What Business Interruption Insurance Covers
Business interruption (BI) insurance—also called business income coverage—replaces income your business loses when a covered property damage event forces you to slow or shut down operations. Standard BI coverage pays: net income you would have earned had the damage not occurred; continuing operating expenses (rent, utilities, employee salaries); and extra expense coverage for costs incurred to minimize the business interruption (renting temporary space, expedited equipment delivery).
The critical requirement: the income loss must result from physical damage to your property caused by a covered peril (fire, windstorm, vandalism, etc.). Losses from non-physical causes—supply chain disruption, economic downturns, communicable disease without physical damage—are generally not covered under standard BI policies.
The Physical Damage Requirement
BI coverage triggers when physical property damage causes the business interruption. After a fire destroys your manufacturing equipment, BI pays while you replace it. After a roof collapse closes your restaurant, BI pays until you reopen. The physical damage requirement is also the reason most standard BI policies did not cover COVID-19 pandemic losses—courts in most jurisdictions held that virus presence did not constitute physical property damage triggering coverage.
Civil Authority Coverage: Access Denied by Government Order
Many BI policies include "civil authority" coverage that pays when a government order denies access to your property—for example, a city-wide evacuation after a hurricane or a building condemnation order. The covered period typically begins 72 hours after the civil authority action and runs for 2–4 weeks. This coverage played out in various ways during hurricane evacuations and government-ordered curfews following nearby property damage events.
Calculating and Documenting the Claim
Proper BI claim documentation requires: financial statements from the comparable period in prior years; payroll records; tax returns; accounts receivable records; utility bills showing normal operational costs; and a detailed accounting of continuing expenses during the interruption. Forensic accountants are frequently retained by both parties in significant BI claims to establish the "but for" income the business would have earned without the interruption. The insurer's accountants and yours will often disagree on projections—good documentation of historical trends is the key to an accurate claim.
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Frequently asked questions
How long does business interruption coverage last after a loss?
BI coverage runs for the "period of restoration"—the time required to repair or replace the damaged property with reasonable speed. This period ends when the property is restored to the condition it was in before the damage, even if you haven't fully returned to pre-loss revenue levels. Some policies add a "extended period of indemnity" that continues coverage for a specified period after restoration while the business recovers its customer base.
My business was forced to close for a week due to a water main break on my block. Is that a BI claim?
If the water main break constituted a civil authority order that denied access to your business and if your policy includes civil authority coverage, you may have a claim. The coverage requires a covered peril (the water main break may qualify as water damage to adjacent property) and an order from civil authority denying access. Review your specific policy and consult your agent or broker about whether the facts trigger your civil authority coverage.
Do I need to show that customers actually left because of the shutdown?
No. BI coverage pays based on what you would have earned during the period of restoration using historical performance data to project expected revenues. You don't need to prove that specific customers cancelled; you project what normal operations would have produced and compare to actual results during the interruption. However, the insurer will scrutinize prior-year financials closely, making clean bookkeeping and tax compliance important to BI claim strength.