The exact coverage provided by a policy depends on its terms, but business interruption insurance commonly addresses several categories of financial loss.
1. Lost Business Income
One of the primary purposes of business interruption insurance is to replace income your business would have earned if a covered interruption had not occurred.
For example, imagine a biotech company experiences a fire that makes its laboratory unusable. The company cannot conduct research or perform certain contracted services while repairs are underway.
If the loss is covered, business interruption insurance may help compensate the company for eligible income it would otherwise have generated during the interruption.
This can provide critical cash flow while the business works to resume normal operations.
2. Continuing Operating Expenses
Some business expenses continue even when operations temporarily stop.
Business interruption insurance may help cover eligible ongoing expenses such as:
- Rent
- Mortgage payments
- Utilities
- Loan payments
- Taxes
- Insurance premiums
- Other necessary operating expenses
These expenses can quickly add up during a prolonged shutdown.
3. Employee Payroll
Your employees still need to be paid even if your facility is temporarily closed.
Depending on the policy, business interruption insurance may help cover payroll and employee-related expenses during a covered interruption.
For biotech and life sciences companies, retaining specialized employees can be particularly important. Scientists, researchers, engineers and laboratory professionals may have specialized knowledge that is difficult to replace.
Payroll coverage can help organizations maintain their workforce while facilities and operations are being restored.
4. Extra Expenses
Getting back to normal may require spending money beyond your company’s ordinary operating expenses.
Business interruption insurance may provide extra expense coverage for reasonable costs incurred to minimize or avoid an interruption.
For example, a company might need to:
- Rent temporary laboratory space
- Lease replacement equipment
- Move certain operations to another facility
- Pay expedited shipping costs
- Operate from a temporary location
- Use alternative services or equipment
The additional expense may allow the company to resume some operations sooner and reduce the overall financial impact of the interruption.
5. Temporary Relocation Costs
If your primary facility becomes unusable because of a covered loss, you may need to temporarily relocate employees or operations.
For a life sciences company, this could mean moving research, administrative or manufacturing activities to another qualified facility.
Depending on the policy, business interruption coverage may help pay certain additional costs associated with temporarily relocating operations.
6. Certain Fixed Expenses
Some expenses continue regardless of whether your company is generating revenue.
Depending on the policy, business interruption coverage may help pay eligible fixed expenses such as:
- Rent
- Property taxes
- Loan payments
- Utilities
- Employee compensation
- Other continuing expenses
The goal is to help the company remain financially viable while recovering from a covered interruption.
What Does Business Interruption Insurance Cover for Biotech Companies?
Biotech and life sciences organizations can face particularly complex business interruption exposures.
A laboratory, pharmaceutical manufacturer, medical device company or contract research organization may depend on specialized facilities, equipment, personnel and carefully coordinated processes.
A covered interruption could result in:
- Delayed research milestones
- Interrupted manufacturing
- Clinical trial delays
- Missed customer deadlines
- Lost revenue
- Additional laboratory expenses
- Temporary facility costs
- Disrupted supply chains
Business interruption insurance can help address the financial consequences of these disruptions when they result from a covered loss.
However, biotech companies should not assume a standard business interruption policy addresses every type of operational interruption they could experience.
Does Business Interruption Insurance Cover Equipment Failure?
It depends on the cause of the equipment failure and the policy.
A standard business interruption policy generally responds when a covered cause of loss results in property damage that interrupts operations.
For example, if covered damage makes critical laboratory equipment unusable, the resulting business interruption may qualify for coverage.
However, mechanical or electrical breakdown may require equipment breakdown insurance.
This distinction can be particularly important for life sciences organizations that depend on specialized and expensive equipment.
Does Business Interruption Insurance Cover Cyberattacks?
Generally, traditional business interruption insurance is not designed to cover losses caused solely by a cyberattack.
For example, a ransomware attack could prevent employees from accessing:
- Research data
- Manufacturing systems
- Customer information
- Laboratory systems
- Business applications
- Cloud-based platforms
The resulting revenue loss may require cyber insurance rather than traditional business interruption coverage.
Cyber liability insurance may include coverage for cyber-related business interruption, depending on the policy.
For biotech and life sciences organizations that rely on technology and sensitive data, coordinating property, business interruption and cyber coverage is an important part of risk management.
Does Business Interruption Insurance Cover Supply Chain Disruptions?
Standard business interruption coverage may not automatically cover losses resulting from a supplier or other third party being unable to operate.
However, contingent business interruption coverage may help protect against certain losses when a covered event affects a key supplier, customer or other dependent business.
This can be especially relevant for life sciences companies that rely on specialized suppliers for:
- Laboratory materials
- Raw materials
- Manufacturing components
- Specialized equipment
- Packaging
- Distribution
Whether a particular supply chain interruption is covered depends on the policy language and circumstances surrounding the loss.
What Does Business Interruption Insurance Not Cover?
Knowing what isn’t covered is just as important as understanding what is.
Business interruption insurance commonly does not cover losses arising from exclusions in the underlying property policy.
