Sandy Reaffirms Need for Business Interruption Insurance

“Superstorm Sandy” ravaged the East Coast in late October, causing billions of dollars in damage. Hundreds of thousands were without power for more than a week. Looting, price gouging and gas rationing took its toll, and businesses suffered. Many in the northeast also suffered significant commercial flood damage as a result of the storm, temporarily putting millions out of work. Traditional property insurance policies do not cover loss of income due to events like Sandy, highlighting the importance of having a business interruption insurance policy.


Business interruption insurance provides:

• Compensation for lost income if your company has to vacate its premises as a result of disaster-related damage covered under a property insurance policy

• Compensation for the profits that would have been earned based on previous financial records, had the disaster not occurred

• Compensation for operating expenses, such as utilities, that must be paid even though business temporarily ceased

• Compensation for expenses of operating in a temporary location while repairs to the permanent location are completed

Business interruption insurance cannot be purchased on its own—it must be added to a property insurance policy or included in a business owner’s insurance policy. Policy limits should be sufficient enough to cover a large amount of time to rebuild the permanent business space. Generally the business must be closed for several days before coverage begins, and it does not pay for those days retroactively. Price of coverage depends on the risk of disaster to the premises. This may depend on the business location, nature of the business and how easily the business could function at an alternate location on a temporary basis.

Claims from business interruption losses alone could reach $15 billion once all is said and done, pushing the total estimated economic cost of Sandy past $80 billion.

You can never predict if a disaster will cripple your business, which makes business interruption insurance a must. A business continuity plan should also be in place to get your business up and running as quick as possible following an interruption.