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Business interruption insurance and the loss of online data

On Behalf of | Mar 8, 2023 | Business Disputes, Insurance Disputes, Intellectual Property Disputes

Insurance is meant to help us out financially when we suffer financial losses through no fault of our own. Just like you might purchase automobile insurance to cover your financial losses if you are in a car crash, business owners purchase various insurance policies, including business interruption insurance to cover lost earnings.

What does business interruption insurance cover?

Business interruption insurance is a type of first-party property insurance. It covers lost profits that the policyholder would have earned had their business operations not been interrupted.

This interruption usually must be caused by an event that led to actual physical damages, such as a loss of the brick-and-mortar building, physical files or other physical property that led to either the loss of income or the incurrence of expenses as a result of the event.

Some common events that might be covered by a business interruption policy include:

  • Fire
  • Power failure
  • Tornados or earthquakes
  • Floods
  • Civil commotions

However, what exactly is covered depends on the details of each individual policy. As more businesses these days are moving part or all of their operations online, the issue of coverage for data breaches arises.

Data breach losses

One specific event that businesses may suffer these days that could lead to a loss of income is a breach of electronic data. This is especially true for businesses that operate solely online. But such losses can be incurred by any business that stores valuable information online that is necessary to the profitability of their enterprise.

Some business interruption insurers will cover the loss of data due to a security breach even if such losses are not explicitly found in the policy. But other business interruption insurers will not deem such a loss to be a physical damage and will not cover it.

While business interruption insurance coverage might be triggered by physical events that cover physical losses, the loss of electronic data due to a security breach may or may not be covered. This is unfortunate for the many companies that depend on electronic data for the continual operation and profitability of their business.

However, businesses may be able to purchase specific policies that include coverage for the intangible loss of income. These days, cyber insurance policies may be available to businesses that store valuable data online or that operate their business online rather than in a brick-and-mortar location.