When you need to seek insurance coverage for a business interruption, the first step is understanding the terms of your policy. What losses are covered? For how long? What exclusions apply?
While interpreting the terms of your business interruption insurance policy is a task that is best left to your attorney, here is a brief overview of some of the key terms business owners and executives will want to understand:
Glossary: Key Terms in Business Interruption Insurance Policies
A standard business interruption insurance policy will only cover the insured’s “actual loss.” This means two things. First, if a company’s premises are damaged but its business remains operational, it will not be entitled to coverage for business interruption. Second, if a business sustains only a partial loss of income, only the portion lost will be covered under its business interruption insurance policy.
Business interruption policies provide coverage for loss of business income in the wake of a covered peril. Generally speaking, “business income” means net income from operations. Business interruption insurers will look to insureds’ past financial performance to gauge what they would have earned net of payroll and other expenses during the “period of restoration” to determine the amount of coverage to be paid.
Period of Restoration
Under a standard business interruption insurance policy, the insurer is only required to provide coverage during the insured’s “period of restoration.” This is the time it takes (or should take) to get the business’s premises back into service. Under extended and contingent business interruption insurance policies, the coverage period will be extended or measured based upon other factors.
“Extra expense” coverage is additional endorsement option that provides insurance for costs incurred due to the covered peril. These are costs that the business would not have incurred in the normal course of its operations.
“Service interruption” is an extended coverage option that provides insurance for loss of business income sustained due to physical damage to utility lines, plants or equipment not owned by the insured. Service interruption coverage provisions will frequently contain exclusions for certain natural disasters, damage to overhead lines, and damage to utility assets located further than a specified distance from the insured business.
Leader property coverage is a form of contingent business interruption insurance that covers loss of income due to physical damage suffered by a nearby property that attracts business to the insured. For example, if a restaurant relies on a nearby mall or amusement park to attract customers to an otherwise undesirable location, the restaurant could use a leader property endorsement to insure against business losses if a hurricane damages the mall or amusement park (but not the restaurant itself).
Contact Saavedra | Goodwin about Your Business Interruption Insurance Claim
Located in Fort Lauderdale, Saavedra | Goodwin is an insurance claim law firm that represents business clients in South Florida. If you need to enforce the terms of your company’s business interruption insurance policy, our attorneys can help. For a confidential consultation, call our offices at (954) 767-6333 or contact us online today.