Business Interruption Claims

Business Interruption Insurance Claims

Business Interruption Claim Public AdjusterWhether a natural disaster, a global pandemic, a pipe break, or fire damages at a commercial property, these unexpected events and ensuing damages can result in lost rents and a business interruption claim.  A business interruption claim is covered under most commercial insurance policies.  Business interruption or loss of use coverage can be a lifeline for businesses facing unexpected setbacks due to covered loss.  This time-element business interruption coverage and how it is applied could be the difference between shutting down or losing tenants in the aftermath of a loss.

Business interruption coverage is designed to compensate businesses for financial losses incurred due to a temporary halt in their operations caused by unforeseen events.  These events can include natural disasters, fires, cyberattacks, or even government-issued shutdown orders, like those experienced during the COVID-19 pandemic.  As long as the disruption to normal operations is caused by a covered loss, an insured usually has reasonable basis to submit a business interruption claim through their commercial insurance.  However, every policy is different and it is important to refer to the policy language in order to determine extent of coverage on a claim-by-claim basis.

The Financial Impact Of Business Interruption

During the peak of the covid pandemic, it has been estimated that business continuity losses alone in the United States reached USD 1 trillion per month (Hartwig and Gordon 2020), with the total capital resources of the U.S. property-casualty insurance industry standing at approximately USD 744.9 billion during the first quarter of 2020 (Best 2020).  While clearly not all of the business interruption losses were covered, these statistics highlight the magnitude by which short interruptions in business can come at significant cost.  Additionally, when logistical and supply-chain disruptions come into play, the recovery time necessary can contribute to additional, residual losses.

“Time-Element” Coverage

Per Insuranceopedia, time element coverage is insurance coverage for losses tied to a period of time.  Most often related to businesses, it covers such elements as business interruption, profit loss, extra expenses, service interruption, soft costs, rental income, and more.  Moreover, additional living expense coverage represents a form of time element coverage found in homeowners’ policies.

Coverage Period

Business interruption insurance is considered a “time-element coverage” meaning it is intended to cover the time it takes for your business to return to its pre-disruption state.  This can include the period needed for physical repairs, replacement of inventory, and rebuilding customer trust.  Additionally, most policies will place limits on both the time to bring the claim following a loss, as well as the maximum amount of time they will pay the costs associated with a disruption.  For example, a policy may stipulate that an insured has one year from the date of loss to bring a claim for business interruption, and the carrier will only assume associated costs for a period of 12 months.  The time element on your business interruption claim ends once your business is back up to speed producing the same revenue it was prior to the loss.

What Is Covered Under A Business Interruption Claim

Your policy will specify what is and is not considered in a business interruption claim but here are some examples of what is typically covered;

  • Lost revenue – based on prior financial records
  • Mortgage, rent and lease payments
  • Employee payroll
  • Taxes and loan payments – due during the covered period
  • Relocation costs – if the business must move to a new or temporary location due to physical damage to the business premises (may be considered as Extra Expense see below.

Additional Coverages Associated With Business Interruption Claim


Extra Expense Coverage

Extra expense covers costs incurred during the period of restoration in order to minimize operational disruption that a business would not have if there had been no physical damage to the property.  It can include expenses such as renting temporary office space, leasing equipment, relocating employees, and even advertising to retain customers during the downtime.  Extra expense coverage enables businesses to minimize the impact of a disruption, maintain their operations, and recover more swiftly, ultimately safeguarding their long-term viability and reputation.


Contingent Business Interruption (CBI)

Contingent business interruption insurance policies protect against losses from supply chain disruptions but may require the occurrence of property damage to trigger coverage.  When supply chain disruptions or closures occur with suppliers, vendors, or other companies a business relies on, a business may be eligible for payouts with CBI.  For example, a print media publisher that relies on a single print company that goes out of business would utilize CBI to recover lost business revenues due to the print company’s closure.  These policies provide businesses with cash to help cover payroll, rent, and other expenses to keep the business open.  Like business interruption insurance, payouts on CBI claims are typically related to physical damage or other commercial property claims.


Extended Business Interruption (EBI)

This policy covers the intermediary period between when a business property is repaired, but before its income returns to pre-loss levels.


Increased Costs Of Working (ICOW)

The elements below must be satisfied to claim for additional costs and expenses under an ICOW clause:

  • There must be loss or damage to physical property that triggers the policy;

  • The policyholder must have incurred expenses in addition to their normal fixed and variable costs;

  • the additional expenses must have been incurred during the indemnity period;

  • The additional expenses must have been incurred with the sole purpose of reducing the loss of turnover caused by the material damage; and

  • The additional expenses were less than the reduction in turnover (i.e. the saving must exceed the cost of the additional expenses). in other words, uneconomic expenditure will not be covered.


Six Examples of Increased Costs of Working ICOW:

  1. Cost of a generator in the case of a damaged transformer.

  2. Contractor bonus payment for early completion of repairs to the building and for quick delivery of new machines.

  3. Additional cost associated with hiring a more qualified contractor for the rebuild.

  4. Increased cost in purchasing alternate equipment more readily available than what was destroyed in the claim.

  5. Additional overtime payments to outside contractors or to internal staff for expediting production.

Filing A Claim For Business Interruption

Read Your Policy Thoroughly

Different policies may have varying terms, exclusions, and limitations. Review the conditions, definitions and limits of the policy as they apply to Business interruption, and understand what information will need to be provided to prove the claim. Be sure to double-check the time limits and what your responsibilities are in substantiating coverage.

Gather And Organize Documentation

Gather past years financial records and keep new records of all expenses related to the disruption and the steps you take to mitigate losses. This includes receipts, invoices, and communication with contractors, suppliers, and employees.

Claim Calculation

Determine the amount of your claim based on the policy terms and an accurate representation of the cost of the interruption during the period of restoration. This typically involves determining your average daily or monthly revenue and subtracting any expenses that continued during the disruption. To properly calculate the business interruption claim, monthly revenue reports are needed.  In addition to monthly revenue reports, gross payroll reports and detailed profit & loss statements are needed.  Other fixed costs will be included as well.  Every business interruption claim is different because every business is different.  For instance, if you’re a manufacturer than you look at production loss with fixed costs.  In certain instances, a forensic accountant can be useful in producing and substantiating accurate figures representative of an interruption.  Prime Adjustments assist with what documents your business needs to provide to justify your business interruption claim.

Seek Professional Guidance

If the claims process becomes complex, consider consulting with an experienced insurance attorney or public adjuster to ensure you receive a fair settlement.

When a business or commercial property faces unexpected disruptions from a covered loss, time element coverage can be crucial to the continuity of operations. By understanding the applicable components of the policy, filing a business interruption claim correctly, and providing accurate information, commercial property owners and business owners can mitigate negative consequences when properties are damaged. If you are struggling with a business interruption claim, please do not hesitate to reach out to Prime Adjustments for a consultation.


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