What is Business Interruption?

BY Tim Kolacz

When that question is posed, what does it mean to you? It’s okay, I’ll wait…..

Got your answer? Ok, I don’t know what you just thought. “How’s that? You don’t know? What the heck, I thought you were supposed to know it all?” Well, I don’t and here’s why. I may not know exactly what you’re thinking, but I make sure to ask what it means to you. For some, it might mean a key supplier goes down and now I can’t build my product because I don’t have a backup; or it could mean that your main machine burned up and it will take 5 months to get a new one from Germany.

There are multiple ways that your business can be interrupted. What you should know is there are ways to cover these interruptions and to stay in business during this lapse and even after you are up and running again, can be compensated for the lower profits while getting back to 100%. See, Business Interruption can take care of payrolls for key personnel, or all personnel if you desire, as well as when vendors have problems and even moving costs associated with a claim.

Let’s say you are an electrical contractor and your building burns to the ground. How much profit do you really lose? Not much, right, because your profits are derived from doing work at a jobsite, not your office building. However, you need business interruption coverage because you need a new base of operations and you need to pay rent at the new place and move your phones lines over as well. This coverage is called Extra Expense; it is the amount extra that you need to pay to stay in business in a timely manner to minimize losing sales. We build those costs into the business interruption coverage.

Now this is different from a manufacturer of metal parts. Say, titanium parts. And let’s say your main supplier has fire and damages all of the metals that were coming to you the next day. Since you are dependent on them for your goods, there is coverage for this lost profit even though the loss happened somewhere else. Pretty cool, right!

Additionally, if you have a loss and you are worried that key people from your company may be swooped up by a competitor after they read that your building went up in smoke, how do you keep them? Simple, make sure that their payroll is part of the business interruption policy and they will be paid full wages during the time that they cannot work at your business.

Spending about 30 minutes to properly fill out the correct worksheets can save you thousands of dollars when things go south.

Tim Kolacz can be reached at 951-779-8730 and likes to go north to Yosemite on vacation as well.