Business Damages

Business Damages

Your business in Toronto may have an insurance claim for loss of profits if it cannot operate for a significant period of time. This is when you need an expert in damages quantification in Toronto.

As a business owner, you protect yourself against periods of loss by having a business interruption insurance policy.

Business Damages

There are three important terms related to Business Interruption policies and damages quantification in Toronto:

  • Business loss sustained: Business interruption coverage in Toronto covers the damages and loss sustained by your business as a result of direct physical loss or damage to the business property by an event that is not otherwise excluded from the policy.The insurer is only obligated to pay if your business sustained an interruption of business leading to a business income loss and damages. If the insured does sustain a business income loss, the extent of the insurer’s obligation is limited to the dollar amount of loss actually sustained, but not to exceed the applicable policy limit. An expert in damages quantification will consult with you and determine the business earnings that have been lost due to the suspension of operations.
  • Business income: Your business’s insurance carrier is liable for the reduction in net income that results from the suspension of operations of your business due to a physical loss at the premises. Business income in business interruption insurance policies is use usually defined as follows: “Business income includes the net income (net profit or loss before income taxes) that would have been earned or incurred by the insured and the continuing normal operating expenses incurred, including payroll.”
  • Period of restoration: The period of restoration is often defined as the length of time required to rebuild, repair, or replace the damaged or destroyed property. The date of the period of restoration begins when the physical loss or damage occurs and its ending date is when the property should, under reasonable circumstances, be repaired or replaced.Expiration of the policy does not end the period of restoration. As long as the physical loss occurs during the policy period, the business income coverage will provide coverage for the duration of the period of restoration, even if the policy expires before the period of restoration ends.

Extra expense coverage

Business Damages

Your business will require additional necessary expenses during the period of restoration that your business would not have been subjected to if there had been no period of business losses.

When business income loss occurs, a business owner is typically obligated to take reasonable steps to try to mitigate or minimize the loss: Any expenses incurred to reduce the loss are covered as part of the business income loss. These expenses are limited to the point that such expenses reduce the business income claim. In other words, the insurer will not pay any part of the expense that is more than the claim itself.

For example, the insurer will reimburse the insured $100 to reduce the claim by $200; but the insurer will not reimburse the insured $100 if the claim is only reduced by $50. Any additional expenses above this that are incurred to continue the business may be recoverable under an extra expense provision in the insurance policy.
Additionally, the business income endorsement section of property policies can include “extensions of coverage,” wherein the insured’s policy will insure against business income losses resulting from a variety of causes, including the following.

  • Service interruption provides coverage for an insured for direct physical loss, damage, or destruction to electrical, steam, gas, water, sewer, telephone, or any other utility or service including transmission lines and related plants, substations, and equipment of suppliers of such services.Owner or operators of such utilities or services cannot be a named insured under the policy. The loss, damage, or destruction at the location of the utility or service must be the result of a peril(s) similar to the peril(s) covered under the insured’s policy. Note that the policy may impose some limitations, such as:
    • Limitations regarding distances (such as where the actual loss occurs to the utility’s property in relation to the insured’s premises where the business income loss occurs).
    • Exclusion for certain perils such as earthquake.
    • Exclusions for overhead transmission and distribution lines.
  • Contingent business interruption (CBI) coverage is designed to cover an insured’s business income loss resulting from loss, damage, or destruction of property owned by others. This could include suppliers of product to your business, or an adjacent property that has had physical damage that also affected your property.

For example, consider that a supplier or customer of one of the your direct suppliers experiences a loss resulting in an interruption to its operations, which in turn causes a disruption to the your direct supplier or customer. This will result in a business loss for you.