What is Business Income Insurance and What Does it Cover?

Business income coverage, also known as business interruption insurance, is an important component of most commercial property insurance policies. When a business suffers property damage that interrupts operations, the resulting loss of income can significantly affect cash flow and the ability to fund payroll, rent, and other operating expenses.

Commercial property insurance policies often include business income coverage to replace lost income when an insured premises is damaged by a covered cause of loss and the damage results in a slowdown or suspension of operations. Business income coverage is intended to place the insured business in approximately the same financial position it would have occupied if the covered loss had not occurred. Typically, business interruption coverage applies when:

• Property at the insured premises suffers direct physical loss or damage

• The loss is caused by a covered cause of loss under the policy

• The damage results in a suspension or slowdown of the business’s operations

• When these conditions are satisfied, the insurance policy may cover the income the business would have earned during the interruption period.

Coverage usually applies during the “period of restoration,” which is the time reasonably required to repair or replace the damaged property. During this time, the policy may pay for:

• Lost business income

• Continuing operating expenses

• Certain additional costs incurred as a result of the interruption

• Extra Expense Coverage

Commercial property policies often also provide coverage for extra expenses incurred because of the loss. These expenses may include costs incurred to:

• Continue operations at a temporary location

• Avoid or minimize the suspension of business operations

• Reduce the overall amount of business income loss

Some policies also provide extended business income coverage, which may continue to pay benefits after repairs are completed while the business restores normal operations.

During the COVID-19 pandemic, many businesses suffered significant financial losses as the spread of the virus and related government executive orders disrupted their operations. As a result, businesses across the country filed business interruption insurance claims seeking coverage for lost income under their commercial property policies. Insurance companies frequently denied these claims. Many insurers relied on virus exclusions contained in the policy, and language requiring “direct physical loss or damage” to property.

These denials led to hundreds of lawsuits across the United States in which courts were asked to interpret the scope of business interruption coverage and determine whether COVID-19 related losses were covered under commercial property policies. Many of these cases were dismissed at an early stage of litigation based on the insurer's arguments above. However, KUTINSKY PLLC represented the policyholders in one of the rare COVID-19 business interruption cases that was not dismissed on a motion to dismiss filed by the insurance company.

Because commercial property policies vary, businesses facing income losses should carefully review their policies and the circumstances of the loss when evaluating potential insurance coverage.