Washington Business Interruption Insurance

Business interruption insurance reimburses a firm for lost income and certain continuing expenses when operations are suspended because of a covered peril. It is usually bundled into a commercial property or business owners policy (BOP), but can be purchased on a stand-alone basis. Unlike property insurance, which pays to repair physical damage, BI coverage focuses on the income statement: it compensates for gross profits that would have been earned had the loss not occurred.

The Insurance Information Institute estimates that roughly 35 percent of small firms in the United States add BI to their policies, yet claim severity continues to grow. In Washington State alone, carriers paid out more than $210 million in business interruption claims between 2017 and 2022, a figure driven by wildfire seasons, urban vandalism after civil unrest, and extreme winter storms. The increasing frequency and severity of such events highlight the importance of understanding and investing in adequate coverage, as businesses face an unpredictable landscape of risks that can disrupt operations in an instant.

Moreover, the COVID-19 pandemic has underscored the critical role of business interruption insurance, as many companies faced unprecedented shutdowns and revenue losses. The pandemic prompted a reevaluation of coverage terms and conditions, with many businesses discovering the limitations of their policies when they sought claims for losses due to government-mandated closures. This has led to a growing conversation about the need for clearer definitions and more comprehensive coverage options to protect against future disruptions, as well as the importance of proactive risk management strategies.

Key Definitions

• Period of restoration – The span beginning when the qualifying event occurs and ending when the damaged property could reasonably be repaired or replaced.

• Actual loss sustained – The measurable reduction in net income plus normal operating expenses that continue during the shutdown.

• Ordinary payroll – Wages that can be excluded after a designated time to reduce premiums, though many Washington employers choose to keep paying staff to maintain talent during closures.

Understanding these key terms is crucial for business owners as they navigate the complexities of their insurance policies. For instance, the period of restoration can significantly impact the total claim amount, as it dictates how long the business can claim losses. Additionally, the actual loss sustained calculation requires meticulous record-keeping and documentation to substantiate claims, emphasizing the need for businesses to maintain accurate financial records. As businesses increasingly recognize the value of business interruption insurance, they must also engage with their insurance providers to ensure they fully understand their coverage, exclusions, and the claims process to avoid potential pitfalls during a crisis.

Washington’s economy is powered by diverse sectors—technology, aerospace, agriculture, hospitality and shipping. Each faces distinct interruption risks. The state’s maritime climate and rugged terrain create a collage of perils: windstorms rolling off the Pacific, Cascade Range wildfires, flooding along the Columbia River Basin and the looming threat of a magnitude-9.0 Cascadia subduction-zone earthquake. According to the Washington Emergency Management Division, a major quake could shutter up to 60 percent of commercial buildings in Seattle and Tacoma for weeks.

Beyond natural hazards, Washington businesses must also contend with supply-chain dependencies. The Port of Seattle handled more than 3.5 million twenty-foot equivalent units (TEUs) of cargo last year. A port shutdown—caused by strike or crane collapse—cascades through manufacturing and retail. BI insurance addresses the ripple effect by covering lost income not only at the damaged premises but, if contingent coverage is added, at dependent properties as well.

Regional Economic Impact

The Washington State Department of Commerce reported that 1 out of every 8 jobs resides in small businesses employing fewer than 50 workers. These enterprises typically hold cash reserves for only 27 days of expenses. A two-week closure from wildfire smoke infiltration can therefore erase an entire year’s profit. BI insurance acts as a financial lifeline, preserving payroll and rent payments until doors reopen.

All business interruption forms share common building blocks, yet endorsements allow customization. Understanding each component helps policyholders avoid unpleasant surprises at claim time.

Coverage Triggers

Most policies require direct physical loss or damage to insured property by a covered cause, such as fire or wind. Washington companies seeking broader protection may add civil authority coverage (when government prohibits access), dependent property coverage (loss at a supplier or customer site) or utility service interruption extensions (downed electrical or water lines).

Covered Expenses and Recoveries

• Net income the business would have earned.

• Operating expenses that must continue (rent, loan payments, certain taxes).

• Extra expense—costs incurred to reduce downtime, like renting temporary space.

• Training costs to bring staff up to speed on new equipment after a rebuild.

• Loss of research and development value for technology firms, sometimes under a “finish-out” rider.

Exclusions and Sublimits

Losses stemming from flood or earthquake are typically excluded unless specifically endorsed. Washington’s volcanic risk (Mount St. Helens, Mount Rainier) can fall into an “earth movement” exclusion. Communicable disease shutdowns remain mostly excluded after insurers re-wrote pandemic language in 2021. Sublimits are common for service-interruption and contingent-BI endorsements; knowing those caps is essential for risk managers.

