until the property is repaired/replaced, or in some cases a business can be covered until they reach the same levels of profitability that they had before the damage. This can be for either a business that owns the building they operate in, or for a business that leases space in the building as a tenant as well.

Common circumstances that business interruption insurance covers are:

Fires

Fires are one of the most common incidents that can bring a business’s operations to a hault. Even a relatively small fire can cause sufficient damage that the business needs to close so that repairs can be made. This can sometimes take weeks, so having business interruption insurance can be a life saver in times like this.

Floods

Floods – whether from a natural disaster, heavy rain, or water pipe bursts – can cause a ton of damage. This is also the type of damage that can be so significant that the business may need to close for repairs and restoration, which can take weeks.

Earthquakes

Earthquakes in BC are common compared to other parts of the world, which is why earthquake damage is usually part of any home insurance policy. However, earthquakes can affect businesses as well, and any business that has its location affected by an earthquake may be forced to pause operations until things are back to normal.

Windstorms

Another common reason for damage to a business’s building and possibly its operations are windstorms. If winds are powerful enough, they can cause major damage to buildings. If the damage to a business’s location is significant enough, it may be forced to shut down operations until repairs can be made.

Does Business Interruption Insurance Cover Pandemics Like COVID-19?

In general, most business insurance policies and business interruption coverage will NOT cover a pandemic such as COVID-19. This is because most business interruption policies cover issues related to sudden and accidental damage to the building(s) that it operates in, and this is not the case with COVID-19 as there has been no physical loss or damage to building or contents insured. It may come as a surprise, but even some BI policies that are “all risk” or “comprehensive” (see below) may still not cover a pandemic like COVID-19 because most policies revolve around property and damage to it, unless it has specific insurance policy riders for things like pandemic disease or government order shutdowns within the policy.

Even if you do have some sort of coverage for a pandemic like COVID-19, the amount your business will receive also depends on its indemnity type and revenue coverage details. Read on for more information.

working during coronavirus

 

Different Types of Business Interruption Insurance Policies and Details

Not every business insurance and business interruption policy is the same. Each policy will differ in terms of which business interruption risks the business is covered from, for how long exactly the business is covered for, and how much of its average revenue is covered.

Named Perils vs. All Risk or Comprehensive

Business interruption insurance coverage usually follows the coverage that you elect to carry on your property insured. Business interruption insurance can either include all risks (comprehensive), or it can have specifically stated risks or “named perils” that are covered, and you can customize policies by adding additional coverage (like for earthquakes, floods, etc.) too. The more risk that is covered, the more expensive the insurance policy, so it’s really up to the business owners to decide what level of risk vs cost that they are comfortable with.

Again, many policies do not cover disease pandemics because most policies require loss or damage to property insured for the business interruption coverage to be triggered, so a policy rider may be required for those wanting coverage for pandemics or government-forced shut downs. It’s important to work closely with a credible insurance provider who can present you with some great options to choose from that may best fit your needs.

Limited Indemnity vs. Extended Indemnity

Another factor that is also usually stated in a business interruption policy is its indemnity period, or for how long the coverage is provided for. If the business just wants to be covered until the repairs are made and/or the business is allowed to re-open again, then a limited indemnity should be fine.

However, just because a business re-opens does not mean that revenue levels will go back to what they were right away. Sometimes it can take an additional few weeks or even months to get back to regular revenue levels after a business shuts down and re-opens, which is why there is also an option in business interruption insurance policies to have extended indemnities which cover the business until it gets back to regular historic revenue levels before the event that caused the shutdown.

Gross Earnings vs. Expenses vs. Extra Coverage

Lastly, and also very important, is how much of the actual revenue will be covered. Will the entire business’s revenue be covered, or will only part of it’s revenue be covered? Will only expenses be covered, or will profits be taken into account? What about extra expenses that may come up after everything? A business may find it has additional expenses that are new and needed now after re-opening a business. This should all be carefully considered by each business owner so they can find the best cost:coverage that works best for them and their business.

Contact Harbord for a Quote!

We at Harbord Insurance are proud to offer our clients the best insurance services and support. Please feel free to contact us if you have any questions at all, if you would like more info, to get a free quote on a specific insurance policy type, or if you want to review your current coverage with us. We’d be happy to hear from you!

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