What is business interruption insurance?
Understanding business interruption insurance
The Covid 19 pandemic had a significant impact on businesses across the world, with many being forced to close their doors, unable to trade. As the Covid-19 pandemic aftermath continues to affect businesses across the UK, it is important for business owners to understand their rights and options when it comes to business interruption insurance.
Business interruption insurance is designed to cover financial losses in the event of unexpected disruptions, such as natural disasters or fires. However, many insurance companies have refused to pay out for losses caused by the pandemic, claiming that it is not covered under their policies.
This has left many business owners struggling to survive without the financial support they were counting on. If you are one of them, RLK can help. Our experienced team can review your insurance policy and advise you on your options for making a claim.
“Clients come to us in a range of situations. Many are denied policy cover by their insurance company. Some are only offered a fraction of what they deserve. Many clients come to us as soon as there has been a critical incident to their business to better understand their position. Recently we were immediately instructed by a client following a large fire that destroyed their business premises. This is exactly the right thing to do to protect your position from the onset as it is often very difficult to retract from admissions or evidence provided to your insurers or the authorities which is not representative of the true position once a business has sought legal advice.” Chris Guy, Head of Insurance Litigation, RLK
How business interruption insurance cover works
Business interruption insurance covers you for loss of income during periods when you cannot carry out business as usual due to an unexpected event. Business interruption insurance aims to put your business back in the same trading position it was in before the event occurred.
If you have experienced any of the below examples*, you may be entitled to damages under your insurance policy, and we would advise that you get in touch;
- Damage caused to your premises or equipment by fire, storm or flooding.
- The breakdown of essential equipment.
- Denial of access to the premises.
- Damage occurring at the premises of a supplier or customer.
- Identification of a notifiable human disease at the premises including Covid-19 claims.
*(please note this is a non-exhaustive list)
Types of Business Interruption Cover
Business interruption insurance (BI cover) serves as a crucial safety net for your business operations when unexpected events force a halt to trading. While many businesses have buildings and contents insurance in place, BI cover specifically addresses the financial losses that occur during periods when you cannot carry out business as usual.
Your policy may cover business interruption losses caused by various events, depending on the level of cover you choose. The indemnity period, which typically ranges from 12 to 36 months, is a critical factor in determining how long your business will be protected while you get your business back up and running.
Standard policies typically include cover for gross profit losses, fixed costs, and the increased cost of working that may arise when your business operations are interrupted. The amount of cover needed varies based on a number of factors specific to your business type and circumstances.
- Loss of gross profit and business income
- Fixed costs including utilities and payroll
- Additional expenses necessary to maintain operations
- Extended indemnity periods to ensure full recovery
Additional coverage options may be necessary depending on your specific business needs:
- Supply chain disruptions affecting your operations
- Cyber incidents requiring specialist intervention
- Denial of access due to external events
- Non-damage business interruption scenarios
Making a Business Interruption Claim
When faced with a situation where you need to claim under your business interruption policy, timing and documentation are paramount. The FCA and Financial Ombudsman have established clear guidelines following the test case regarding business interruption claims, particularly those related to COVID-19.
To get your business back on track, you’ll need to provide comprehensive evidence to your insurance provider. This process requires careful attention to detail and may take time to get your business back up and running, depending on the complexity of your claim and the type of insurance you have in place.
Essential documentation should include:
- Detailed financial records showing business income patterns
- Evidence of physical damage or other covered events
- Documentation of additional costs incurred
- Official correspondence and incident reports
The claim process typically involves:
- Initial notification to your insurer
- Submission of supporting documentation
- Regular communication with loss adjusters
- Negotiation of settlement terms
Understanding Financial Coverage
The financial aspects of business interruption insurance work to ensure your business can get back on your feet following an unexpected event. Your policy may cover business interruption losses that would have been earned had the event not occurred, helping maintain your business expenses during the policy period.
