What Does Business Interruption Insurance Cover?

Business interruption insurance is an important coverage offered to businesses that face hard times and need help covering lost expenses.

There has been a lot of buzz surrounding business interruption insurance coverage lately, as many businesses have been forced to close or reduce services amid the COVID-19 pandemic. However, receiving coverage is not always as cut and dry as it should be, judging by the abundance of insurance class action lawsuits filed over denied claims since the pandemic began. 

The ins and outs of insurance policies can be confusing. Here we hope to add some clarity to what exactly business interruption insurance (BII) covers. 

What is Business Interruption?

Business interruption occurs when a business endures losses or experiences a spike in overhead costs due to unforeseen circumstances. Many times, businesses must shut down due to physical property damages or orders to stay off the premises, for any number of reasons. Business interruption can be due to fires or natural disasters that cause physical damage to a business’s property. 

What is Contingent Business Interruption Insurance?

Contingent BII is a common insurance policy for manufacturers or producers. This insurance protects a business specifically for losses due to deficits from suppliers. If a supplier suffers property damage or another circumstance that stops them from supplying material to other businesses, those businesses can claim contingent business interruption insurance. Depending on its needs, supply chains being cut off can be detrimental and stop a company from producing goods. 

Many times insurance coverage is dependent on wording, and the wording can be tricky or vague. Sometimes terms are “covered” but not fully defined. 

The U.S.  Millennium Inorganic Chems. Ltd. v. National Union Fire Ins. Co. lawsuit is a prime example of how this type of contingent insurance coverage works. Millennium was a global manufacturer of titanium dioxide and they had both BII and contingent coverage. The policy covered “contributing properties” that were “direct suppliers of materials” the business needed to run. Although, neither of these terms was defined. Natural gas was necessary for Millennium to run its business at its Bunbury plant. Millennium purchased its gas from a company called Alinta, which bought its gas from company Apache and other manufacturers. 

Then, Apache was forced to stop producing gas due to an explosion and Millennium could not purchase gas. The Bunbury plant closed because of the supplier disruption. When Millenium filed a claim, the insurer said that Apache was not a “direct contributing property” because the natural gas was purchased from Alinta, who purchased it from Apache.

Despite the unclear and vague wording, a court ruled in favour of Millennium.

What Does Business Interruption Insurance Cover?

Commonly, BII offers coverage for income losses or additional business expenses due to a “direct physical loss” to a business’s property. Usually, coverage can be claimed according to specific clauses in a business’s policy. 

This type of insurance can cover business expenses like lost revenue, mortgage payments for your business, or payroll for employees. However, insurance companies can sometimes protect their own interests by trying to skirt around claims. 

For example, a class action lawsuit was filed againstEconomical Mutual Insurance over claims that Class Members had an “all-risk” insurance policy and therefore should have been covered in the event of loss of income. According to the business interruption insurance class action lawsuit, the policy covers direct physical losses or property damage and is supposed to pay out when a civil authority prohibits anyone from the business’ premises. However, Class Members were denied insurance coverage by Economical Mutual Insurance Company.

As stated in the COVID-19 business interruption class action lawsuit, the insurance policy declares, “We will pay for ‘Loss of Business Income’ for the period of time during which access to the ‘Premises’ is prohibited by order of civil authority…coverage under this extension begins the day following the issuance of the order prohibiting access and is limited to a period of two weeks.”

As illustrated in the class action lawsuit Canada above, policy wording is key to know what your insurance policy covers. When wording is vague, insurance companies can deny claims due to the specifics of an incident.

If your legitimate claim was denied, a lawyer can help you understand the wording of your policy and fight for the compensation you deserve.

Are Coronavirus Pandemic Restrictions Covered?

Most recently, the coronavirus pandemic has created a flurry of businesses submitting insurance claims after the global shutdown forced thousands of businesses to close their doors or restrict services. Businesses could not operate due to the safety of staff and customers, and government mandates also made staying open illegal in many places. For these reasons, businesses claimed business interruption from their insurers. But, not all were successful in their claims, resulting in countless class action lawsuits.

Before the pandemic, insurance policies were traditionally understood, but the coronavirus crisis highlighted glaring gray areas within the policies’ meanings. Courts have had to examine policies and give new meaning to tie global pandemics into what BII covers.

Who Needs Business Interruption Insurance?

It is smart for any company to have business interruption insurance. As business owners have learned recently, anything can happen to prevent revenues. With BII coverage, businesses can at least have some security knowing that their policies should assist them during difficult times. 

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