Business Interruption Insurance

Business Interruption (aka Business Income or Loss of Rents) Insurance is a time element,

property insurance coverage designed to protect property owners who suffer a “covered cause

of loss” at their property. The standard deductible is 72 hours.

Principle of Insurance

Insurance is a risk transfer vehicle. The insurance company assesses the risk, determines the

likely number and amount of probable claims with potential buyers, With this information it

determines the needed rate to collect so that it can pay the expected claims.

The carrier then offers a contract with specific conditions, that when met, the insurance

company will pay you for your loss in order to make you whole. The greater the risk, the more

expensive the premium.

The insurance company charges a small premium, from thousands of customers to spread the

risk. This is so that when a small number of customers have a claim, there is money to restore

the damaged property. The reason insurance remains affordable is that not every client has a

claim on the same day.

The Policy

The policy is a contract with multiple parts, including:

- Covered Property: defines the property that is covered from loss. Types of property you

can insure are:

- Buildings

- Business Personal Property (contents)

- Business Interruption (Business Income / Loss of Rents) is a secondary

loss triggered by direct physical loss to Building or Business Personal

Property

- Cause of Loss: defines the perils, cause of loss that when experienced, triggers

coverage.

There are multiple Perils you can insure property against.

- Basic Form

- Broad Form

- Special FormCovered Cause of Loss

Covered Cause of Loss is a defined term for an insurance policy. direct physical damage. Each

policy has perils it insures against loss from. The property perils range from Basic, Broad to

Special Form.

Property Perils

Perils are the trigger for coverage, direct physical damage caused by:

- Basic: fire, lightning, explosion, smoke, windstorm, hail, riot, civil commotion, aircraft,

vehicles, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action

- Broad: Basic plus falling objects; weight of snow, ice, or sleet; water damage (in the form of

leakage from appliances); and collapse from specified causes.

- Special Form (all risk): EVERYTHING IS COVERED, unless excluded

CAUSE OF LOSS - “Special Form” EXCLUSIONS

Whenever possible, make certain you request Special Form Perils, also known as “all risk”. The

perils insured against is everything EXCEPT what is EXCLUDED.

Standard Exclusions you must address:

- Building Ordinance or Law

- Earth Movement

- Water

- Artificially Generated Electrical Current / Mechanical Breakdown

So, in order for you to have a loss for Business Interruption or Business Income, you must have

a loss to property, Building or Business Personal Property, for which you will not be able to

operate normally. The fact that you are unable to operate as normal results in a loss of income.

Exclusions

Over time, insurance companies revise their policies in response to court cases and changing

expectations of its clients. Since the 2002 SARS outbreak, insurance companies have issued

and adopted various endorsements to Exclude coverage for damage caused by Virus or

Pandemic.

- Virus Or Bacteria: Most current policies have either adopted forms which specifically

exclude loss caused by “virus”, or they have specific endorsements added to prevent the

potential for a claim caused by a virus.

- Acts Or Decisions: Acts or decisions, including the failure to act or decide, of any person,group, organization or governmental body. The Property policy is not intended to cover

losses caused by government authorities requiring your business to shut down when

there is no physical damage to your property.

Exception

For every rule, there is an exception, and Business Interruption is no exception. If a civil

authority closes your business due to a “Covered Cause of Loss”, the trigger, that damages

another property, many policies will grant coverage for your loss of business.

The key takeaway is that the primary cause of your loss is due to a “covered cause of loss”.

For instance: Your operation is in a property that houses other businesses. If a tenant in the

property has a fire, which results in the local authorities not allowing anyone to enter the

premises, even though your space is unharmed, you would likely have business interruption

coverage.

Sub LImits

Some policies may include sub limits for clean up if your property is infected and requires

cleaning. If this required your business shut down for an extended time, there would likely be

some Business Interruption coverage available.

COVID 19 & Business Interruption Insurance

The Oregon Department of Consumer & Business Services posted this in

relation to Business Interruption insurance:

Your business interruption insurance policy should list or describe the types of events it

covers. Events that are not listed on, or not described in, the policy are typically not covered.

It is important to review the policy exclusions, coverage limits, and applicable deductibles.

You should also determine if the policy requires your business interruption to last for a

certain time period before you are entitled to any policy benefits.

Business interruption coverage typically can be triggered only if you have property loss that

leads to the business interruption. One example could be that a fire in your office has caused

you to suspend your business activities.

Because coverage varies across policies, you need to read your particular policy and consult

your broker or insurer or its agent for more information.The Future

The future will continue to change how insurance responds to events. The

current COVID 19 situation is challenging all affected parties.

- Businesses that employ and rent space have been ordered by the

government to shut down in order to help slow the spread of COVID

19.

- Property owners who expect to collect rent from their tenants that are

now unable to operate due to order of the government.

Things are less clear as there is little case law regarding Business

Interruption Insurance. This will likely change soon as there are multiple

court cases filed, perhaps prematurely.

In the normal course of a claim, the insured files a claim with the insurance

carrier that issued the policy. Only if the carrier denies the claim, would the

insured file a suit against the insurance company to attempt a different

outcome.

This is for illustration purposes only. Consult your policy for actual

coverage.

For more information, please contact

J. Darrin Gross ph (503)504-7619

[email protected]