The COVID-19 pandemic continues to devastate the country economically. Small business owners have gotten hit especially hard, with most forced to close their storefront for weeks or even months.
Many of these companies have turned to their business interruption policies. It covers companies that have to close after things like fire or theft. Owners also expected it to cover them during a pandemic.
Yet insurance companies are resisting. One dentist said his broker told him, "It would bankrupt us" to cover such claims.
What is business interruption insurance, and what's covered by it? Read on to find out more.
What Is Business Interruption Insurance?
Certain types of insurance cover individuals' bill if, for instance, they get in a car accident and can't work. Business interruption insurance offers a similar service for business owners, minus the car wreck part.
Businesses interruption policies deal mostly with physical damage to business buildings. The physical damage must keep you from being able to resume your normal business activities.
Let's say a fire tears through the block where you run your pet supply shop. Your part of the building suffers smoke and fire damage, plus water damage from when firefighters put out the flames. You obviously can't open up for customers right now.
A business interruption insurance policy can be the difference between a temporary shutdown and a permanent one.
This is separate from your property insurance. Property insurance covers the cost of fixing the building, but it doesn't cover operating costs for your business.
What is Covered by Business Interruption Insurance?
A fire is a classic example of what triggers business interruption insurance. The Insurance Information Institute says such insurance is there to help with "operating expenses during the period of restoration."
Those expenses can get broken down into five categories, per the institute:
- Lost net income
- Mortgage, rent, and lease payments
- Loan payments
If you want to claim lost net income, you'll need documentation to back up your claims. You should expect to get restored to your previous financial state, not to a better one.
What does that mean? It means if your business was only bringing in $5,000 a month, you can't make a claim for $10,000 in lost net income.
How long does business interruption last? The restoration period can last for up to a year.
Keep in mind business interruption insurance will only kick in if you experience something called "covered peril." What's covered depends on the specific language in your policy.
As many unhappy business owners are discovering, pandemics are not usually considered a "covered peril." This is despite the fact that local and state laws left places like dental offices and bars no choice but to close.
Insurance could cover you if the government orders you to close after a fire. They're not as interested in reimbursing you for coronavirus-related expenses. After all, offices don't sustain physical damages in a pandemic.
Understanding Business Interruption Insurance
Business interruption insurance is a hot topic right now. Many small business owners are taking their insurance companies to court. They believe the denials of coverage during a pandemic are unfair and arbitrary.
We can help you fight back against potentially unfair business interruption insurance policies. Contact us today for a free consultation. We'll hear you out and let you know if you've got a case.