Business Interruption Insurance: What It Is and Why You Should Have It

Many co-op boards don't realize that there is controversy about whether they can collect maintenance during this time, says James Samson, a partner with the law firm Samson Fink & Dubow.

“An abatement applies where there is a flood or another casualty that makes the building uninhabitable," he says, "yet there are many expenses that continue to accrue that someone has to pay for and insurance doesn’t cover." (This is open to debate, however, as some courts have ruled that, even when the property is uninhabitable, maintenance must be paid. The statutory definition of uninhabitable includes the absence of a working kitchen or bathroom.)

Don't Step in the Loophole

Why one building may be able to tap its insurance policy for this cost and another may not is really down to each individual situation and policy. Although many policies cover unpaid maintenance fees, which is considered business income, the terms can be tricky. If residents are displaced because of a fire, for instance, the loss of income would be covered if the policy covered fire. But if the residents were displaced because of flooding and the policy does not cover flooding, then the building would not be able to recoup the lost income.

This is especially problematic for buildings located in the flood insurance zone, since they are required to have National Flood Insurance Program (NFIP) insurance, which does not offer business interruption coverage in its policies.

In the case of Sandy, many residents were displaced because of power outages. However, a power outage would be covered only if the building itself suffered covered damage. If the power went out because of a citywide problem — say, a Con Edison transformer blew out — the loss would not be covered.

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