The Napa and Sonoma fires have destroyed thousands of properties, including many businesses and commercial properties. This post addresses standard “business interruption” coverage in commercial property insurance policies.
The standard policy language indemnifies the insured for business interruption “during the suspension of operations during the period of restoration.” The suspension of operations must be caused by covered physical loss to property of the insured at the insured premises. Stated differently, the business interruption must be caused by damage to your property. In addition, the coverage is only triggered if there is a complete suspension of operations. There is no coverage for a business slowdown or for the interruption of a specific project or contract. For example, in one case, a law firm’s building was flooded, but since the lawyers were able to generate billable hours during that period (albeit at much lower hours than normal), no coverage was allowed. Business interruption generally indemnifies the insured for net income lost and ordinary operating expenses until such time as the property is restored. Some policies limit the time period, for example, only covering the first twelve months, even if the premises are not restored and business has not commenced again. Occasionally, the policy itself will set the amount recoverable (e.g., $1,000 per day), although usually amount of the insured loss is determined after the loss. In this case, the insured has the burden of proving its lost net income and operating expenses. Because the insured has the burden of proof, it is imperative to have an accurate accounting to prove the net profits of the business when submitting a proof of loss. It is also imperative to understand the different coverages, endorsements, limitations and exclusions so the proof of loss can be drafted to account for these issues. Additional coverages include extra expense coverage (such as the cost of relocating or hiring additional labor). Rental coverage may also indemnify landlord form lost rental income (even, in some cases, if the property was not leased at the time of the loss).
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11/6/2019 06:02:52 am
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blogHi. I'm Stephen Flynn. Attorney and founder of the Law Offices of Stephen M. Flynn. This is my blog. Enjoy! Archives
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