A General Overview of Business Interruption Coverage
Last month, Anthony Natole, MBA, CPA/CFF, CGMA from Risk Accountants, LLC, gave a presentation on “Hurricane Ian: All About Business Interruption” at the Valuation, Forensic Accounting & Litigation Services Conference presented by the Florida Institute of Certified Public Accountants.1 I had the privilege of being on the accompanying panel for this presentation along with Margaret Krichevets, CEO, MBA, PA of Best Public Adjusters. While listening to the presentation and the questions that followed, I began to think about how important it is to have a general understanding of business interruption coverage and when it comes into play.
For a business owner, the thought of suffering an unexpected peril and having to close the doors of your business can be a harrowing thought. An unexpected and necessary closure can cause your business to suffer in a number of ways, including loss of income.
Certain insurance policies can provide coverage for business interruptions and protect against these types of losses. An insurance policy that covers business interruptions can help cover the costs of lost income in certain situations. It is important to understand, though, that business interruptions are only covered under specific circumstances laid out in your policy.
So, what would trigger an insurance policy’s business interruption coverage? An insurance policy will include its own specific definition for what is considered a covered business interruption, but the concept of business interruption generally consists of the following:
1) an event that caused physical damage
2) to a described property
3) by an insured peril
4) which causes a necessary interruption of operations.
If your business suffers a catastrophe and has to close, it is important to read your policy carefully to see if you have business interruption coverage and if your loss meets your policy’s requirements and its definition of a covered business interruption.
Business interruption coverage can cover “fixed expenses, including costs incurred while operating at an offsite location, while the property is closed for repairs and restoration.”2 Policies can also cover “lost revenue that would have otherwise been earned if the business remained open.”3
FEMA’s website states that “[a]bout 25 percent of businesses do not reopen after disasters.”4 Although this is an alarming statistic, knowing what your policy will cover in the event of a disaster will help you be prepared for the unexpected.
Thought for the Day
By failing to prepare, you are preparing to fail.
– Benjamin Franklin
1 The prepared was by Bruce D. Smith, CPA/CFF, CFE, who could not be present for the conference. http://bdscpacfe.com/profile
2 Business Interruption/Businessowner’s Policies (BOP), NAIC. Available online at: https://content.naic.org/cipr-topics/business-interruptionbusinessowners-policies-bop#:~:text=Business%20interruption%3A%20While%20commercial%20property,%2C%20taxes%2C%20and%20loan%20payments
3 Id.
4 Stay in Business After a Disaster By Planning Ahead, FEMA. Available online at: https://www.fema.gov/press-release/20210318/stay-business-after-disaster-planning-ahead.
