Commercial Insurance On Business Income

Insurance for commercial businesses can take many forms.  So what about the loss of business income?

Because commercial property losses can result in a decrease or loss of business income, many commercial property insurance companies offer business income insurance.  An insurer of business income coverage agrees to pay for any actual loss of “business income” the named insured sustains due to the necessary suspension of “operations” during the “period of restoration” following a loss.  For the loss to be covered, the operations must be suspended because of the physical loss of, or damage to, property at covered premises caused by a covered cause of loss.  This is explained in the 1996, Southern District of Texas opinion styled, Royal Indemnity Insurance Co. v. Mikob Properties, Inc.

Business income insurance covers loss of “business income,” usually defined as the reduction in net income that results from suspension of operations due to a physical loss at the insured’s premises.

In determining the actual loss sustained, covered damages are measured by the “period of restoration,” usually considered to be the length of time required to rebuild, repair, or replace the damaged or destroyed property “with reasonable speed and of similar quality.”  The expiration of the policy does not end the period of restoration.  As long as the physical loss occurs during the policy period, the business income policy will usually cover the entire duration of the period of restoration, even if the policy expires before the period of restoration ends.

The business income policy also requires the attachment of either the basic, broad, or special cause of loss forms.