Statistics from the Northwest Insurance Council reveal that fire (38 percent), windstorm (24 percent) and burst pipes from freeze events (13 percent) were the primary causes of BI claims in Washington in the last five years. Each trigger interacts differently with policy language.

Natural Catastrophes

A windstorm that shears off part of a warehouse roof clearly meets the physical-damage test, so BI benefits flow once operations cease. But smoke infiltration from a distant wildfire can be contentious. Insurers often argue that ash alone is not “direct physical damage.” Some Washington courts have sided with policyholders when microscopic particles required professional cleaning, effectively altering building surfaces.

Civil Authority Orders

During the 2020 Seattle protest events, several downtown restaurants closed when police cordoned off streets. Civil authority coverage kicked in for those that had the endorsement, paying for lost income up to three weeks. Others without the endorsement discovered their property policy alone was not enough, underscoring the importance of tailoring coverage.

Pandemic-Related Shutdowns

COVID-19 lockdown litigation underscored gaps in BI protection. Washington’s Supreme Court ruled in Hill and Stout v. Mutual of Enumclaw (2021) that virus particles did not constitute direct physical loss. Since then, carriers have introduced explicit virus exclusions. Businesses should therefore explore parametric insurance or revenue protection riders if concerned about future pandemics.

Setting the right BI limit requires a blend of forensic accounting, market benchmarking and realistic scenario modeling. Underinsurance can doom a business when an event lasts longer than expected, while overinsurance wastes premium dollars.

Estimating Lost Income

Start with historical gross revenue and adjust for growth projections, seasonality and one-off contracts. Many Washington wineries, for instance, earn 45 percent of annual revenue during the late-summer tourist season. A wildfire evacuation in August could have an outsized impact compared to a January disruption.

Identifying Fixed vs. Variable Costs

Fixed costs like lease payments, property taxes and executive salaries will continue during closure. Variable costs (raw materials, hourly labor) generally decline with production. Accounting software can separate the two, yielding a more accurate “gross earnings” figure on which to base the limit.

Determining the Maximum Indemnity Period

The period of restoration rarely lines up with mere physical rebuilding. Permitting, inspections and supply-chain delays extend timelines. Post-pandemic construction backlogs in King and Pierce Counties average 34 weeks for commercial projects. Many risk advisers recommend at least 12 months of BI coverage, with 18 to 24 months for specialized manufacturers awaiting custom machinery.

Filing a BI claim involves meticulous documentation and cooperation with adjusters. Washington’s Insurance Fair Conduct Act (IFCA) and Consumer Protection Act impose strict timelines on carriers, but policyholders must still assemble solid evidence.

1. Immediate Notification

Contact the insurer within 24 hours of discovering a loss. Provide the policy number, description of the event and initial estimate of downtime. Failure to give prompt notice can compromise coverage.

2. Mitigation Efforts

The policy requires reasonable steps to prevent further loss. Renting fans to dry a flooded storage room or relocating staff to a co-working space can fall under extra expense coverage, but insurers will scrutinize costs. Keep invoices and photographs.

3. Financial Documentation

Gather income statements, tax returns, payroll records and forward contracts. Insurers often request three years of historical data to validate projected income. Cloud-based backups prove invaluable when on-site servers are damaged.

4. Adjuster Meetings and Proof of Loss

The adjuster will tour the premises, interview managers and may bring a forensic accountant. Washington regulations give carriers 15 working days to acknowledge a claim and 30 days to accept or deny it once proof of loss is submitted, barring extenuating circumstances.

5. Advance Payments and Final Settlement



For significant losses, insurers can issue advance payments to maintain cash flow. Final settlement occurs once operations resume or the indemnity period expires. Disputes over projected revenue often proceed to appraisal or, if necessary, litigation in state court.

Insurance is regulated at both federal and state levels. The Washington Office of the Insurance Commissioner (OIC) enforces consumer protections, approves policy forms and investigates unfair claims practices.

COVID-19 Legislative Proposals

In 2021 and 2022, several bills proposed mandating pandemic coverage retroactively. None passed, but the debate spurred the OIC to encourage clearer policy language. Carriers must now file any virus exclusions separately for review, ensuring transparency.

Earthquake Risk Assessments

Following the release of the 2021 USGS National Seismic Hazard Model, the OIC asked insurers to simulate the financial impact of a 7.1 Puget Sound event. While no new rules were imposed, many carriers tightened underwriting, requiring risk mitigation plans (bolted shelving, backup power) for BI endorsements in high-risk zones.

