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What is Business Interruption Insurance and How Can it Help You?

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No matter where your company is located in the United States, you will always have to face natural disasters. Hurricanes on the East Coast and the Gulf of Mexico, tornadoes in the Central United States, blizzards in the North, and earthquakes on the West Coast are all examples of natural disasters. You can make every preparation for the event, but you never anticipate what the result will be.

One thing you can do as a business owner to prepare for the aftermath of a natural disaster is to get business interruption coverage, commonly known as business income insurance. When a covered event, such as a fire, happens and causes physical property damage, business interruption insurance protects smaller companies against monetary losses caused by periods of interrupted operations or closures.

Frequently Asked Questions

Q: When does Business Interruption Insurance go into effect?

A: When a qualifying incident, such as a fire, flood, or roof damage, prevents a business from operating normally, Business Interruption Insurance kicks in. 

Q: What perils does my business interruption insurance cover?

A: Typically, business interruption insurance covers expenditures incurred when your company's routine operations are disrupted. Fires, hurricanes, tornadoes, earthquakes, and worldwide pandemics are the most typical causes of this.

Q: Would I be able to make a business interruption claim if a disaster affected my supplier of goods?

A: If a supplier was forced to close due to a disaster, you may be able to submit a business interruption claim. This may involve a pipe distributor being destroyed in a hurricane and unable to transport pipes to your pipe fitting company, resulting in a temporary closure until the supplier resumes operations or you locate a substitute provider. 

Q: Will I be able to submit a business interruption claim if my business slowed significantly but did not entirely close down?

A: To make a business interruption claim, you must have totally shut down the operation, as most plans require. However, in rare cases, you may be able to submit a claim if your business is not entirely shut down. For example, there may be a global pandemic that prevents millions of visitors from visiting and eating at your beachside restaurant, resulting in a 50% loss in sales. It is usually a good idea to thoroughly examine your policy to check if there is a clause that allows you to file a claim even if you are not totally closed.  

Difference Between Property Insurance and Business Interruption Insurance

Business Interruption Insurance is often acquired in conjunction with your property insurance for a premium. The primary distinction between property insurance and business interruption insurance is that while property insurance protects and compensates for actual physical damage, business interruption insurance covers any and all net revenue you would have earned while your business is closed.

5 Steps To Follow When Filing A Business Interruption Claim

According to the American Bar Association, there are many steps to consider when you are filing a business interruption claim. Identifying which actions you must take is critical to the success of your claim. We've outlined five steps that a business owner should take when making a claim.

Step 1: Read Through Your Policy

The first step in preparing to submit a business interruption claim is to read over your policy. By analyzing your insurance, you may identify which risks, such as fire, floods, or theft, your company may be protected against. It's also a good idea to evaluate your policy on a regular basis to ensure you're up to speed on the latest changes and fully understand what's covered in the event of a disaster. One of the most significant documents to check in your policy is your Commercial Package Policy (CPP). Commercial Package Policies (CCPs) are insurance policies that bundle policies such as liability and property and are frequently marketed to small and medium-sized businesses.

Step 2: Document

If your company is eventually impacted by one of the qualifying perils, you must document it thoroughly. You may document the damages that resulted in the company disruption by taking pictures, inspecting your inventory, and even recording witness testimonies from those who were there during the event. There are even times when you must collect documents if your company is unable to operate due to a loss of direct product supply. For example, if a storm hits and damages a huge assembly plant, resulting in the facility closing, and your business is unable to obtain critical items. Furthermore, if you are unable to safely return to your business to record losses due to the region being heavily destroyed or if government officials stop you due to rioting, your business interruption insurance will still be activated.

Step 3: Be Mindful Of Time

After you have recorded the damages, you must report them in a timely manner. Your insurance may contain provisions requiring you to submit papers within a specified time frame. So make sure you know when you have to submit your work. The most serious risk of failing to submit your claim on time is that it will be denied.

Step 4: Restoration Time 

Once you've informed the insurance provider that you want to file a claim, you'll need to calculate your losses and estimate how long it will take to restore your property. Certain business interruption insurance plans often pay compensation throughout the restoration process. Most insurance begins benefits on the first day of the business being closed. However, there may be a 24 - 72 hour downtime before benefits are implemented. You will also likely have disagreements with your insurance provider about how long it will take to restore your business, especially if situations beyond your control cause delays, such as storms delaying construction, crucial items being on backorder, or even landlord delays. 

Step 5: Calculating The Amount Of Losses

When assessing the quantity of losses caused by a disaster, keep your policy in mind. Most plans, if not all, explicitly indicate how to calculate your losses. Additionally, make sure to be diligent and comprehensive when you are estimating how much you lost in sales, earnings, and expected sales; the slightest difference might result in hefty fines. Because it may be impossible to anticipate your expected income, an insurer may look at your current income and base the projected income loss on these figures. To do so, you, as the owner, will be expected to provide documentation of your recent income. Keep in mind that if your company has been losing money in recent years, you will not be denied assistance; nevertheless, the insurer will normally compensate you for fixed expenditures such as payroll.

Everyone's situation is unique and may need a different strategy for filing a business interruption claim. Business interruption insurance is intended to get the insured back up and running as soon as feasible. You may need to seek the assistance of a business interruption attorney to confirm this is the case. A business interruption attorney will advise you through any course of action you choose and guarantee you receive the money you deserve.

What Does Business Interruption Insurance Cover?

Business interruption insurance is essential coverage for every business, whether it is a local mom-and-pop or a Fortune 500 franchise. Business interruption insurance may protect you in a variety of ways following a natural disaster or a widespread pandemic, as we have seen in recent years. Some of the goods covered by business interruption insurance are highlighted below. 

