A Publication of WTVP

As we're finishing the storm season for 2004, we look back at central Illinois and remember some bad days for local businesses. This year we had some of the worst tornados to hit the surrounding Peoria communities in a few years. Your insurance policies are put to the test when these unfortunate events happen. One of the very important coverages tested is business interruption. According to a survey from Seattle-based Safeco Insurance, 55 percent of small-business owners don't maintain business interruption coverage, and out of those owners, 63 percent don't realize it.

Depending on the insurance form, business interruption allows a business that's been negatively affected by a covered peril to recover damages and avoid losing the business. Statistics show one out of four businesses won't reopen following an extended shut down due to a loss. By purchasing the coverage, it allows for renting temporary space, paying salaries, and covering other operating expenses. Companies also offer business interruption with extra expense, which offers additional coverage for costs associated with operating out of a different location. The biggest misconception business owners have is that they'll never be out of business for any length of time.

A business owner's policy (BOP) or manufactures output policy (MOP) offers some form of business interruption and, sometimes, at no additional cost. Other policies price the coverage based on the nature of the business, along with the amount of coverage desired for a set period of time. An example would be a printing business operating with special machines that need to be specially reordered; they could be operating again in five months. Based on annual income, they may choose a limit based on one-sixth monthly limitation.

Business interruption requires three triggers to happen before coverage starts. First, there must be an actual loss of income. This can be defined as net income and continuing operating expenses. Past accounting records can help make this process easier. Second, the business must experience a necessary suspension of operations during the restoration. Insurance Service Office (ISO) has defined this term to mean both a complete cessation of operation, as well as a slowdown. The ISO form requires 72 hours and ends when property should be repaired or replaced with reasonable speed. Finally, the loss must result from direct physical loss or damage at the premises described in the declaration that's caused by a covered cause of loss.

Hopefully, this gives you an overview of business interruption. Please contact your local insurance professional to discuss this at greater length. IBI