Consumer Complaint Trends

According to the OIC’s 2023 annual report, claims-handling complaints involving BI increased 18 percent year-over-year, largely due to disagreement about extent of physical damage. The Commissioner’s office resolved 72 percent in favor of consumers, leading to $9.4 million in additional claim payments.

Case studies illuminate policy nuances better than abstract definitions. The following separate events illustrate how BI insurance played out—or failed to—across the state.

Yakima Apple-Packing Plant Fire

In October 2022, an electrical fire destroyed the sorting area of a mid-size fruit packing facility. The company carried a $5 million BI limit with a 24-month indemnity period. Because harvest season was peaking, downtime threatened relationships with global grocers. The insurer paid extra expense to rent mobile grading equipment and reimburse refrigerated truck idling fees, allowing limited operations within two weeks. Full repairs took seven months, and the policy covered $3.7 million in lost income plus $820,000 in extra expenses.

Spokane Tech Startup Flood

An unexpected pipe burst on the top floor of a downtown Spokane incubator soaked servers and prototype hardware. The startup’s inexpensive BOP included only three months of BI. Supply-chain delays meant replacement components took 19 weeks to arrive; funding evaporated at week 15. The company laid off half its engineering team and ultimately merged with a competitor. Had the founders opted for a 12-month indemnity period, the brand likely would have survived intact.

Seattle Restaurant vs. Civil Authority

During the 2020 Capitol Hill Autonomous Zone, a farm-to-table bistro inside the perimeter saw foot traffic drop to zero. Although the dining room sustained no property damage, the city’s emergency order restricted access. Luckily, the owner had purchased civil authority coverage with a 28-day limit. The policy reimbursed $210,000 in lost revenue, keeping staff employed until the neighborhood reopened.

Business interruption insurance is powerful, but it is not a silver bullet. A resilient risk strategy layers multiple protections and operational contingencies.

Complementary Coverages

• Commercial property insurance – Rebuilds the physical structure.

• Equipment breakdown coverage – Responds when boilers or turbines fail without external cause.

• Cyber business interruption – Covers income loss from network outages or ransomware.

• Flood and quake endorsements – Fill critical gaps in standard BI policies.

Business Continuity Planning

A written continuity plan can shorten downtime, thus limiting the claim. Regular data backups, alternate supplier agreements and remote-work protocols helped many Washington firms survive snowstorms in early 2023. Insurance carriers often discount BI premiums when a robust continuity plan is documented.

Self-Insurance and Deductibles



Larger corporations sometimes absorb the first $250,000 of interruption loss through captives or risk-retention groups, lowering premiums. Middle-market enterprises can mimic this by choosing higher deductibles paired with reserves earmarked for emergencies. Financial modeling tools quantify the optimal deductible relative to cash flow volatility.

Is BI insurance mandatory in Washington?

No. The state does not require it, but many landlords and lenders include BI as a contract condition. For example, the Washington State Housing Finance Commission requires BI coverage for commercial bonds exceeding $2 million.

How are BI premiums calculated?

Carriers examine revenue size, industry class, building construction, sprinkler systems, local fire protection and continuity planning. A downtown Bellevue data-center tenant may pay $0.30 per $100 of covered revenue, whereas a sawmill in rural Skagit County could pay three times that rate due to wildfire risk.

Can lost customers be claimed?

Policies cover only the income you would have earned if the loss had not occurred. If a competitor wins permanent market share during your closure, that lost future revenue might not be covered unless the policy has an extended period of indemnity endorsement, which pays for reduced sales after reopening, typically up to 60 or 90 days.

What documentation speeds up claims?

Cloud-stored financials, point-of-sale transaction records, supplier agreements and staff rosters allow adjusters to validate numbers quickly. Many Washington firms now integrate accounting platforms like QuickBooks or NetSuite with secure off-site backups to satisfy this need.

Does BI cover utilities?

Utility service interruption endorsements reimburse lost income and extra expense if electricity, water, gas or telecom outages—occurring away from your premises—halt operations. Snow-laden tree branches routinely topple power lines in the Cascade foothills each winter, making this extension worthwhile.

Washington’s breathtaking scenery, thriving ports and innovative sectors also expose its businesses to a mosaic of interruption risks. Business interruption insurance delivers the cash lifeline needed to survive calamitous events, retain employees and keep promises to customers. Selecting proper limits, understanding exclusions and integrating BI coverage into a broader continuity plan are critical steps for any enterprise—not just large corporations. Armed with the insight provided in this guide, Washington owners and managers can make informed decisions that safeguard both balance sheets and livelihoods.