Commercial property insurance and business loss policies are intended to protect your business from unexpected damage, liability, and loss. As a business owner suffering a catastrophic loss, your first priority may be to remedy the damage and resume business as quickly as possible — and part of resuming operations often require filing a claim with your insurer. However, filing a claim is not limited to a call to your agent. You must document losses and familiarize yourself with the terms of the policy, including coverage, deductibles, limitations, conditions, exclusions, and the requirements in making a claim.
Your business property claim should restore your business to the pre-loss condition within the limits of your policy, and typically provide for loss due to business interruption. Unfortunately, we find many business owners accept an offer of settlement that is undervalued, in the interest of getting back to business.
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What Does Commercial Property Insurance Cover?
Similar to homeowners insurance, this type of policy insures your business’ physical assets from fire, water damage (pipe break), wind and hail, storms, theft, and vandalism.
Commercial property insurance can cover your building, its contents, and exterior assets against loss or damage, such as:
- Computers and machinery
- Furniture and office equipment
- Important documents
- Inventory and materials
- Exterior signs
- Fences, gates, and landscaping
What Does Business Interruption Insurance Cover?
Many commercial property policies have a business interruption endorsement. This specifically covers the actual loss of business net income that you sustain during the restoration due to a necessary suspension of operations as a result of a covered loss.
There are a few key terms to understand here:
- Actual Loss: This is the actual loss sustained by the policyholder due to a covered physical loss. The insurance company will only pay business income as a result of interruption of business. For example, if your business was damaged by a fire (covered under the policy) and the building required extensive repairs, you may be forced to close your business, resulting in loss of income.
- Business Income: The net income or expenses (profit or loss before taxes) that you would have been earned or incurred by the business during continued operation. This might be the daily sales you typically earn or expenses such as payroll.
- Restoration: The period of time it takes to rebuild, repair, or replace the damaged property, starting from the date of the loss and ending when your property restoration is complete.
There also may be provisions to cover additional expenses incurred to reduce the loss as you are required by the insurer to take reasonable steps to avoid additional loss.
What Additional Coverage Can a Business Interruption Policy Provide?
As a business owner, you may find there are situations and expenses that are not related to the direct physical damage of your business or property. These extensions of coverage will insure against business loss resulting from a variety of causes:
- Utility Service Interruption: If your business cannot operate without electricity, water, or other utilities and you suffer a loss as a result of the utility service interruption.
- Contingent Business Interruption: If your business relies on a third-party “supplier” and they suffer a loss or damage that prevent them from providing you the goods or services necessary to operate your business.
- Loss of Rent: Covers lost income when renters cannot make rental payments due to a covered event.
- Leader Property: If your business cannot operate due to loss or damage to a property not owned or operated by your business — if your business is in a mall that was damaged and could not open.
- Civil or Military Authority: When your business cannot operate due to a civil authority prohibiting access to your property, such as a mandatory evacuation due to a hurricane or flood.
Most additional coverage is contingent upon a loss or damage (to the third party) of the type insured by your policy. In other words, you may be able to claim business loss if your supplier suffered a fire and could not supply you with goods, because your policy covers you for fire.
Why Was My Business Loss Claim Denied?
- Insufficient Proof of Loss: You are obligated to provide documentation to prove the loss of business based on profit and loss records. Without a history of records, your claim could be denied.
- Initial (Triggered) Loss is Not Covered: There must be a covered initial loss that resulted in the interruption of your business, such as a fire, storm, theft, or other covered event. If your business cannot operate due to an incident that is not covered or excluded, business interruption claims will be denied.
- Interruption Waiting Period: Most policies contain language for a “waiting period” which defines a set amount of time before business interruption coverage can be applied. If you restore business before the end of the waiting period, you cannot claim business interruption.
- Period of Restoration Dispute: This is the time between the date of loss and when the property/business should be repaired with reasonable speed and similar quality. Policy language is often open to interpretation when terms such as “should,” “reasonable,” and “similar” are used. Your insurance company may have a different opinion of when your business “should” return to operational condition. In reality, it may take longer to restore your business, and this may result in an undervalued claim or partial denial.