The Undiscussed Business Interruption

If you have an insurance policy you probably already have or at least know about Business Interruption insurance (aka Business Income).

It’s that part of your property policy that says we will pay when your property is damaged and prevents you from operating your business as intended. So, it picks up your lost sales, payroll, rent/mortgage, debt payments, etc.

Here’s is what is not discussed though. Let’s walk through two scenarios.

Scenario One

Let’s say you are an ice cream shop across the street from a theatre or music venue. Usually, that a boon for your business! People get out of the entertainment see your fabulous ice cream sign and want ice cream.

So, what happens if that establishment, which you do not own or have a stake in, has a fire and cannot operate for a while? All that traffic that naturally gets drawn into your shop, is now gone!

Scenario Two

You are a brewery or distillery. You get a couple of a key ingredients from one supplier who is the only one you are aware of that supplies these ingredients. This is a critical vendor as you cannot produce some or any of your products without them!

They have a bad storm that floods the building and ruins everything. Now, they cannot supply you with those critical ingredients to your famous beers or whiskeys! You lose sales because you are unable to produce those revered drinks.

Problem

In either scenario, your standard business interruption policy only handles damage and loss to YOUR PROPERTY. AHHHH! So, nothing to help you pick up the pieces from this unexpected loss of sales that you could not foresee.

Solution

Contingent Business Interruption. This is a form of Business Interruption that pays you for loss of sales due to the damage that a nearby business/location (dependent property) or vendor. Now this can get complicated as to how to correctly insure this, so be that you have a well devised Business Continuity Plan and Business Income Worksheet to thoroughly lay out the economic impact of either of these events happening.