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Commercial Insurance
Wednesday, February 11th, 2015

Business Interrupted

Following a loss every business has different needs. For some, a good computer backup is all that’s required to easily restart their business from another location. They can buy new computers, furniture, get the phones rerouted, and most importantly, their customers will follow them.

For others, starting over from a new location will be problematic or impossible because their business is tied to a specific location, or uses specialized equipment or processes to produce a product. Loss of their location makes it impossible to carry on operations, earn revenue and in some instances pay bills. Losing the ability to rent rooms in their hotel or make their product in a factory can lead to the potential failure of that business.

Fortunately most business insurance policies can include business interruption coverage. For many businesses this coverage could be the difference between continued success or closing their doors for good. As a result, business owners should carefully review this coverage with their broker to understand what types of disruptions are covered, financial compensation methods and limits, and for what period of time.

In the same way you assess the amount of coverage on your buildings and/or other assets, the amount and type of coverage available for business interruption should also be examined closely.

There are several types of business interruption coverages which are available to business owners:
• Gross Earnings will pay only until the property damaged is repaired or replaced. As soon as you are back up and running, coverage stops. This form of coverage does not address the issue of sales not reaching pre-loss levels. For some businesses however, this form of coverage may very well be adequate.
• Profits From business interruption coverage will continue to pay until business has reached its pre-loss levels subject to a certain time frame, usually 12 or 24 months.
• Extra Expense coverage pays the additional costs associated with carrying on business, even in cases where they may be higher than what you had been paying. If you must continue operations following a loss to retain customers, and those costs are higher than what you had been paying, i.e. rent, then this coverage maybe for you.
• Contingent Business Interruption insurance is available for businesses that rely on third parties for their revenue. This could be an anchor tenant in a mall, or a key supplier without whose product your product cannot be produced. If the damage at that suppliers premise is caused by a peril covered under your policy then your policy could provide business interruption coverage for you.

Putting a business continuity plan in place will be key factors in ensuring that your business not only continues, but prospers. Review your coverage with your broker to ensure you’re ready for anything.

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