Know Your Policy: Business Interruption Coverage

KNOW YOUR POLICY Key Terms: Business Interruption Coverage A fire, severe weather event, cyberattack, equipment breakdown, or other loss can halt a company’s operations instantly, stopping revenue while expenses continue to build. Even short-term downtime can create significant financial strain as payroll, rent, and vendor payments remain due.

Business Interruption Coverage can help replace lost income and cover ongoing operating expenses, so a business can remain stable while recovery takes place. It can also support reopening efforts, including rehiring staff and marketing to bring customers back. Available on policies such as Commercial Property Insurance, Business Owner’s Policy (BOP), and Cyber & Privacy Liability Insurance, this coverage can be the difference between a successful reopening and a permanent closure.

The following key terms examine how Business Interruption Insurance can help support organizations when operations are disrupted by a loss.

Dependent Business Interruption Reimburses lost income when a business cannot operate because a key supplier, vendor, or other dependent partner experiences a covered loss and is unable to provide services.

Direct Physical Damage For Business Interruption Coverage to apply under a Commercial Property Insurance or BOP policy, there must be actual insured physical damage to the insured property caused by a covered peril. Losses that stem from indirect factors, such as flood, off-site power outages, or communicable diseases, typically do not qualify. However, Business Interruption resulting from cyberattacks or data breaches may trigger coverage under Cyber & Privacy Liability Insurance, which would not require direct physical damage.

Extended Business Interruption Continued coverage for lost income after reopening, until sales return to pre-interruption levels.

Extra Expense Covers additional costs that can help the business continue operating or reopen faster, such as temporary relocation or renting equipment.

Indemnity Period The timeframe during which the policy may reimburse lost income — generally beginning when operations are interrupted and ending when the business returns to its pre-loss level.

Non-IT-Dependent Business Interruption Addresses lost income when a critical third-party provider or dependency experiences a qualifying outage that disrupts operations.

Reputational Harm Coverage for lost income tied to reduced customer demand after a loss; for example, when a data breach damages customer confidence or public perception, leading to reduced sales even after operations resume.

System Failure Covers lost income when business operations are interrupted by an unintentional or accidental outage of an organization’s own systems, rather than a malicious cyberattack or physical damage.

Waiting Period A short period of time (often 48 to 72 hours) after a loss before Business Interruption benefits begin.

For additional insights on Business Interruption Insurance, visit burnsandwilcox.com/specialties/property This commentary is intended to provide a general overview of the issues contained herein and is not intended, nor should it be construed, to provide legal or regulatory advice or guidance. If you have questions or issues of a specific nature, you should consult with your own risk, legal, and compliance teams.