When property is destroyed, the business often loses earnings as well. Business interruption (or "time element") coverage pays the lost net profit plus continuing fixed expenses.
- Gross earnings form, pays lost earnings from the date of loss until the property is repaired or rebuilt and the business is reasonably restored to its pre-loss revenue, subject to a maximum period and an indemnity period.
- Actual loss sustained (ALS), the most common modern Canadian form. Pays the actual loss the insured sustained, subject to the policy limit, until the insured restores operations or the policy limit is exhausted. No co-insurance penalty in the ALS form (which is its appeal).
- Indemnity period, the time over which lost income is paid typically 12 or 24 months from the loss. The broker must size the indemnity period to match how long the business would actually take to recover (a specialty manufacturer with a 9-month lead time for replacement equipment needs at least an 18-month indemnity period).
- Extra expense, extra costs the insured incurs to continue operating after a loss (rented temporary premises, expedited shipping). Often combined with BI in a single "BI/EE" limit.
- Contingent business interruption, BI triggered not by the insured's own property loss but by a loss at a named supplier or customer's location. Critical for businesses with single-source supply or concentrated customer bases.
BI claims are technical: the broker must explain that BI requires a covered cause of loss to a covered property. A power outage that is not preceded by physical damage usually does not trigger BI.
Common mistake: thinking BI pays during a non-property-related shutdown (a pandemic stay-at-home order, a power-grid failure with no on-site damage). Standard BI requires direct physical loss or damage at the insured's premises by a covered peril. The pandemic cases of 2020–2021 highlighted this and several reached appellate courts.
🧠 Memory hook, "Property triggers BI": without a covered physical loss at a covered location, classic BI does not respond.
Recall: What is the difference between gross earnings and actual loss sustained BI forms? What triggers contingent business interruption?