Depending on the policy, exclusions may include:
- Flood
- Earthquake
- Wear and tear
- Mechanical breakdown
- Certain utility failures
- Cyber incidents
- Government actions
- Communicable disease
- Other specifically excluded causes of loss
Some of these risks may be addressed through separate policies or endorsements.
For example, a business may need flood insurance for flood-related losses, equipment breakdown coverage for certain equipment failures and cyber insurance for cyber-related business interruption.
How Long Does Business Interruption Insurance Cover You?
Business interruption insurance generally applies during a defined period of restoration.
This is the period required to repair or replace damaged property and resume normal business operations, subject to the policy’s terms and limits.
For some businesses, restoration may take weeks. For biotech and life sciences organizations, however, replacing specialized equipment, rebuilding laboratory environments or obtaining regulatory approvals may take considerably longer.
When determining how much coverage you need, consider how long it could realistically take your organization to return to normal operations—not simply how long it would take to repair the physical building.
Does Business Interruption Insurance Cover Lost Profits?
Business interruption insurance may cover eligible lost income resulting from a covered interruption, but it is not necessarily a simple reimbursement of every dollar of profit a company would have earned.
The calculation of a covered business income loss can depend on factors such as:
- Historical financial performance
- Expected revenue
- Continuing expenses
- Projected growth
- The length of the interruption
- The nature of the loss
- Policy limits and terms
Accurate financial records can help support the calculation and documentation of a business interruption claim.
Business Interruption Insurance vs. Business Income Insurance
You may hear the terms business interruption insurance and business income insurance used interchangeably.
In many commercial insurance contexts, business income coverage is the formal terminology used for coverage that protects against income loss resulting from a covered interruption.
The terminology can vary by insurer and policy, so businesses should focus on the actual coverage provisions, limits, exclusions and endorsements rather than the name alone.
How Much Business Interruption Coverage Does a Business Need?
There isn’t one coverage limit that works for every organization.
When determining an appropriate limit, consider:
Revenue
How much income could your company lose during an extended interruption?
Operating Expenses
Which expenses would continue even if your operations stopped?
Restoration Time
How long could it realistically take to repair facilities, replace specialized equipment and resume operations?
Supply Chain Dependencies
Would your company remain vulnerable if a key supplier or customer experienced a covered loss?
Growth
Could your revenue be significantly higher during the policy period than it has been historically?
Specialized Operations
Would restoring a laboratory, manufacturing facility or regulated production environment take longer than restoring a typical commercial space?
Working with an insurance professional can help you evaluate these factors and determine whether your current limits reflect your actual exposure.
How Can Biotech & Life Sciences Companies Prepare for Business Interruption?
Insurance is only one component of business continuity planning.
Organizations can also reduce the potential impact of downtime by:
- Identifying critical business operations
- Maintaining backup systems and data
- Establishing alternative suppliers
- Documenting financial records
- Creating emergency response procedures
- Identifying temporary operating locations
- Testing business continuity plans
- Reviewing insurance coverage regularly
A comprehensive approach can help your organization respond more effectively when an unexpected disruption occurs.
Frequently Asked Questions About Business Interruption Insurance
What does business interruption insurance cover?
Business interruption insurance generally helps replace lost business income and cover certain continuing expenses when a covered event causes an interruption to normal operations. Depending on the policy, it may also cover extra expenses, payroll and certain temporary relocation costs.
Does business interruption insurance cover payroll?
Many business interruption policies can cover eligible payroll expenses during a covered interruption. The specific amount and duration of payroll coverage depend on the policy.
Does business interruption insurance cover rent?
Business interruption insurance may cover continuing rent or other fixed expenses when a covered loss interrupts business operations, subject to the policy’s terms and limits.
Does business interruption insurance cover lost revenue?
Yes. Replacing eligible lost business income is one of the primary purposes of business interruption coverage. The amount of a covered loss is determined according to the policy’s provisions.
Does business interruption insurance cover natural disasters?
It depends on the specific disaster and policy. Business interruption coverage generally follows the causes of loss covered by the underlying property policy. Floods and earthquakes, for example, often require separate coverage.
Does business interruption insurance cover COVID-19 or other pandemics?
Coverage for communicable diseases and pandemics can be subject to specific policy language and exclusions. Businesses should review their individual policies rather than assume that pandemic-related interruptions are covered.
Protect Your Business From the Financial Impact of an Interruption
Knowing what business interruption insurance covers is an important first step toward protecting your organization from the financial consequences of unexpected downtime.
For biotech and life sciences companies, the right coverage can help maintain cash flow, retain employees and pay ongoing expenses while operations recover from a covered loss.
But business interruption insurance is only one part of a comprehensive insurance program. Property damage, equipment failure, cyberattacks and supply chain disruptions can create different types of exposure that may require additional coverage.
Moody Insurance helps biotech and life sciences organizations evaluate these risks and develop insurance programs designed around their operations. Contact Moody Insurance to review your current business interruption insurance coverage and identify potential gaps before an interruption occurs.
