Business interruption insurance is the part of a property policy designed to pay your net income and the expenses that don’t stop, payroll included, while covered physical damage shuts you down. The order matters: first a fire, a storm or a burst pipe has to damage property at your premises; then the policy pays for the time it should reasonably take to rebuild, plus a window after you reopen while customers come back. It does not pay for a slow season, a supplier’s problem unless the policy carries dependent property coverage, or a government closure with no physical damage behind it, which is why most pandemic claims lost, all the way up to state supreme courts. The limit comes from your own numbers, and the worksheet that sets it is the step most owners skip.
What the coverage pays
Business interruption is the everyday name for business income coverage on a commercial property policy. On the ISO Business Income (And Extra Expense) Coverage Form, CP 00 30, Business Income is the net income you would have earned plus the normal operating expenses, including payroll, that keep running while you are shut down. Extra Expense is what you spend to avoid or shorten the shutdown.
The insurer pays for a necessary suspension of your operations only when it is caused by direct physical loss of or damage to property at the premises on the declarations, from a covered cause of loss.
Payment runs for the period of restoration, which on CP 00 30 begins 72 hours after the damage for business income (immediately for extra expense) and ends when the property should reasonably have been repaired or you resume at a new permanent location. You must resume as fast as you reasonably can; the insurer pays on how long that should have taken.
After you reopen, and when the street is closed
- Extended business income. Customers come back slowly, so the form keeps paying from the day property is repaired and operations resume until income could be back at its pre-loss level, capped at 30 consecutive days in the 06 07 edition. The Extended Period of Indemnity option replaces that 30 with the number shown on the declarations.
- Civil authority. When a covered cause of loss damages property elsewhere and a civil authority closes the area around it, the form pays if your premises are inside that area, within one mile of the damaged property, and the order answers dangerous physical conditions from the damage. Business income starts 72 hours after the first order and runs up to four consecutive weeks on CP 00 30; the businessowners form I read gives three.
Dependent properties and utility services
Standard business income coverage answers damage at your own premises. Two coverages reach past it.
- Dependent properties, the ISO name for contingent business interruption, pays for income you lose when a covered cause of loss damages the premises of a business you depend on to deliver materials, accept your products, manufacture for you under contract, or attract your customers. The BP 00 03 builds in a small limit for it; CP 00 30 itself has none, so on a commercial property policy it has to be added.
- Utility service interruption is separate because the BOP form’s dependent property definition leaves out water, communication and power suppliers. It is sold by endorsement and covers income lost when covered damage to utility property away from your premises cuts service. Endorsements vary widely on which utilities count and whether transmission lines are included.
What it does not cover
No physical damage, no claim. Lawsuits after the 2020 shutdown orders tested that rule, and appellate courts, state supreme courts included, have mostly answered the same way. Ohio’s held in December 2022 that direct physical loss or damage does not arise from COVID-19 in the community, on surfaces, or from an infected person on the premises. Washington’s ruled in August 2022 that losing the intended use of a property is not a physical loss, so a closure proclamation did not trigger coverage. New Jersey’s held unanimously in January 2024 that the policyholder had to show property destroyed or altered so as to be unusable or uninhabitable.
Policies generally carry a virus exclusion as well. ISO’s is CP 01 40, Exclusion of Loss Due to Virus or Bacteria: it removes loss caused by any virus, bacterium or other microorganism capable of inducing physical distress, illness or disease, it reaches business income, extra expense and civil authority alike, and ISO rules make attaching it mandatory in a majority of states. Flood, earthquake and pollution are commonly excluded on the property form, and business income follows it.
How the limit is set
On CP 00 30 you choose a limit and a coinsurance percentage. Coinsurance compares the limit with that percentage times the 12 months of net income and operating expenses following the policy’s inception; fall short and the insurer pays a proportionate share. The fix is the Business Income Report/Work Sheet: it records the prior 12 months and an estimate for the next 12, and it activates the Business Income Agreed Value option, which suspends coinsurance for up to 12 months as long as the limit is at least the agreed value.
A businessowners policy does it differently. The ISO BP 00 03 pays the actual loss of business income sustained during the period of restoration and within 12 consecutive months after the damage, with no coinsurance condition and outside the property limits. The catches: ordinary payroll for 60 days unless the declarations show more, and extended business income for 30 consecutive days unless more is shown. If a rebuild would take longer than a year, actual loss sustained is not the comfort it sounds like.
What underwriters ask
Business income is rated with the property, so after the building questions come the income questions:
- Last 12 months of revenue, cost of goods and payroll, split between ordinary staff and the people you would keep through a shutdown.
- How long a worst-case rebuild would take, and whether you could operate from another location meanwhile; that sizes extra expense.
- Who you depend on: one supplier, one big customer, one anchor tenant. Those names go on the dependent properties schedule.
- Seasonality. A restaurant losing December is not losing an average month, and the limit and the extended period should say so.
Common questions
Is business interruption insurance a separate policy?
Usually not. It is a coverage form or additional coverage inside a commercial property policy or a businessowners policy, and it follows the same covered causes of loss as the building and contents.
Does it cover a pandemic or a government shutdown order?
Not on standard forms. The trigger is direct physical loss or damage to property, and the supreme courts of Ohio, Washington and New Jersey held that COVID-19 closures and the presence of the virus did not meet it. Policies generally also carry a virus and bacteria exclusion that names business income and civil authority.
How long does it pay?
Through the period of restoration: the time it should reasonably take to repair or replace the damaged property, starting 72 hours after the loss on CP 00 30. Extended business income then adds a set number of days after you reopen, and a BOP pays business income only within 12 consecutive months after the damage.
What is the 72-hour waiting period?
A deductible measured in time. Business income coverage on CP 00 30 and BP 00 03 starts 72 hours after the damage, so a one-day outage produces no business income payment. Extra expense starts immediately.
How do I know what limit to buy?
Fill out the Business Income Report/Work Sheet with last year’s figures and a 12-month estimate. It is what activates the agreed value option that suspends coinsurance, and the same numbers, set against your rebuild estimate, show whether a BOP’s 12-month actual-loss-sustained coverage would carry you through.
Sources
- ISO CP 00 30 06 07, Business Income (And Extra Expense) Coverage Form (copy hosted by the Independent Insurance Agents & Brokers of America)
- ISO BP 00 03 01 06, Businessowners Coverage Form (Quincy Mutual public form library)
- New Jersey Department of Banking and Insurance: one-page summary of commercial property / business income (business interruption) coverage
- IRMI glossary: dependent properties time element coverage
- IRMI glossary: utility service interruption coverage
- IRMI expert commentary: Coronavirus (COVID-19) business income losses, including the CP 01 40 virus or bacteria exclusion
- Supreme Court of Ohio, Neuro-Communication Services, Inc. v. Cincinnati Ins. Co., 2022-Ohio-4379 (Dec. 12, 2022)
- Washington Supreme Court, Hill and Stout, PLLC v. Mutual of Enumclaw Ins. Co., No. 100211-4 (Aug. 25, 2022)
- New Jersey Supreme Court, AC Ocean Walk, LLC v. American Guarantee & Liability Ins. Co., A-28-22 (Jan. 24, 2024)
General information about business income (business interruption) coverage as of October 2026, not legal or tax advice; your policy’s forms, endorsements and declarations control, and how courts read “direct physical loss” varies by state. Coverage depends on underwriting and the terms, conditions and exclusions of the policy actually issued.