Marina Dock Age, July/August 2003

Business Interruption Insurance – Are You Getting What You Paid For?
By Mark Yearn

Business interruption insurance is one of the most – if not the most – important types of insurance coverage a business owner can purchase. Unfortunately, it is also one of the most misunderstood.

Ask an insurance underwriter, a broker, and a claims adjuster to describe what business interruption insurance is, and you will most likely receive three different answers. Ask an insured party what it is, and you will likely receive yet a fourth answer. Ask the same questions again after the loss has occurred, and you will receive still more varieties of interpretations.

Business interruption – what is it?

By definition, business interruption insurance pays for the loss of earnings or income when operations are interrupted, curtailed, or suspended due to an insured property loss. Loss of rents and rental value are included.

Loss of earnings can be determined as follows: Take the business’ profits over a given period and add to it all the charges over that same period that will continue even though the business is not earning revenues. Mortgage payments, payroll for key employees, taxes, and so forth, will all continue after a loss. Therefore, you will want coverage that will replace the lost revenue needed to continue making these payments and generating the same profits.

Keep in mind that a business that does not produce a profit still requires business interruption insurance. In fact, this business needs the coverage even more than a business that is operating in a profitable mode, since it will probably have less capital on hand to buffer it from the costs of interruption.

You may think you are covered when you aren’t

For business interruption insurance to apply, you must meet two conditions. First, the cause of the loss must be a covered peril under the policy. Second, the loss must occur to an insured property. In other words, the physical property must be insured and the loss must be covered by the insurance policy in order for business interruption coverage to respond.   Continue »