Wildfire and business interruption coverage

June 28, 2023

For decades, wildfires have been synonymous with California, as the Golden State has experienced some of the most devastating wildfires in our nation’s history. However, in recent years, wildfires have extended past California and now threaten other regions within the United States and its borders. This became ever present on June 7, 2023, when the Northeast and other parts of the United States were ravaged by billowing smoke, hazy skies, and particulate matter so dense, the slightest inhale caused sinus and respiratory sensitivities. The raging Canadian wildfires were responsible for canceling or postponing New York state’s outdoor activities including sports games, concerts, and plays—and New York City even made history that day by recording the planet’s worst air quality index!

The increasing frequency and intensity of wildfires exacerbated by factors like climate change, human activity, and drought have had a devastating impact on businesses. That is why insurance products, such as business interruption insurance can provide the necessary protection for businesses affected by wildfires.

What is business interruption insurance?

Business interruption insurance coverage is a type of insurance that helps businesses recover lost income and pay for ongoing expenses after a covered event, like a wildfire. This coverage is designed to protect businesses from financial losses caused by disruptions to their business operations.

What is covered?

When a wildfire strikes, it can cause significant damage to a business’s physical property, such as buildings, equipment, and inventory. The financial losses extend far beyond the physical damage the wildfire caused. For example, even though a business does not suffer direct damage from a wildfire, it still may be affected by things like utility outages, evacuation orders, or other business disruptions, which can result in direct loss of income and ongoing business expenses like rent, payroll, and utilities that continue to accrue despite the business being inoperable.

This is when business interruption insurance comes to the rescue by providing income replacement and payment for ongoing expenses—typically after a restoration period and up to a specified period (e.g., 12 months). That means if a policyholder’s business was damaged on Jan. 1, business interruption benefits would be provided until Jan. 1 of the following year. However, if an insured’s business repairs weren’t finished by Jan. 1 of the following year, the insured’s business interruption coverage would lapse.

Business interruption insurance coverage is an essential component of any comprehensive business insurance policy. From income replacement to ongoing expenses and employee payroll protection, this coverage provides critical protection for businesses that are forced to close or reduce business operations due to unforeseen events. It’s a great idea for insurance agents to speak with their clients about the importance of purchasing business interruption insurance. And, if their clients already have purchased business interruption insurance, agents need to make sure those clients understand the full scope of coverage provided in their policies.

Theophilus Alexander
PIA Northeast | + posts

Theophilus W. Alexander joined PIA Northeast as a government & industry affairs specialist for the Government & Industry Affairs Department in 2023. Prior to joining PIA, Theo had served in both houses of the New York State Legislature. Previously, he worked as a legislative analyst for Hon. New York State Sen. Samra G. Brouk, D-55, and he served at the New York State Assembly, as a policy analyst with New York Assembly Program & Counsel. Theo received his Bachelor of Arts degree in Politics from Ithaca College in Ithaca, N.Y.

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