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Business Interruption Claims


Anyone who owns and runs their own business knows just how much time, money, and work goes into keeping it running day after day. In addition to expenses like payroll, rent, marketing, equipment, and sales, you also must keep yourself and your business insured. There’s one form of insurance that many people aren’t fully aware of—business interruption insurance.

This is a relatively small component of your overall policy, but it can be crucial to keeping your business afloat in the event of a fire or other natural disaster. But, what does business interruption insurance cover? How do you go about filing a business interruption claim? For help with this, call me at Hoch Law Firm, PC, serving those in Dallas, Texas, and throughout the Dallas-Fort Worth area.

What Is Business Interruption Insurance?

Business interruption insurance is not sold on its own; rather, it’s added onto an existing property/casualty policy or sold as a rider. Essentially, it covers expenses incurred due to direct damages caused by a disaster such as a fire. Since each provider will have their own regulations, the exact type of coverage your business will have will vary. This will also be affected by the size of your business, the type of business you’re in, your average profits, your claims history, and the limits of coverage you sign up for.

Additionally, each insurance company will have its own pricing structure and requirements for filing a business interruption claim which can often be complicated. Because of this, many policyholders choose to work with an insurance attorney to help with this process.

What Does it Cover?

The specifics of your policy will outline exactly what’s covered in the event of a fire or disaster that causes direct damages to your business. However, there are some commonly covered expenses found in most plans:

Business Income: This could include expenses like payroll, profits, taxes, rent, mortgage, lease payments, training costs, or other operating costs. Compensation for profits will typically be based on the previous month’s accounting documents.

Extra Expenses: These will vary but can include temporarily relocating to another location while your primary location is being repaired, renting additional equipment or office space, or paying overtime.

Civil Authority Coverage: In the case that your business is forced to close due to a direct governmental order (like an evacuation), business interruption insurance may cover your expenses.

Contingent Business Interruption Coverage: If a business close to you suffers damages that end up affecting your business (such as supply-chain issues), this policy may cover your related expenses.

Importantly, these expenses will only be covered if the precipitating event is covered as a part of your policy. Many policies include exclusions for natural disasters like floods and earthquakes which must be covered by a separate rider.

What Is Not Covered?

There are also certain expenses that will not be covered by your policy, even if you feel they’re directly related to your damages. This could include physical items that broke during the disaster like glass, unrecorded income, utility costs, and damages incurred due to a virus or pandemic.

This last issue has seen increased scrutiny lately due to the Covid-19 pandemic, yet nearly all policies maintain that this is an uncovered event. With any insurance policy you purchase, either as an individual or as a business, you should ensure you understand all aspects of it including what’s covered and what’s not. Take the time to really read your policy and ask your agent any questions you still have.

What to Do if You Receive a Denial

If you receive a claim denial for damages you believe should be covered, the best thing you can do is contact an attorney. When you hire an attorney, they can review your policy and enforce your rights to coverage by negotiating on your behalf, locating and organizing evidence, and if necessary, representing you and your business in court.

One of the most common questions I’ve received lately is, “Are Covid-related claims valid?” Unfortunately, the vast majority of insurance claims due to the pandemic have been denied by courts, claiming that the virus has done no physical damage on its own and falls within the policy language of an uncovered event. Understandably, this is not the answer that business owners want to hear, especially if they’ve suffered losses due to Covid.