Business interruption insurance, explained for food and hospitality businesses

In most policies, business interruption only responds when there is direct physical loss or damage from a peril your property policy covers. Typical triggers for a restaurant, café or hotel include:

• A kitchen fire, or smoke damage from a fire next door.
• A burst pipe during a February cold snap that floods the dining room.
• A storm that tears off part of the roof.
• A vehicle that drives into the front of the building.
• A covered equipment failure, if your equipment breakdown coverage includes an income extension.

No physical damage usually means no claim. A slow season, a bad review or a road closure for construction will not trigger the policy.

This is where most owners have questions, so here it is step by step.

1. Start with revenue you would have earned. The insurer looks at your sales history for the same period in past years and your recent trend. A patio restaurant that loses July is measured against past Julys, not against a February average.
2. Subtract costs you no longer have. If you are closed, you are not buying food, paying for card processing on sales or running gas to the fryers. Those saved costs come off.
3. Add back continuing expenses. Rent, loan payments, insurance, key salaries, software subscriptions and other fixed costs that keep running are covered.
4. The result is your loss. In simple terms: the net profit you would have made, plus the fixed costs you still have to pay.

Payroll deserves a closer look. Some policies cover all payroll for the full period, while others cover ordinary payroll for a limited time. Keeping your trained kitchen and front-of-house team is often what makes a fast reopening possible, so we will show you how each option treats payroll.

Example: A family restaurant in Mississauga has a fire in the hood system on a Saturday night. Repairs to the kitchen take seven weeks. Based on the same weeks last year and this year’s trend, the restaurant would have earned a certain net profit and still owes rent, its loan payment and the salaries of its chef and manager. Business interruption pays that combined amount for the seven weeks, minus the waiting period, and the extra expense coverage pays for a rented refrigerated trailer to hold stock that survived. The owner’s broker helps assemble the sales records the adjuster asks for.

The waiting period, sometimes called a deductible period, is the stretch at the start of a closure that the policy does not pay for. It is commonly expressed in hours (for example, 24, 48 or 72 hours). A longer waiting period lowers the premium but leaves more of a short closure on you. Businesses that lose a lot of revenue in a single busy night, like a bar on a Saturday, may prefer a shorter one.

The indemnity period is the maximum length of time the policy will pay. It usually starts on the date of the loss and runs until the business could reasonably be back up and running, capped at the period you chose. Twelve months is a common starting point, but it can be too short. Think about how long it would really take to get permits, rebuild a custom kitchen, source a replacement walk-in and rehire staff in your part of Ontario.

Some policies also offer an extended period of indemnity, which keeps paying for a while after you reopen, because customers do not all come back on day one.

Extra expense coverage pays reasonable costs you incur to avoid or shorten a closure. For food and hospitality businesses that can mean:

• Renting a commissary kitchen so catering orders keep going out.
• Moving to a temporary location or operating from a food truck.
• Overtime and rush shipping to get equipment installed faster.
• Rented refrigeration to save stock.
• Putting hotel guests up at another property to honour bookings.

These costs are often worth it because they reduce the overall income loss.

Civil authority coverage applies when a government authority stops access to your premises because of physical damage nearby, even though your own building is fine. A fire in the building next door or a gas leak down the street that leads police to close the block are typical examples. It usually has a short time limit, often a few weeks, and requires that the order be tied to damage from a covered peril.

Many kitchen closures start with power, water or gas failing because of damage away from your property, such as a transformer fire or an ice storm bringing down lines. Standard business interruption may not respond because the damage is not on your premises. A utility interruption or service interruption extension fills that gap. Pair it with spoilage coverage so the food lost during the outage is also covered.

Situation	Usually covered?
Closure after a kitchen fire	Yes
Closure after a burst pipe floods the dining room	Yes, if water damage is covered
Block closed by police after a fire next door	Often, under civil authority, for a limited time
Power cut from an off-site transformer fire	Only with utility interruption
Closure ordered for a disease outbreak	Usually excluded
Sales drop because of road construction	No
Closure from flood or earthquake	Only if those perils are added to the policy
Losing your liquor licence after a violation	No

Other common exclusions include losses from wear and tear, closures caused by failure to follow health code, and income lost while you choose to renovate.

How much income protection you need, and which extensions matter most, depends on the type of operation. Find your business below for coverage advice written for it.

• Coverage for sit-down restaurants with table service, where a long kitchen rebuild means weeks of lost dinner sales.
• Insurance for quick-service and takeout counters, where volume and delivery revenue drive the loss.
• Coverage built for retail and wholesale bakeries, where daily sales and wholesale orders stop together.
• Insurance for coffee shops and cafés, where a single espresso machine can be the whole business.
• Coverage for mobile kitchens and food trucks, where a damaged truck means lost festival season.
• Insurance for caterers and event kitchens, where a closed kitchen means cancelled bookings.
• Coverage for bars, pubs and taverns, where a closed weekend can mean a big share of monthly sales.
• Insurance for craft breweries and taprooms, where production and taproom income both stop.
• Coverage for wineries and tasting rooms, where seasonal visitor revenue is hard to recover.
• Insurance for hotels, motels and inns, where lost room nights and cancelled events add up quickly.
• Coverage for bed and breakfasts and guest houses, where a handful of rooms is the whole income.

Fill in the short form on this page or call us at (416) 346-6886. One of our brokers reviews your sales and expenses with you and helps you choose a realistic indemnity period and waiting period. We take your application to insurers that suit your business, walk you through how each option treats payroll and extensions, and set up the policy you choose. We stay with you for certificates, changes, renewals and, if it ever happens, the claim.