Last Updated: 6/25/2026

Business interruption (BI) insurance, also called business income insurance, helps small businesses protect against monetary losses due to periods of suspended operations when a covered event, such as a fire, occurs and causes physical property damage.  The coverage allows businesses to pay fixed expenses, including costs incurred while operating at an offsite location, while the property is closed for repairs and restoration.  Policies also reimburse owners for lost revenue that would have otherwise been earned if the business remained open. Business interruption policies are typically bundled within a larger businessowner’s policy (BOP) that includes business property and liability coverages.  Companies with 100 or fewer employees with revenues of up to $5 million or less are eligible for these plans It is estimated that between 30-40%  of small business owners carry business interruption insurance.

According to the Federal Emergency Management Agency (FEMA), about 25 percent of businesses fail to reopen after a disaster strikes.  One component of adequate disaster preparedness for small businesses includes purchasing a business owner’s insurance policy, or BOP.  A BOP is the most commonly purchased policy by small businesses and includes general liability, commercial property/business property coverage, and business interruption insurance.  

• General liability: Also known as business liability insurance, this coverage protects the business from liability claims alleging bodily injury, property damage, libel, and slander.  If someone gets hurts on the business property, general liability helps pay for medical expenses.  It also pays legal fees if someone files a lawsuit against the business.
• Commercial property: Also known as business property insurance, this coverage protects the business’s location and physical property, such as equipment, inventory, and furniture.  Commercial property insurance can help with repair or replacement costs if a covered peril such as fire or lightening results in physical structural damages to a building or items inside the building, such as office equipment.  Property that has been damaged due to riots, civil commotion, and vandalism is also usually included. Commercial property insurance works in tandem with business interruption coverage.
• Business interruption: While commercial property pays for actual physical damages or losses, BI covers lost net income due to the closure of the business while repairs are underway.  These policies may cover rent or lease payments, relocation costs, employee wages, taxes, and loan payments.  Business interruption does not typically cover damages or losses from flooding, earthquakes, and mudslides, although consumers can purchase additional coverages for these specific perils.  Exclusions from coverage include losses unrelated to property damage, such as lost revenues due to viral outbreaks or pandemics.

Civil authority coverage:  Business interruption policies may contain a clause for civil authority coverage.  If a state, local, or federal government entity prohibits access to the business premises, and thereby forces businesses to temporarily close, BI insurance may cover lost income through a civil authority clause.  The civil authority provision in a standard BI policy form issued by the Insurance Services Office (ISO) stipulates certain provisions be met to trigger coverage:

• Access to the premises must be completely prohibited; and
• physical damages must be present near the insured property; and
• damages must be caused by a peril covered under the property policy.

Civil authority coverage usually applies in the wake of natural disaster events where physical damages have occurred within a specific proximity to the insured’s business, even if the business itself is not damaged.  For example, a tornado strikes an area of town causing structural damage to buildings and authorities cordon off the area, restricting ingress and egress to property.  As a result, a businessowner in that area cannot access his property and must temporarily close his business.  Civil authority in this instance may be triggered since physical damages were sustained to properties within the surrounding area of the insured business, access to the business owner’s property was restricted because of a city mandate, and the peril causing the damages (a tornado) was covered in the policy.  As each policy is unique and wording may differ, policyholders should consult the specifics in their contract.

Additionally, there are two more types of business interruption insurance policies: contingent business interruption and extended business interruption. These are optional coverages that are available as riders to a standard business interruption policy.

• Contingent business interruption (CBI):   Contingent business interruption insurance policies protect against losses from supply chain disruptions, but may require the occurrence of property damage to trigger coverage.  When supply chain disruptions or closures occur with suppliers, vendors, or other companies a business relies on, a business may be eligible for payouts with CBI.   For example, a print media publisher that relies on a single print company that goes out of business would utilize CBI to recover lost business revenues due to the print company’s closure.  These policies provide businesses with cash to help cover payroll, rent, and other expenses to keep the business open.   Like business interruption insurance, payouts on CBI claims are typically related to physical damage or other commercial property claims. 
• Extended business interruption (EBI): This policy covers the intermediary period between when a business property is repaired, but before its income returns to pre-loss levels.

The cost of business interruption insurance depends on a variety of factors, including the type of industry, the number of employees, and the amount of coverage needed.  A business’s physical location may also factor into the total cost.  For example, if the business is in a high-risk area that is prone to wildfires or hurricanes the premiums may be higher than for those businesses located in lower-risk locations.

Pandemics & Business Interruption

Insurers started excluding viral and bacterial infections from their BI policies after the SARS (Severe Acute Respiratory Syndrome) outbreak in 2003 caused massive losses to insurers, including a $16 million BI payout to Mandarin Oriental, a hotel chain in Asia. In 2006 the Insurance Services Office (ISO) developed an exclusion for losses due to virus or bacteria.  Since then, many insurers have edited their policy language to specifically exclude bacterial and viral outbreaks. 

It is important to make the distinction that not all BI policies are “one size fits all” and in some instances, coverage due to viral outbreaks may vary depending on the policy.  For example, an all-risk policy does not distinguish between losses due to forced government closures (civil authority) or physical loss since all-risk policies cover all perils except those that are specifically excluded.  Additionally, other coverages may have exclusions for losses resulting from mold, fungi, or bacteria; however, since COVID-19 is a virus, that exclusion may not apply.  The policy language is critical to understanding what is included and excluded from coverage.  If there is a specific exclusion for virus-related losses outlined in the policy, it could be more difficult for businesses to successfully appeal a denial for coverage. Consumers should consult their insurer or agent to learn the specifics of their policy.

According to the Allianz Risk Barometer, business interruption insurance (34%) was one of the top three global business risks in 2024 , along with cyber incidents (31%) and natural catastrophes (26%). Larger corporations usually have more tailored policies that do not always include specific virus-specific exclusions that smaller business commonly incorporate into their contracts. 

On March 25, 2020 the NAIC released a statement on Congressional actions related to COVID-19 and the insurance industry.  In the statement, the NAIC opposed proposed legislation that would require insurance companies to retroactively pay for claims arising out of the COVID-19 pandemic losses that were not covered under the original policy, arguing that such actions could create a substantial solvency risk and undermine the ability of insurers to pay other types of claims.  Further, the NAIC noted that insurance is not the ideal product to cover pandemic losses, due to the widespread nature of disease and the substantial number of policyholders affected simultaneously.  Instead, the NAIC recommended direct federal intervention to address economic disruption related to the current COVID-19 pandemic and offered to work with Congress on potential solutions.

 In May 2020, state insurance regulators, through the NAIC, developed and issued a data call to gather business‑interruption information, including market size and COVID‑19 exclusions. An October 2020, NAIC report showed insurers received 201,285 COVID‑19 business‑interruption claims, of which 164,178 were closed without payment, 34,106 remained open, and only 3,001 were paid.

The Center for Insurance Policy & Research (CIPR) hosted a special event about business interruption and pandemics at the NAIC's Fall Virtual National Meeting on Dec. 8, 2020.  Titled Pandemic Business Interruption Federal Insurance Mechanism - Learning from the Past, Thinking About the Future, the event featured industry, government, and academic speakers. 

The C Committee is also charged with monitoring emerging developments in business interruption and businessowners policies (BI/BOP), evaluating their impact on state insurance markets, and identifying regulatory issues that may require further review.