The amount payable under your BI cover depends on various factors, including your gross profit figures and the extra expenses needed to keep your business running. It’s vital to understand how your policy calculates losses to ensure you have the right cover for your specific situation.
Key expenses typically covered include:
- Property-related costs and business rates
- Ongoing payroll obligations
- Fixed financial commitments
- Utility expenses and operational costs
Claim calculations consider:
- Your specified indemnity period
- Previous trading performance
- Current market conditions
- Seasonal business patterns
Risk Assessment and Prevention
A robust approach to risk management is essential when considering how business interruption insurance works within your overall business protection strategy. The cost of business interruption insurance should be weighed against the potential financial impact of having to close temporarily due to unexpected events.
Your insurance provider will likely want to see evidence that you have appropriate risk mitigation measures in place. This helps ensure you can get back up and running quickly following an incident, and may also affect whether you need to consider how long your cover should extend.
Key preventive measures include:
- Comprehensive security and safety protocols
- Data backup and recovery systems
- Emergency response procedures
- Business continuity planning
Documentation requirements:
- Regular financial reporting
- Maintenance records
- Training documentation
- Risk assessment updates
Industry-Specific Considerations
Different business types face varying risks that may affect their business interruption cover needs. Whether you need to consider viruses or bacteria coverage, protection against damage to your property, or specific cover for business interruption losses caused by external factors will depend on your sector.
The policy period and amount of cover required can vary significantly based on your business operations and the time it would take to get back to normal trading. It’s important to find out how much coverage you need based on your specific industry circumstances.
For retail businesses:
- Protection against forced closure
- Stock and inventory coverage
- Seasonal trading patterns
- Supply chain considerations
Manufacturing operations require:
- Equipment breakdown protection
- Raw material safeguards
- Production continuity measures
- Supply chain resilience
Professional services need:
- Digital infrastructure protection
- Data security measures
- Client service continuity
- Remote working capabilities
Why choose RLK Solicitors:
RLK Solicitors are the UK’s leading firm in Business Interruption insurance claims, having pioneered this complex and evolving area of law prior to the pandemic lockdowns. We carry great expertise around Covid-19 claims and we also specialise in insurance litigation including standard Business Interruption Insurance claims too. Our team are insurance specialists with in depth knowledge experience spanning decades.
RLK solicitors have recently been successful in an arbitration against a well-known insurer in the Salon Gold Arbitration, whom were denying liability to pay out salons due to the forced closures of the premises as a result of the Covid-19 pandemic. In this landmark case, we acted for over 350 businesses across the UK and Isle of Man, as the insurer was ordered to payout Covid-19 pandemic losses. This is just one element of the vast scope of work we carry out to assist businesses/individuals with insurance claims and an example of our success.
How can we add value to your business interruption claim:
There are many ways we can add value to your claim, even if your insurance company is confirming cover.
- If the insurance company is denying liability for your claim, we will undertake a detailed review of your policy documents to identify whether you have a case. If the insurance company is not denying your claim, we can still conduct a review of your policy documents to ensure the insurer is taking into account all relevant clauses in your policy.
- We will liaise with the insurance company on your behalf, to ensure you are not handing over any documents which are unnecessarily being requested or they are not causing an unnecessary delay with your claim valuation.
- Once a valuation is received, we can review the calculations made and fight for more damages for you using our expertise and knowledge in the industry.
- You may be entitled to extra damages – our expertise will ensure this is challenged upfront to secure the maximum claim for you and your business.
Next steps
If you need assistance in your business insurance claim, please do not hesitate to get in touch. We have an expert and knowledgeable team who will be happy to assist you and who will fight to secure you the maximum damages your business deserves. Should you have any questions whether you are eligible to make a claim or require any assistance with your ongoing insurance case, please contact enquiries@rlksolicitors.com or alternatively, call 0121 450 7800.
This article was written by Apprentice Paralegal Mia Jones.
