Commercial coverage that reimburses a business owner for lost profits and continuing fixed expenses during
the time that a business must stay closed while the premises are being restored because of physical damage
from a covered peril, such as a fire. Business interruption insurance also may cover financial losses that may
occur if civil authorities limit access to an area after a disaster and their actions prevent customers from
reaching the business premises. Depending on the policy, civil authorities’ coverage may start after a waiting
period and last for two or more weeks.
Business interruption coverage is a tightly constructed part of broader commercial insurance policies. This
coverage is most commonly found in commercial property insurance policies and business owner’s policies(a package policy for small businesses, often referred to as a “BOP”).
There are four critical elements to business interruption insurance:
1) It is only triggered in three limited circumstances:
(a) There is physical damage to the premises of such magnitude that the business must suspend
(b) There is physical damage to other property caused by a loss that would be covered under the
company’s insurance policy, and that damage totally or partially prevents customers or
employees from gaining access to the business.
(c) The government shuts down an area due to property damage caused by a peril covered by the
company’s insurance policy that prevents customers or employees from gaining access to the
(2) Even after a covered event, most policies have a waiting period of several days before business
interruption coverage comes into play. Once it is in play, the coverage is not retroactive to the day of
(3) Coverage is limited. Specifically, after the waiting period expires, coverage is provided for lost net
income, temporary relocation expenses (designed to reduce overall costs), and ongoing expenses
such as payroll that enables businesses to continue paying employees rather than laying them off.
(4) Coverage is not open-ended. Coverage is available only for as long as it is necessary to get the
business running again, and usually not longer than 12 months. In addition, the business is required
to prove all business interruption losses to its insurer.