After Superstorm Sandy hit the Mid-Atlantic states in 2012, thousands of businesses were forced to close and remained shut down for weeks or even months. While the claim payments that follow a catastrophic event like Sandy certainly help repair property damage, business owners also continue to face monetary obligations and financial hardships further amplified by an interrupted business income stream.
Regardless of the size or scope of a business, a loss can have a devastating impact on a business owner beyond direct damage to the property or contents – a loss can leave an organization with bills and payroll but no revenue stream. Business interruption (BI) coverage is a well-known coverage that allows businesses to recover revenue lost as a result of a direct physical loss or property damage. While general property insurance provides protection for physical loss or damage to the property, business interruption insurance covers financial damages that result from an interrupted income flow.
Example: The devastation from the earthquake and resulting tsunami that swept across parts of Japan in March 2011 triggered a substantial number of BI and CBI claims from American manufacturers. Supply and distribution chains stalled or shut down entirely because the Japanese companies they relied on for parts, products or services were no longer operational, and were not operational for an extended period of time.
Example: After Hurricane Katrina, much of the Gulf Coast was left devastated as millions lost their homes – entire communities and many businesses were wiped out. People left the area completely and thousands of small businesses were unable to reopen after the loss due to the absence of clientele, which in turn also caused their previous suppliers a loss as well. Additionally, for many businesses that were rebuilt and re-opened, their loss of income stretched far beyond the standard period of indemnity due to a diminishing customer base or new competition. This type of loss can be mitigated with an extended period of indemnity clause, which allows the business a longer duration of time to regain their position in the market.
Legal Disclaimer. Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.
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