Construction business owners are no strangers to uncertainty. Weather can disrupt schedules, equipment can break down and project owners’ priorities can seemingly change on a dime. But some events do more than delay a job — they can threaten the financial stability of your entire operation. That’s why, if you haven’t already, you should consider business interruption insurance.

How coverage works

This type of coverage is a bit like disability insurance for your business. A standard health insurance policy covers medical expenses, but many people also choose disability coverage to replace lost income when they can’t work.

Similarly, commercial property insurance generally covers damage to insured buildings and equipment, but it doesn’t necessarily protect against lost income or continuing expenses when business operations are disrupted. Business interruption insurance, also sometimes called business income insurance, can help fill that gap when covered physical property damage forces a work slowdown or stoppage. (Note: In some cases, such coverage is included as an endorsement to a commercial property policy rather than offered as a separate, standalone policy.)

Depending on the terms, a business interruption policy may compensate for lost net income and continuing operating expenses, such as payroll and rent, during the interruption. However, losses associated with project-specific delays may require separate coverage.

Finer points

The scope of business interruption insurance varies significantly from policy to policy. When evaluating coverage, start with how the insurer calculates lost business income — including net income and continuing operating expenses. Pay particular attention to whether payroll costs are covered and whether coverage applies to partial interruptions or only complete shutdowns.

Another important factor is the recovery period. Subject to their terms, policies generally cover the time reasonably needed to repair, rebuild or replace damaged property. Some also offer extended business income coverage for a limited period after operations resume.

Beyond these basics, consider additional protections, such as:

• Contingent business interruption coverage (sometimes called dependent property coverage), which may cover losses resulting from covered property damage at a project owner or supplier’s location,
• Civil authority coverage, which may apply when a government order prohibits access to your premises because of covered damage to nearby property, and
• Extra expense coverage, which may reimburse costs such as renting replacement equipment or operating from a temporary location.

Also, review waiting periods, coverage limits and exclusions for events such as flooding or utility outages. For construction businesses, it’s particularly important to recognize that standard business interruption insurance may not cover losses arising from damage to projects under construction. Builder’s risk insurance with appropriate delay or soft-cost coverage may help address certain job-related financial losses, though these protections often primarily benefit project owners.

Good recordkeeping

To support a business interruption claim, you’ll need accurate, up-to-date financial records. These include financial statements, job-cost reports, work-in-progress schedules, and documentation of continuing and additional expenses. Such records can help establish the income your construction business would have earned had the interruption not occurred.

It’s often advisable to have a forensic accountant or other financial professional assist you in documenting and pursuing your claim. These professionals can also help calculate your losses and substantiate the amounts claimed under the policy. For example, historical performance, existing contracts and industry trends may help substantiate projections of the income your business would have earned during the interruption.

Setbacks vs. stability

No matter how carefully you manage your construction business, you can’t eliminate every risk. The right mix of insurance policies, supported by reliable financial information, can help you weather unexpected setbacks and maintain long-term stability. We’d be happy to work with your insurance advisor to assess your financial exposure to potential business interruptions and decide whether to add or revise current coverage.

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