It’s already happening – business interruption claims are getting denied a mere three weeks after Super Storm Sandy ravaged the Northeast. Running a business is not an easy feat. Business owners paid premiums to protect their hard earned profits and getting a denial letter from an insurance company they’ve probably had for years may be harder to overcome than the hurricane itself. The culprit of all this despair – “your property did not sustain any direct physical loss or damage as a result of a covered peril.”

At a glance, it appears the problem lies in the communications between consumers and their insurance companies. The manner in which the claims are being reported is leading to great misinterpretations and misunderstandings. Business owners may be savvy and industrious in their niche market, but many are probably not aware of the nuances and ruminations in this area of law – particularly on the ever-so-contentious definition of “physical loss or damage.” Even the media is confused and making matters worse.

A recent CNN/Money article reported:

Business interruption insurance is a kind of coverage that is supposed to help companies that lose revenue due to any kind of unexpected shutdown. But the bad news for policyholders is that these policies only kick in if there is physical damage to the business that’s insured, according to the Insurance Information Institute, an industry trade group.

"There has to be direct physical damage to the building in order for business interruption insurance to come into play," said Loretta Worters, Vice President of the Institute.

It is irresponsible of the Insurance Information Institute to make absolute statements about business income coverage. The most standard and basic form of Business Income and Extra Expense Coverage (CP 00 30) could very well provide coverage under its numerous additional coverages, even if the insured location did not sustain direct physical loss or damage. Many businesses have manuscript policies which could also cover a business income loss under its broader language.

Hurricane Sandy was a multi-peril event. Many policies will come into play and each loss should be evaluated to the benefit of the insured. The media did not seek a counter opinion or statement on this important matter. I am worried that people are making poor decisions based on misinformation. I want to help. Let me read your policy before you make a decision about a business income claim.