Profits - Business interruption insurance will compensate you for lost income if you could have stayed open. Keep in mind that the quantity of support you will receive is determined by the number of sales and costs you have documented. It is critical to keep an exact and honest record of your profits and spending if you want to get the money you deserve. 

Rent - Even if your business is destroyed, you must continue to pay your landlord's rent. This might be exceedingly tough to achieve if you are not earning any money from your previous business on that site. When it comes to paying rent after a disaster, business interruption insurance comes in handy; business interruption insurance will cover all of your payments while you try to reestablish your firm.

Payroll - Hard workers and devoted employees are difficult to find. That is why, in most circumstances, you want to keep the employees you already have. Whether they are a long-term employee who has been with you since the beginning or a fresh hard working employee seeking to assist driving your business to new heights, your most valuable asset is your staff and being able to pay them while you work on reopening the business is critical to preserving those important assets.

Relocation fees - Following natural disasters such as hurricanes or tornadoes, you may need to relocate your business. Moving a business may be difficult, time-consuming, and costly. These charges will be mitigated if you have business interruption insurance. The expense of movers, equipment, recruiting and training new employees, and even leasing for the new location will be covered by business interruption insurance. 

These are just a fraction of the items covered by business interruption insurance. Be certain to study your insurance policy completely to see what expenditures are covered.   

The Pandemic’s Effect on Business Interruption Insurance 

Beginning in the spring of 2020, we faced government shutdowns and orders to stay at home, something many, if not all, Americans had never experienced before. During this time, everyone, including businesses and insurance firms, faced a steep learning curve. 

Despite the fact that most insurance companies updated their policies in the aftermath of the 2003 SARs (Severe Acute Respiratory Syndrome) outbreak, which caused many organizations to file business interruption claims, such as the Mandarin Oriental, an Asian hotel chain, which received a $16 million dollar business interruption settlement, nothing could have prepared them for the COVID-19 pandemic. 

Early in the COVID-19 outbreak, experts anticipated that business disruption expenses for small businesses alone would surpass $300 billion per month. Due to the COVID-19 virus, some business owners sought business interruption and additional expenditure coverage for revenue lost due to forced business closures. Many business owners were concerned about whether the claims would be recognized because the company had suffered no physical damages.

Many would soon learn the answer in the unfortunate case of Neuro-Communication Servs., Inc. v. Cincinnati Ins. Co., in which an Ohio court found that the corporation suffered no bodily damage as a result of the effects of COVID-19. Furthermore, the court noted on page 11, paragraph 24 of the court records that, while COVID-19 is damaging, the damage, in this case, is different since Neuro's premises were not rendered uninhabitable but were simply hazardous owing to the risk of COVID-19 transmission. 

Since 2020, the COVID-19 pandemic has dealt a severe blow to many company owners in the United States and throughout the world. Ten states, including New York, Louisiana, Rhode Island, California, and Michigan, prepared legislation in August 2020 requiring insurers to pay for business disruption costs caused by coronavirus shutdowns retrospectively. To find out if your company is protected by pandemic business interruption insurance, go over your policy completely and verify with your insurance company. 

Please contact a knowledgeable and devoted business interruption claims attorney if you or someone you know has been harmed by a disaster and had a business interruption claim refused.

Hurricane Ian And Business Interruption Claims

With miles and miles of beaches, resorts, and family vacation locations, living on the Gulf of Mexico and the Atlantic Coast may be a wonderful and pleasant experience. These regions are also where residents live when tourists and vacationers have left for the season. Having a company in frequently traveled tourist locations has advantages and disadvantages. These communities prepare for what may be the next major hurricane season every year from June through November. These storms begin as sandstorms over the Sahara Desert and make their way into the Atlantic Ocean, where they begin their more than 6,000-mile voyage to North America. Most storms, as we know, fizzle or even loop back into the ocean; nevertheless, a handful makes it all the way to the United States mainland. 

This was the situation on September 28, 2022, when Hurricane Ian made landfall off Florida's west coast. Hurricane Ian caused massive damage worth more than $50 billion. The Florida Office of Insurance Regulation, as of this past December, predicted approximately 670,000 claims, with more than 29,000 being commercial property claims. Hurricanes and other natural disasters are notorious for completely disrupting activities in the regions they immediately impact. Business interruption insurance will not cover the cost of property damage, but it will assist in offsetting the cost of missed revenue and profits, taxes, relocation charges, and loan payments. Business interruption insurance kicks in when the government closes down the areas around a disaster, such as barrier islands that can't be reached because bridges and roads aren't safe for passage. Even if the buildings were still intact, the inability of employees and customers to access and leave those locations would be enough to activate business interruption insurance.

Insurance Provider Denying Interruption Claim

When you pay thousands of dollars for insurance, you want to ensure that it is available when you need it the most. Insurance firms may be cunning, looking for opportunities to profit wherever they can. In the vast majority of circumstances, the insurance provider will honor the contract and pay the full amount of the claim. However, there are times when the insurance company would either deny the claim or accept the claim but underpay the amount owed. 

According to the National Association of Insurance Commissioners (NAIC) article from 2020, the insurance industry believes that only 30 - 40% of small firms obtain any business interruption coverage at all. According to an article released by the Federal Emergency Management Agency (FEMA), around 25% of companies fail to reopen following a natural catastrophe. This is primarily due to insurance companies underpaying or outright refusing claims. If you or a loved one has experienced an insurance provider denying or underpaying your claim, you need to speak with an attorney with extensive experience in challenging claim denials, setting up policies to handle any potential claims that may happen in the future, and making sure your rights are constitutionally protected. Insurance disputes and claims can be complex and time-consuming, so it is important to work with a trusted and experienced lawyer who can provide the correct resources and expertise appropriate for your case.

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