Blog Question – Trigger for Business Interruption
I’m looking at a client who owns…amongst other things…a number of commercial body corporate units.
Within these units, some of which are rented out to tenants as restaurants, and some rented out as offices, he has some “basic” fitout within the units.
These are multi story buildings.
He has insured the contents for $1M for the offices, with $2M Gross Rentals with a 24 month IP and $500K & $2M for the restaurants.
The way I look at this is while he may get a BI claim for damage to the contents, it’s more likely that a lengthy delay would come from damage to the building. What happens if the contents can be replaced virtually immediately, but can’t because of damage to the building, which may require many months more for repairs to be completed. It’s not like a tenant who can relocate the business elsewhere.”
Don [surmane and email provided]
I replied as follows:
The trigger for a business interruption claim under most policies is damage to property owned or used by the Insured at the situation caused by insured damage.
The following is the trigger clause under the Australian Mark IV Advisory Industrial Special Risks Policy.
In the event of any building or any other property or any part thereof used by the Insured at the Premises for the purpose of the Business being physically lost, destroyed or damaged by any cause or event not hereinafter excluded (loss, destruction or damage so caused being hereinafter termed “Damage”) and the Business carried out by the Insured being in consequence thereof interrupted or interfered with, the Insurer(s) will, subject to the provisions of this Policy including the limitation on the Insurer(s) liability, pay to the Insured the amount of loss resulting from such interruption or interference in accordance with the applicable Basis of Settlement.” [emphasis mine]
If the building is damaged and cannot be used then this is typically covered by a business interruption policy. But please check the wording that you intend to use.
If you want to learn more on the ISR coverage, please refer to Volume 1 of my green book on the ISR “Understanding the ISR Policy – A Comprehensive Guide”.
The issue can be very complex where there is a prevention of access or other factors also involved as we are seeing in Christchurch and elsewhere but that is a book in itself.
The other issue that can arise is where undamaged contents are abandoned due to damage to the building. I am working on writing an endorsement to insure this rare but very real exposure.