We all know that property insurance protects against physical property losses resulting from a covered peril, but what about non-physical damage, such as loss of business income? Is that covered under your policy? For those of you without “Business Interruption” coverage the answer is “no,” and for those of you that do have “Business Interruption” coverage, the answer is “maybe.”
“Business Interruption” coverage provides protection to the policyholder from disruptions of business due to covered perils that damage the policyholder’s property. The coverage supplements the insured’s lost income while his/her property is being repaired or replaced. However, a mere slowdown in productivity is usually not enough to trigger business interruption losses.
For example, in Quality Oilfield Prods., Inc. v. Michigan Mut. Ins. Co., 971 S.W.2d 635 (Tex.App.—Houston [14th Dist.] 1998, no pet.), the policyholder suffered a theft loss of important data and engineering drawings that reduced its ability to perform its operations. Because the policy did not define “interruption of business,” the Court was faced with the question of whether a mere “work slowdown” was enough or if an actual “suspension of operations” was required. After stating that it was an issue of first impression for the Texas courts, the court looked to other jurisdictions for guidance. The Court ultimately concluded that:
“[I]nterruption of business” is an unambiguous term meaning “cessation or suspension of business.” Therefore, Quality was not entitled to business interruption coverage for the work slowdown it experienced and we find the trial court did not err in granting Michigan’s motion for summary judgment.
So if you have a “Business Interruption” policy that does not properly define “business interruption” or “interruption of business,” the case law indicates that you will only be afforded coverage if you suspend or cease all business. Do not expect your insurance company to provide coverage for a mere slowdown. However, because many policies now define “business interruption” and/or “interruption of business” in their policies, it is important to know how those terms are defined should you ever have to make a claim for a loss of business income.