Business Interruption Insurance
Business Interruption Insurance is a supplemental insurance coverage that insures against loss to an insured’s business income when a covered peril damages or destroys the premises the business uses.
Business interruption insurance is predicated on underlying property damage. Recovery under these policies is intended when the loss is due to an inability to use the premises where the damage occurred. Therefore, although undoubtedly significant to the insured, business interruption insurance does not cover situations in which a covered peril caused the insured’s business activities to slow down. Instead, business interruption insurance covers situations in which a covered peril caused physical damage to the insured’s business premises such that the insured’s business had to temporarily close. For example, if a beachfront hotel experiences a loss in business income due to low occupancy during a hurricane, it cannot recover business interruption insurance. However, if wind from that hurricane physically damages the hotel such that the hotel cannot accommodate any guests and must temporarily close, it can recover business interruption insurance.
Accordingly, to recover under a business interruption policy, an insured first must show that a covered peril caused property damage to the covered premises. The insured then must show that the damage to the covered premises resulted in the interruption of the business for a certain period of time, which in turn caused the business to lose income. The period of time the business is closed is often referred to as the period of restoration, and is measured from the date of the direct physical damage to the premises to the date the premises should have been repaired or replaced with reasonable speed and diligence. Often, business interruption coverage will not begin until the business has been closed for a certain period of time.
Business interruption insurance is intended to return to the insured’s business the amount of profit it would have realized had there been no interruption. It pays for lost business income in the form of net profits, as well as ordinary operating expenses that were actually incurred while the business was closed. An insured must prove its entitlement under the policy and the amount it is entitled to by competent proof to a reasonable degree of certainty. As is typical under Florida law, an insured cannot recover if its lost profits are too speculative.
Further, an insured cannot recover business interruption insurance if its business income loss occurred for other reasons not related to the covered peril. For example, if a business is operating at a loss prior to the covered peril due to low sales or production issues, the insurer can use those other reasons to argue that the insured is not entitled to the amount it claims. An insured will typically prove its lost profits by its books and records, or by competent evidence of a comparator’s profits. Historical business performance is often the best way to calculate lost business following a covered event.
Clark Partington’s insurance team is equipped to answer questions related to your specific situation. With offices in Pensacola, Destin, Santa Rosa Beach, Tallahassee, and Orange Beach (Alabama), we are a full-service firm covering this part of the Gulf Coast. To reach one of Clark Partington’s insurance attorneys, contact Jason Peterson at (850) 436-6469 or firstname.lastname@example.org.
This publication should not be construed as legal advice. Its applicability is dependent upon specific facts and circumstances and is provided for informational purposes only. You should not act upon this information without seeking advice from a lawyer licensed in your own state.