Business Interruption Claims: What You Need to Know

What Is Business Interruption Insurance?

Business interruption insurance — also called business income coverage — compensates a business for lost income when operations are disrupted by a covered first-party loss. This includes events like fire, vandalism, theft, and certain natural disasters that physically damage your business property and force you to suspend or reduce operations.

The coverage is typically included as part of a commercial property or business owner's policy (BOP). It is designed to put your business in the same financial position it would have been in had the loss never occurred — covering lost net income plus continuing fixed expenses during the period of restoration.

The Insurance Industry Formula Is Not What Your CPA Would Calculate

This is one of the most critical points about business interruption claims: the calculation of lost business income uses a unique insurance industry formulathat is fundamentally different from standard accounting methods. Your CPA or bookkeeper may calculate your lost income one way, but the insurance policy defines “business income” using specific terminology and assumptions rooted in insurance case law and policy language.

Under most commercial policies, “business income” means net income (or loss) that would have been earned, plus continuing normal operating expenses, including payroll. This is not the same as profit. The formula accounts for what revenues the business would have generated, subtracts only the expenses that do not continue (such as cost of goods sold), and includes fixed overhead that keeps accruing even while the business is shut down.

The Period of Restoration

Business interruption coverage applies during the “period of restoration” — the time it takes to repair or replace the damaged property and resume normal operations. This period begins when the physical damage occurs (or after any applicable waiting period) and ends when the property should be restored with reasonable speed. Insurers often try to shorten this period, arguing the business should have reopened sooner, which directly reduces the payout.

Extra Expense Coverage

Many policies also include extra expense coverage, which pays for costs above your normal operating expenses that are necessary to continue operations or minimize the suspension of business. This can include renting temporary space, expediting repairs, or outsourcing production. Properly documenting and claiming these expenses is essential — they are frequently overlooked or undervalued.

Common Disputes in Business Interruption Claims

• Length of the restoration period: Insurers may argue the business could have reopened faster than it actually did.
• Revenue projections:Disputes over what the business “would have earned” during the shutdown, especially for seasonal or growing businesses.
• Continuing vs. non-continuing expenses: Disagreements about which operating costs should be included in the calculation.
• Coinsurance penalties: If the declared business income limit is too low relative to actual annual revenue, the insurer may impose a coinsurance penalty that reduces the payout.

How a Public Adjuster Helps

A licensed Public Adjuster works exclusively for the policyholder — not the insurance company. For business interruption claims, a Public Adjuster will prepare the claim using the correct insurance industry formula, document all continuing expenses and extra expenses, establish the proper period of restoration, and negotiate directly with the insurer to maximize your recovery. Because these claims involve complex financial calculations and policy-specific language, professional representation can make a significant difference in the final settlement.