What does business interruption insurance cover?

BI cover responds when your business is interrupted as a direct result of physical damage to your property during the period of insurance, caused by an insured event such as fire, storm, flood, theft, explosion, earthquake or vehicle impact.

It depends on an underlying property damage claim, or one that would have been covered except that the loss fell within the excess. If the physical damage is not covered, the BI claim generally is not either. BI must also be shown as insured on your policy schedule; it does not apply automatically. Source: business insurance PDSs, business interruption sections.

Your schedule states which basis applies:

▹ Gross profit: loss of gross profit from reduced turnover, plus increased costs of working.

▹ Annual or weekly revenue: loss of revenue from the interruption.

▹ Gross rentals: loss of rental income.

▹ Weekly income or weekly benefit: a fixed weekly amount during the interruption.

▹ Increased cost of working only: the extra costs of keeping the business running, with no income component.

On the gross profit basis, the amount payable is the rate of gross profit applied to the shortfall in turnover during the indemnity period, plus increased costs of working that are necessary and reasonable, less savings in costs that stop because of the damage. An underinsurance provision can apply if the sum insured is less than the rate of gross profit applied to 80% of annual turnover. Source: business insurance PDSs, business interruption sections.

▹ Unspecified customers' and suppliers' premises: cover for losses caused by damage at a supplier's or customer's premises. In one wording the most payable is 20% of the relevant sum insured, and suppliers of electricity, gas, communications, water or sewerage are excluded.

▹ Specified customers and suppliers: optional cover for named premises listed on your schedule.

▹ Public authority closure: one wording extends cover to closure or evacuation ordered by a public authority after an infectious disease, vermin or pests, defective drains, food or drink poisoning, or a murder or suicide at the premises.

Source: business insurance PDSs, business interruption sections.

Losses are measured over the indemnity period shown on your schedule, which starts from the damage. Under one insurer's weekly income basis, nothing is payable if the interruption lasts less than three full consecutive days. Source: business insurance PDS, business interruption section.

One wording reduces or removes cover if, during the period of insurance or indemnity period, you intend to stop trading, the ownership of the business changes, the business is sold or discontinued, you become bankrupt or enter a creditor arrangement, or the business goes into liquidation, administration or receivership.

The same wording does not cover interruption from a full or partial outage of critical infrastructure, such as a widespread power failure, and requires actual physical damage to tangible property rather than something only deemed to be damage. Source: business insurance PDS, business interruption section.

Limits, sub-limits and conditions differ between insurers, and retail and broker-arranged policies can differ too. Check the PDS and schedule for your own policy, or ask your broker.