The answer to this question is that it depends on your policy. Generally, a business can insure against business losses by purchasing Business Interruption coverage or Contingent Business Interruption coverage. That being said, commercial insurance policies are not necessarily standard policies, and the specific language of the policy determines whether a business loss is a “covered loss.” An “all risk” policy, for example, covers all losses unless expressly excluded. Additionally, some insurance policies have a civil authority clause which provides business loss when a civil authority closes or denies access to the insured property. There are also insurance policies that have a service interruption clause which provides for business loss when there is an interruption of water or power to a business. Some of the types of coverage in commercial policies that may compensate a business for its business losses are as follows:
Business Interruption Coverage
Business Interruption coverage insures for interruption to your business as a result of direct property damage to the insured real property. For instance, if a hotel or restaurant must remain closed for six (6) months while repairs from a storm are being completed then Business Interruption coverage would pay the business loss for the relevant time frame.
Contingent Business Interruption Coverage
Contingent Business Interruption coverage insures for losses suffered due to the inability to get supplies are goods. This type of coverage may be applicable if a restaurant is not able to get food or a car dealership is not able to get vehicles. With this type of insurance the insured does not need to suffer direct property damage to have a covered claim.
Civil Authority Coverage
Civil Authority coverage insures for losses suffered due to a state, county or municipality ordered closure. This type of coverage is usually limited for a very short duration as most government closures only last a day or two. Civil Authority coverage may cover business loss as well as other losses.
Ingress and Egress Coverage
Ingress and Egress coverage insures for losses suffered when access to a business is prevented or hindered. Access after a hurricane is often times completely blocked due to flooding, debris, emergency access vehicles, etc. That being said, many policies ingress and egress provisions use broader language that may allow ingress and egress coverage to cover a much larger period of time than shortly before or after a covered event, such as a storm. Ingress and Egress coverage may cover business loss as well as other losses.
Service Interruption Coverage
Service Interruption coverage insures for loss suffered when utilities, such as electric or water, are interrupted. Generally, this type of coverage requires some damage to property but judicial decisions interpreting this type of coverage have interpreted the term property very broadly to include damage to any type of property, including computer software. Service Interruption coverage may cover business loss as well as other losses.
Extra Expense Coverage
Extra Expense coverage insures for extra expenses incurred as a result of the storm or covered event in order to resume normal business operations. The language of the clause would determine exactly was is covered but could cover time expended by the owner or employees in coordinating everything that may need to be done to reopen. Although it would be unlikely that business revenue or lost profit would be covered under this type of provision, this type of coverage may include payroll necessary to coordinate reopening of the business.
All of the types of coverage listed above generally pay losses as incurred. This means that if your business is interrupted for six months you generally wouldn’t have to wait until you reopen to receive your check for business loss. Such payments are generally paid periodically and are usually estimated from records of prior revenue and/or profit.
In conclusion, insurance coverage can be complicated. It is important to analyze your policy to determine what type of coverage your business has purchased and whether any of the coverages contained in your policy may cover business loss or payroll for the timeframe in which your business is not operational. Commercial policies are often non-standard policies so the coverage purchased can vary significantly from one business to another. The types of coverage explained above are widely available in policies issued to hotels, restaurants, retail stores and businesses serving the tourism industry. That being said, they are also widely available in policies in many other types of businesses, such as car dealerships and manufacturing. I am hopeful that this article is useful to anyone trying to determine available insurance after a business interruption caused by a major storm.