Business Interruption Coverage

April 13, 2006

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When deciding on the types of fire/hazard property insurance coverage for a small business, an owner needs to consider a number of policy variables.

Property insurance, for the business owner, should include business interruption coverage. This covers the losses associated with a business being unable to operate normally (e.g., due to a fire, a loss of electricity, etc.)--namely, the lost profits, additional extraordinary operating expenses incurred (e.g., rent of temporary space), and the cost of re-starting the business.

Generally, the same exclusions that apply to the property coverage (e.g., design defects) also will apply to the business interruption coverage. In addition, some policies may offer business interruption only if the business cannot operate at all.

A policy that covers even a partial shutdown of the business is superior to no coverage at all. Whether the coverage requires a complete or only a partial shutdown of the business usually will depend on the language in the policy. A careful reading of the policy's provisions governing business interruption coverage is required.