Wednesday, June 06, 2018

Business, Interrupted

Recently FoIB tsrblke alerted us to this story:

"A fire destroyed The Southerner food truck at a charity concert Friday ... My truck caught on fire and is a complete loss"

Thank goodness the truck was insured, but as tsrblke notes, one wonders if the owners had thought to purchase business interruption coverage "to cover lost revenue."

Good question. But what,exactly, is business interruption (BI) coverage?

So glad you asked:

Briefly, when a business must temporarily close its doors due to damage to or destruction of business property, Business Interruption insurance coverage pays for business income lost while the property is rebuilt. This coverage is intended to help keep the company in business while recovery is underway.

But wait, there's more!

When Hurricane Harvey hit Houston, not just homes were damaged or destroyed. Many businesses had to close, at least temporarily, until power was restored, buildings repaired or replaced, and inventory re-stocked. Even just a few days of downtime can translate to thousands, perhaps millions of lost sales. Business Interruption coverage, generally available as part of a broader commercial policy, can help mitigate the loss.

What's covered?
As the name implies, Business Interruption insurance reimburses losses when a covered peril forces a business to temporarily close its doors. For example, a major storm causes a power outage, and Joe's Grocery Emporium can't stay open for business. Joe is left wondering how to pay his employees and vendors, not to mention the rent and electric bills.

Business Interruption coverage is designed to help pay all of these items, for a limited time, to enable the business to re-open. The coverage is included in a BOP (Business Owner's Policy) but separate when written with a package plan.

What triggers a claim?
Typically, there are three types of events that would result in a Business Interruption claim. First, physical damage to the business severe enough that it must temporarily close its doors.

Second, covered damage to another property which then results in preventing employees or customers from accessing the business itself.

And third, if the government closes off an area because of property damage caused by a covered risk (such as a fire or tornado).

How does the coverage work?
First, the business owner must purchase the appropriate commercial insurance policy, which may include Business Interruption coverage or make the coverage available as a rider. Once a covered event occurs, the coverage generally requires a waiting period, often several days. Once the waiting period is satisfied, the plan will begin to pay for covered losses. The coverage is not infinite, however: typically expenses are paid for a maximum of a year. Of course, the business owner will have to provide the insurer with proof of his or her losses.

What are the limitations?
Losses due to an unfavorable business environment aren't covered. The business owner's salary also isn't covered. It’s important to note that the policy is only going to cover actual losses sustained, and won’t pay more than the policy limits.

Now you know.
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